The House of Representatives today passed legislation enhancing a major component of federal employee retirement benefits by bringing the Thrift Savings Plan (TSP) more in line with private sector 401(k) plans. Included in H.R. 208 are three amendments added in the Senate by U.S. Senator Daniel K. Akaka (D-Hawaii), Ranking Member of the Subcommittee on International Security, Proliferation, and Federal Services of the Governmental Affairs Committee.
H.R. 208 passed the House on April 20, 1999, and was considered by the Senate Committee on Governmental Affairs on June 14, 2000. The Senate passed the measure, as amended by Senator Akaka, on July 21, 2000. Because the Senate amended the bill, the House was required to reconsider the amended legislation. The bill now goes to the President, who is expected to sign the measure into law.
"Permitting newly hired federal employees to begin making tax-advantaged contributions to the TSP helps to level the playing field for the federal government in its search for employees," Akaka noted. Under current law, new federal employees generally must wait six months to a year before making investments into the government's tax deferred retirement plan. Senator Akaka's amendment will allow the Thrift Savings Plan to accept any rollover that a qualified trust could accept, including conduit IRAs, rather than a more limited rollover included in the initial House bill. The Akaka amendment makes IRS treatment of the TSP consistent with that provided for rollover contributions under existing 401(k) plans offered by private companies.
Akaka said he had hoped that the legislation could have also included a proposal in the President's fiscal year 2001 budget that would have eliminated not only the current waiting period for employee contributions and permitted agencies to make automatic one percent contributions and matching contributions. Federal employees must still wait up to a year to receive agency contributions to their TSP accounts.
Most importantly, Senator Akaka successfully offered an amendment that eliminated a threat of a veto by providing an alternate funding mechanism for paying for the immediate participation of federal employees in the TSP. The bill, as initially passed by the House, drew a veto threat from the Administration because it would have mandated agencies to provide certain offsets without using salary or benefit accounts to pay for lost tax revenue generated by immediate employee TSP participation.
The Akaka amendment offsets any lost tax revenues by allowing the Office of Personnel Management to recognize court orders to retain funds in the Civil Service Retirement Trust, which otherwise might be withdrawn or paid out in an annuity, during the pendency of a divorce. Currently, payment of a refund of an employee's retirement contributions ends any right to an annuity based on the service covered by the refund. A court order cannot bar payment of a refund except to protect the interest of a former spouse who has been awarded a survivor annuity or a portion of the employee's annuity. For example, until a divorce is final and the property settlement is complete, a court is unable to prevent an individual from withdrawing his or her contributions. The amendment provides courts with a means of delaying payment of a refund while it considers whether to award the prospective former spouse an annuity. It also would protect survivor benefits for former spouses until a final determination could be made by the courts.
