Simplification of Catch-Up Contribution Process

Published date23 January 2020
Citation85 FR 3857
Record Number2020-00610
SectionProposed rules
CourtFederal Retirement Thrift Investment Board
Federal Register, Volume 85 Issue 15 (Thursday, January 23, 2020)
[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
                [Proposed Rules]
                [Pages 3857-3858]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2020-00610]
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                Proposed Rules
                 Federal Register
                ________________________________________________________________________
                This section of the FEDERAL REGISTER contains notices to the public of
                the proposed issuance of rules and regulations. The purpose of these
                notices is to give interested persons an opportunity to participate in
                the rule making prior to the adoption of the final rules.
                ========================================================================
                Federal Register / Vol. 85 , No. 15 / Thursday, January 23, 2020 /
                Proposed Rules
                [[Page 3857]]
                FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
                5 CFR Parts 1600 and 1605
                Simplification of Catch-Up Contribution Process
                AGENCY: Federal Retirement Thrift Investment Board
                ACTION: Proposed rule.
                -----------------------------------------------------------------------
                SUMMARY: The FRTIB proposes to reduce paperwork burdens on participants
                who are eligible to make catch-up contributions, by removing the
                regulation that requires them to submit two different contribution
                election forms.
                DATES: Comments must be received on or before February 24, 2020.
                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.
                 Hand Delivery/Courier: The address for sending comments by
                hand delivery or courier is the same as that for submitting comments by
                mail.
                 Facsimile: Comments may be submitted by facsimile at (202)
                942-1676.
                 The most helpful comments explain the reason for any recommended
                change and include data, information, and the authority that supports
                the recommended change.
                FOR FURTHER INFORMATION CONTACT: Laurissa Stokes at 202-942-1645.
                SUPPLEMENTARY INFORMATION: The FRTIB administers the Thrift Savings
                Plan (TSP), which was established by the Federal Employees' Retirement
                System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514. The TSP
                provisions of FERSA are codified, as amended, largely at 5 U.S.C. 8351
                and 8401-79. 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)).
                Background
                 A catch-up contribution is a contribution that exceeds a statutory
                limit on the amount of contributions a participant can normally make to
                the TSP in each calendar year. Congress's reason for permitting these
                extra contributions was to allow participants to ``catch up'' for years
                when they were not employed or were otherwise unable to contribute
                toward their retirement. See Federal Thrift Savings Plan Catch-Up
                Contributions Act, Public Law 107-304, H.R. REP. 107-686, 107 Cong. 2d
                Sess. (2002).
                 Normally, a TSP participant's contributions cannot exceed the
                statutory limits set forth in Internal Revenue Code (IRC) section
                402(g) (limiting the amount of traditional and Roth contributions to
                $19,500 for calendar year 2020) and IRC section 415(c) (limiting the
                total amount of traditional, Roth, tax-exempt, matching, and automatic
                1% contributions to the lesser of 100% of the participant's
                compensation or $57,000 for calendar year 2020). Participants who are
                age 50 or older are allowed to make catch-up contributions beyond these
                statutory limits--up to the dollar amount in IRC section 414(v), which
                is $6,500 for calendar year 2020.
                 Currently, participants who wish to make catch-up contributions are
                required to submit an election form called ``TSP-1-C/TSP-U-1-C, Catch-
                up Contribution Election'' (or electronic equivalent) to their
                employing agency. The catch-up contribution election form is separate,
                and in addition to, any other contribution election that a participant
                may already have on file. Upon receipt of a catch-up contribution
                election form, the participant's employing agency begins submitting
                catch-up contributions to the TSP on the participant's behalf, using
                special payroll records designed specifically for catch-up
                contributions. The payroll records that employing agencies use for
                submitting catch-up contributions are separate, and in addition to, the
                payroll records that employing agencies use for submitting other types
                of contributions.
                Proposed Change
                 The FRTIB proposes to simplify the catch-up contribution process,
                by no longer requiring participants to submit separate catch-up
                contribution election forms in addition to their other contribution
                election forms. Instead, the TSP will simply continue to accept
                contributions based on the participant's contribution election that is
                already on file, until his/her contributions reach the combined limits
                on catch-up contributions and other types of contributions. Employing
                agency payroll offices will no longer submit catch-up contributions to
                the TSP on special payroll records designed specifically for catch-up
                contributions. Instead, payroll offices will submit catch-up
                contributions using the same payroll records that they use to submit
                other types of contributions.
                 The TSP recordkeeping system will automatically determine, based on
                the participant's date of birth, whether the participant is eligible to
                make catch-up contributions. When an employing agency payroll office
                submits contributions in excess of the 402(g) limit or the 415(c) limit
                on behalf of a catch-up eligible participant, the TSP recordkeeping
                system will automatically treat the excess contributions as catch-up
                contributions, without requiring any additional paperwork from the
                participant or any special payroll records from the payroll office.
                Proposed Effective Date
                 The proposed effective date for this change is January 1, 2021.
                Section-by-Section Analysis
                Section 1600.23 Catch-Up Contributions
                 The FRTIB proposes to amend 5 CFR Sec. 1600.23 by removing
                paragraph (b), which requires the use of a separate election form for
                catch-up contribution elections.
                 The FRTIB also proposes to remove 5 CFR Sec. 1600.23 paragraph
                (h), which says that catch-up contributions cannot be matched. The
                FRTIB codified 5 CFR Sec. 1600.23 paragraph (h) through an interim
                rule that was published on June 13, 2003. 68 FR 35491. In the preamble
                to the interim rule, the FRTIB cited to FERSA section 8432(c)(2) as the
                [[Page 3858]]
                rationale for why catch-up contributions cannot be matched. FERSA
                section 8432(c)(2) says nothing about catch-up contributions--it simply
                says that matching contributions cannot exceed a dollar-for-dollar
                match on the first 3% of basic pay that a participant contributes plus
                50 cents on the dollar match for the next 2% of basic pay that a
                participant contributes. Removing the restriction on matching catch-up
                contributions will not increase an employing agency's potential outlay
                for matching contributions as the 5% limit described in the preceding
                sentence still applies. FERSA section 8432(c)(2) can justify a
                prohibition on matching catch-up contributions only if we assume that a
                participant will necessarily reach the FERSA section 8432(c)(2) limit
                on matching contributions before, or at the same time as, he/she
                reaches the IRC section 402(g) or 415(c) limit on contributions. To
                whatever extent this assumption was accurate in 2003, it is no longer
                accurate today. Today, it is not uncommon for a participant to reach
                one of the IRC's limits on contributions before he/she reaches FERSA's
                limit on matching contributions.
                Section 1605.13 Back Pay Awards and Other Retroactive Pay Adjustments
                 The FRTIB proposes to amend Sec. 1605.13 by making a technical
                conforming addition to paragraph (c)(2). This paragraph currently says
                that any corrective contributions attributable to prior years must not
                exceed the 402(g) limit or the 415(c) limit applicable to those years.
                The FRTIB proposes to add language making it clear that such
                contributions also cannot exceed the 414(v) catch-up contribution limit
                applicable to prior years.
                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, members of the uniformed services who
                participate in the Thrift Savings Plan, and their beneficiaries. The
                TSP is a Federal defined contribution retirement savings plan created
                by FERSA and is administered by the Agency.
                Paperwork Reduction Act
                 I certify that these regulations do not require additional
                reporting under 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 Sec.
                1532 is not required.
                List of Subjects
                5 CFR Part 1600
                 Taxes, Claims, Government employees, Pensions, Retirement.
                5 CFR Part 1605
                 Claims, Government employees, Pensions, Retirement.
                Ravindra Deo,
                Executive Director, Federal Retirement Thrift Investment Board.
                 For the reasons stated in the preamble, the FRTIB proposes to amend
                5 CFR chapter VI as follows:
                PART 1600--EMPLOYEE CONTRIBUTION ELECTIONS, CONTRIBUTION
                ALLOCATIONS, AND AUTOMATIC ENROLLMENT PROGRAM
                0
                1. The authority citation for part 1600 continues to read as follows:
                 Authority: 5 U.S.C. 8351, 8432(a), 8432(b), 8432(c), 8432(j),
                8432d, 8474(b)(5) and (c)(1), and 8440e.
                0
                2. Amend Sec. 1600.23 by removing and reserving paragraphs (b) and
                (h).
                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 Sec. 7202(m)(2) of Public Law 101-508, 104 Stat.
                1388.
                0
                2. Amend Sec. 1605.13 to read as follows:
                Sec. 1605.13 Back pay awards and other retroactive pay adjustments.
                * * * * *
                 (c) * * *
                 (1) * * *
                 (2) Must not cause the participant to exceed the annual
                contribution limit(s) contained in sections 402(g), 415(c), or 414(v)
                of the I.R.C. (26 U.S.C. 402(g), 415(c), 414(v)) for the year(s) with
                respect to which the contributions are being made, taking into
                consideration the TSP contributions already made in (or with respect
                to) that year; and
                * * * * *
                [FR Doc. 2020-00610 Filed 1-22-20; 8:45 am]
                 BILLING CODE 6760-01-P
                

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