Correction of Administrative Errors; Required Minimum Distributions

Published date07 July 2020
Record Number2020-13683
SectionRules and Regulations
CourtFederal Retirement Thrift Investment Board
Federal Register, Volume 85 Issue 130 (Tuesday, July 7, 2020)
[Federal Register Volume 85, Number 130 (Tuesday, July 7, 2020)]
                [Rules and Regulations]
                [Pages 40569-40571]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-13683]
                ========================================================================
                Rules and Regulations
                 Federal Register
                ________________________________________________________________________
                This section of the FEDERAL REGISTER contains regulatory documents
                having general applicability and legal effect, most of which are keyed
                to and codified in the Code of Federal Regulations, which is published
                under 50 titles pursuant to 44 U.S.C. 1510.
                The Code of Federal Regulations is sold by the Superintendent of Documents.
                ========================================================================
                Federal Register / Vol. 85, No. 130 / Tuesday, July 7, 2020 / Rules
                and Regulations
                [[Page 40569]]
                FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
                5 CFR Parts 1605, 1650 and 1651
                Correction of Administrative Errors; Required Minimum
                Distributions
                AGENCY: Federal Retirement Thrift Investment Board.
                ACTION: Direct final rule.
                -----------------------------------------------------------------------
                SUMMARY: The Federal Retirement Thrift Investment Board (FRTIB) is
                amending its regulations to make a non-substantive change to the
                constructed share price formula for a retired Lifecycle (L) Fund. The
                FRTIB uses a constructed share price to make error corrections
                involving a retired L Fund. In addition, due to a recent change in the
                Internal Revenue Code (Code), the FRTIB is amending its regulations to
                change the age by which TSP participants must begin receiving
                distributions from their TSP accounts from 70\1/2\ to 72.
                DATES: Effective July 7, 2020. The change to the constructed share
                price formula is applicable June 30, 2020, without further action,
                unless adverse comment is received by August 6, 2020. If adverse
                comment is received, FRTIB will publish a timely withdrawal of the rule
                in the Federal Register. As required by the Code, the change to the age
                by which TSP participants must begin receiving distributions from their
                accounts is effective for distributions required to be made after
                December 31, 2019, with respect to individuals who will reach age 70\1/
                2\ after that date.
                ADDRESSES: You may submit comments using one of the following methods:
                 Federal Rulemaking Portal: http://www.regulations.gov.
                Follow the instructions for submitting comments.
                 Mail: Office of General Counsel, Attn: Megan G. Grumbine,
                Federal Retirement Thrift Investment Board, 77 K Street NE, Suite 1000,
                Washington, DC 20002.
                 Facsimile: Comments may be submitted by facsimile at (202)
                942-1676.
                 Since March 23, 2020, the FRTIB has been operating under a
                mandatory telework status due to the coronavirus pandemic which has
                severely limited the ability to timely monitor mail and facsimiles.
                Therefore, we strongly encourage using the Federal Rulemaking Portal to
                submit comments.
                FOR FURTHER INFORMATION CONTACT: Austen Townsend, (202) 864-8647.
                SUPPLEMENTARY INFORMATION: The FRTIB administers the TSP, which was
                established by the Federal Employees' Retirement System Act of 1986
                (FERSA), Public Law 99-335, 100 Stat. 514. The TSP is a tax-deferred
                retirement savings plan for Federal civilian employees and members of
                the uniformed services. The TSP is similar to cash or deferred
                arrangements established for private-sector employees under section
                401(k) of the Internal Revenue Code (26 U.S.C. 401(k)).
                Lifecycle Funds
                 In addition to its five core funds (the G, F, C, S, and I Funds)
                the TSP offers multiple L Funds, each of which is made up entirely of
                the five core funds in different, professionally determined,
                proportions based on a particular time horizon, or target retirement
                date. Each L fund is ``retired'' when it reaches its target date.
                 Currently, the TSP offers L Funds based on a 10-year asset
                allocation. A 10-year L Fund must, by design, be retired on December
                31st of year in which it reaches its target date. For example, the L
                2010 reached its target date in 2010 and was retired on December 31,
                2010.
                 Beginning July 1, 2020, the TSP will instead offer L Funds based on
                a 5-year asset allocation to give TSP participants a more targeted
                window of time to match their intended retirement date with their asset
                allocation. As a result of the shift from 10-year to 5-year L Funds, L
                Funds beginning with the L 2020 fund will be retired on June 30th of
                the year in which they reach their respective retirement dates.
                Correcting Errors Involving Retired L Funds
                 Once an L Fund is retired, TSP participants are no longer able to
                make contributions to that fund. However, the FRTIB is sometimes
                required to calculate lost earnings (i.e., breakage) on errors
                involving these retired L Funds. Breakage is the loss incurred
                (negative earnings) or the gain realized (positive earnings) on late
                and makeup contributions. Similarly, the FRTIB must sometimes process
                the removal of erroneous contributions (i.e., a negative adjustment)
                previously made to a now-retired L Fund. The value of a negative
                adjustment equals the amount of the erroneous contributions plus
                earnings (positive or negative) on that amount.
                 Generally, the FRTIB uses the current share price of the applicable
                investment fund when calculating breakage or the value of a negative
                adjustment. Because a retired L Fund no longer exists, the FRTIB
                instead uses a constructed share price in order to calculate breakage
                or the value of negative adjustments on errors involving these funds.
                 The constructed share price for a retired L Fund is calculated
                using the final posted share price of that L Fund (i.e., the share
                price posted on the date the L Fund was retired). When the constructed
                share price formula was created, all L Funds were based on a 10-year
                asset allocation. Therefore, rather than referring to the L Fund's
                final posted share price, the FRTIB's existing regulations provide that
                the constructed share price for a retired Lifecycle fund is calculated
                using the share price of the L Fund on December 31 of its retirement
                year.
                 To account for the fact that L Funds will no longer be retired on
                December 31st as a result of the shift from 10-year to 5-year L Funds,
                the FRTIB is updating its regulations to remove the references to
                December 31st in the constructed share price formula. Instead,
                consistent with the FRTIB's original intent, the regulations will
                simply refer to the final posted share price. The substance of the
                formula remains unchanged.
                Required Minimum Distributions
                 On December 20, 2019, the President signed into law the Setting
                Every Community Up for Retirement Enhancement (SECURE) Act (Division O
                pg. H.R. 1865-604), as part of the Further Consolidated Appropriations
                Act of 2020 (Pub. L. 116-94). The SECURE Act amended the Code to change
                the age by which TSP participants must begin receiving distributions
                (referred to as required
                [[Page 40570]]
                minimum distributions (RMDs)) from their accounts from 70\1/2\ to 72.
                 The RMD rules under the Code, which apply to both separated TSP
                participants and TSP beneficiary participants,\1\ set forth the date by
                which participants must receive RMDs (i.e., the required beginning
                date). Prior to the passage of the SECURE Act, the Code required
                separated TSP participants to receive RMDs beginning on April 1 of the
                year following the year in which the participant reached age 70\1/2\
                and annually thereafter. TSP beneficiary participants were required to
                receive RMDs beginning on the later of the end of the year following
                the year in which the participant died, or the end of the year in which
                the participant would have reached age 70\1/2\. TSP participants who
                turned 70\1/2\ on or before December 31, 2019 remain subject to these
                pre-SECURE Act required beginning date rules.
                ---------------------------------------------------------------------------
                 \1\ A beneficiary participant is a spouse beneficiary of a
                deceased TSP participant who has a TSP beneficiary participant
                account established in his or her name. In the case of a beneficiary
                participant, the age of the deceased participant is used when
                determining the date by which RMDs must commence.
                ---------------------------------------------------------------------------
                 Participants who had not reached age 70\1/2\ before January 1, 2020
                are subject to the new required beginning date rules. Specifically, the
                Code, as amended by the SECURE Act, requires a separated TSP
                participant to receive RMDs beginning on April 1 of the year following
                the year in which he or she reaches age 72 and is separated from
                service and annually thereafter. TSP beneficiary participants must
                receive RMDs beginning on the later of the end of the year following
                the year in which the participant died, or the end of the year in which
                the participant would have reached age 72.
                 The FRTIB is updating its regulations by removing the references to
                age 70\1/2\ in the definition of ``required beginning date.'' The
                updated regulations will instead define this term by incorporating by
                reference the Code's definition of required beginning date. This
                ensures that FRTIB regulations regarding RMDs will always be consistent
                with the Code's requirements so that future amendments on short notice
                may be avoided.
                Regulatory Flexibility Act
                 I certify that this regulation will not have a significant economic
                impact on a substantial number of small entities. This regulation will
                affect Federal employees and members of the uniformed services who
                participate in the Thrift Savings Plan, which is a Federal defined
                contribution retirement savings plan created under the Federal
                Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335,
                100 Stat. 514, and which is administered by the Agency.
                Paperwork Reduction Act
                 I certify that this regulation does not require additional
                reporting under the criteria of the Paperwork Reduction Act.
                Unfunded Mandates Reform Act of 1995
                 Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602,
                632, 653, 1501-1571, the effects of this regulation on state, local,
                and tribal governments and the private sector have been assessed. This
                regulation will not compel the expenditure in any one year of $100
                million or more by state, local, and tribal governments, in the
                aggregate, or by the private sector. Therefore, a statement under
                section 1532 is not required.
                Submission to Congress and the General Accounting Office
                 Pursuant to 5 U.S.C. 810(a)(1)(A), the Agency submitted a report
                containing this rule and other required information to the U.S. Senate,
                the U.S. House of Representatives, and the Comptroller General of the
                United States before publication of this rule in the Federal Register.
                This rule is not a major rule as defined at 5 U.S.C. 804(2).
                List of Subjects
                5 CFR Part 1605
                 Claims, Government employees, Pensions, Retirement.
                5 CFR Part 1650
                 Alimony, Claims, Government employees, Pensions, Retirement
                5 CFR Part 1651
                 Claims, Government employees, Pensions, Retirement.
                Ravindra Deo,
                Executive Director, Federal Retirement Thrift Investment Board.
                 For the reasons stated in the preamble, the FRTIB amends 5 CFR
                chapter VI as follows:
                PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS
                0
                1. The authority citation for Part 1605 continues to read as follows:
                 Authority: 5 U.S.C. 8351, 8432a, 8432d, 8474(b)(5) and (c)(1).
                Subpart B also issued under section 1043(b) of Public Law 104-106,
                110 Stat. 186 and section 7202(m)(2) of Public Law 101-508, 104
                Stat. 1388.
                0
                2. Amend Sec. 1605.2 by revising paragraph (b)(1)(iii) to read as
                follows:
                Sec. 1605.2 Calculating, posting, and charging breakage on late
                contributions and loan payments.
                * * * * *
                 (b) * * *
                 (1) * * *
                 (iii) Determine the dollar value on the posting date of the number
                of shares the participant would have received had the contributions or
                loan payments been made on time. If the contributions or loan payments
                would have been invested in a Lifecycle fund that is retired on the
                posting date, the constructed share price shall equal the final posted
                share price of the retired Lifecycle fund, multiplied by the current L
                Income Fund share price, divided by the L Income Fund share price on
                the same date that the retired Lifecycle fund posted its final share
                price. The dollar value shall be the number of shares the participant
                would have received had the contributions or loan payments been made on
                time multiplied by the constructed share price.
                * * * * *
                0
                3. Amend Sec. 1605.12 by revising paragraph (c)(2)(ii) to read as
                follows:
                Sec. 1605.12 Removal of erroneous contributions.
                * * * * *
                 (c) * * *
                 (2) * * *
                 (ii) Multiply the price per share on the date the adjustment is
                posted by the number of shares calculated in paragraph (c)(2)(i) of
                this section. If the contribution was erroneously contributed to a
                Lifecycle fund that is retired on the date the adjustment is posted,
                the price per share shall equal the final posted share price of the
                retired Lifecycle fund, multiplied by the current L Income Fund share
                price, divided by the L Income Fund share price on the same date that
                the retired Lifecycle fund posted its final share price.
                * * * * *
                PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS
                PLAN
                0
                4. The authority citation for Part 1650 continues to read as follows:
                 Authority: 5 U.S.C. 8351, 8432d, 8434, 8435, 8474(b)(5) and
                8474(c)(1).
                0
                5. Amend Sec. 1650.1(b) by revising the definition for ``Required
                beginning date'' to read as follows:
                [[Page 40571]]
                Sec. 1650.1 Definitions.
                * * * * *
                 (b) * * *
                 Required beginning date means the required beginning date as
                defined in Internal Revenue Code section 401(a)(9) and the regulations
                and guidance promulgated thereunder.
                * * * * *
                PART 1651--DEATH BENEFITS
                0
                6. The authority citation for Part 1651 continues to read as follows:
                 Authority: 5 U.S.C. 8424(d), 8432d, 8432(j), 8433(e),
                8435(c)(2), 8474(b)(5) and 8474(c)(1).
                0
                7. Amend Sec. 1651.1(b) by revising the definition for ``Required
                beginning date'' to read as follows:
                Sec. 1651.1 Definitions.
                * * * * *
                 (b) * * *
                 Required beginning date means the required beginning date as
                defined in Internal Revenue Code section 401(a)(9) and the regulations
                and guidance promulgated thereunder.
                * * * * *
                [FR Doc. 2020-13683 Filed 7-2-20; 8:45 am]
                BILLING CODE 6760-01-P
                

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT