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The Thrift Savings Plan (TSP) is a defined contribution plan
Defined contribution plan
In economics, a defined contribution plan is a type of retirement plan in which the amount of the employer's annual contribution is specified. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money...

 for United States civil service
United States civil service
In the United States, the civil service was established in 1872. The Federal Civil Service is defined as "all appointive positions in the executive, judicial, and legislative branches of the Government of the United States, except positions in the uniformed services." . In the early 19th century,...

 employees and retirees as well as for members of the uniformed services
Uniformed Services
Uniformed services are bodies of people in the employ of a state that are not employed on standard terms of contract, but have some element of additional discipline, and wear a uniform.Typically the uniformed services of a state include:...

.

The TSP is one of three components of the Federal Employees Retirement System
Federal Employees Retirement System
The Federal Employees Retirement System is the current retirement system for employees within the U.S. federal civilian employees...

 (FERS; the others being the FERS annuity and Social Security
Social Security (United States)
In the United States, Social Security refers to the federal Old-Age, Survivors, and Disability Insurance program.The original Social Security Act and the current version of the Act, as amended encompass several social welfare and social insurance programs...

) and is designed to closely resemble the dynamics of private sector 401(k)
401(k)
A 401 is a type of retirement savings account in the United States, which takes its name from subsection of the Internal Revenue Code . A contributor can begin to withdraw funds after reaching the age of 59 1/2 years...

 plans. It is also open to employees covered under the older Civil Service Retirement System
Civil Service Retirement System
The Civil Service Retirement System organized in 1920 and has provided retirement, disability and survivor benefits for most civilian employees in the US federal government. Upon the creation of a new Federal Employees Retirement System in 1987, those newly hired after that date cannot...

 (CSRS).

The TSP is administered by the Federal Retirement Thrift Investment Board
Federal Retirement Thrift Investment Board
The Federal Retirement Thrift Investment Board was established as an independent agency of the United States government by the Federal Employees Retirement System Act of 1986. It is one of the smaller executive branch agencies, with just over 80 employees...

.

Eligibility

FERS employees are eligible to join TSP immediately upon starting work and may join at any time thereafter. Prior to June 22, 2009, new employees had to wait at least one year before receiving matching contributions (including Agency Automatic Contributions); after this date employees were eligible for automatic contributions from day one of employment, and are immediately eligible for matching contributions once the employee begins contributing to the TSP.

CSRS employees and members of the uniformed services may join at any time.

Employee contributions

Both FERS and CSRS employees and members of the uniformed services may contribute up to the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

 limitation, which is $16,500 for 2011. The contribution for FERS and CSRS may be either a specific dollar amount per paycheck or a percentage of income (but the percentage must be a whole percentage; fractional percentages are not allowed), uniformed service members elect a percentage of pay only. (Prior to 2006 the contribution was limited to a specified whole percentage of pay.) Once the contribution is selected it automatically renews each year at the same amount or percentage until the participant elects otherwise. As of August 1, 2010, new employees will be enrolled in the TSP with a 3% deduction from their gross pay being deposited into the G Fund unless they make another choice. Prior to this date, there was no automatic participation.

In addition, participants age 50 or older under FERS and CSRS, or uniformed services may also make "catch-up" contributions up to the Code limitation, which is $5,500 for 2011. The catch-up contributions are tax-deferred and allow age eligible participants to defer up to $22,000 (for 2011) in their TSP account. However, unlike the regular TSP contribution, this election does not automatically renew each year; the employee must specifically make a new election each year.

Uniformed service members are permitted to make contributions from both basic pay as well as from incentive, special, or bonus pay, but are subject to the regular contribution limits. Members of the uniformed services who deploy to designated combat zones are subject to the combat zone tax exclusion, which allows tax-exempt income earned. Contributions to the TSP by uniformed service members in a combat zone are contributed to the TSP as tax-exempt, and accrue tax-deferred earnings. Tax-exempt contributions are not subject to the IRC elective deferral limit, but are combined with tax-deferred contributions made and are subject to the IRC section 415(c) annual additions limit of $49,000 (as of 2011).

Participants who are both civilian federal employees and members of the uniformed services will have two separate TSP accounts if they elect to contribute while in civilian and/or uniformed service status, however the total tax-deferred contributions in both may not exceed the IRC elective deferral or catch-up limits. In addition, the total tax-deferred, tax-exempt, and agency contributions made to both TSP accounts are subject to the IRC Section 415(c) limitation of $49,000 (as of 2011). Catch-up contributions made (to one or both TSP accounts) are in addition to the elective deferral and 415(c) limits. Participants may also rollover
Rollover
A rollover is a type of vehicle accident in which a vehicle tips over onto its side or roof. The most common cause of a rollover is traveling too fast while turning.- Dynamics :Vehicles can roll over in several ways...

 existing 401(k) or Individual Retirement Account
Individual Retirement Account
An individual retirement arrangement is the blanket term for a form of retirement plan that provides tax advantages for retirement savings in the United States...

s into the TSP.

Matching contributions

Employees under CSRS are not eligible for matching contributions.

FERS employees receive an "Agency Automatic Contribution" of one percent of base pay (this includes any locality pay adjustment and/or shift differential but does not include overtime or bonus pay) from the first day of employment, even if the employee does not contribute to the TSP.

Additional matching contributions are made dollar-for-dollar for up to three percent of base pay, then at fifty percent for each additional percent up to five percent. Thus, an employee contributing five percent of pay would receive an additional five percent matching contribution (composed of the one percent automatic contribution and the four percent matching contribution). Contributions in excess of five percent are not matched, nor are "catch-up" contributions matched.

Uniformed service members are eligible for matching contributions only if the secretary of the specific service designates "critical specialties" eligible for such. As of 2010, no specific specialty has been designated as such. However in 2006, Congress enacted legislation to sponsor a pilot program to offer matching contributions to new active duty enlistees. This program was administered by the Department of the Army from April 1, 2006 through December 31, 2008. Enlistees who qualified for TSP matching during this period (provided completion and returned paperwork was processed as of initial enlistment) receive a dollar for dollar matching contribution on the first three percent of their contributions from basic pay; and fifty cents on the dollar for the next two percent contributed for the duration of their first term of enlistment.

Vesting requirements

All employees or service members are fully vested in their contributions and any earnings thereon from the first day of employment or service. FERS employees are also fully vested in agency matching contributions and any earnings thereon from the first day of employment. However, most FERS employees must complete three years of Federal civilian service (some positions require only two years) to be fully vested in agency automatic contributions and any earnings thereon.

Fund selection

The TSP offers investors 10 funds in which to invest. Five are individual funds (one dealing with government bonds and the other four tracking specific market indices) while the other five are "Lifecycle Funds" designed to professionally change the allocation mix of investments among the individual funds during various stages of the employee's federal service. All TSP funds are trust funds that are regulated by the Office of the Comptroller of the Currency
Office of the Comptroller of the Currency
The Office of the Comptroller of the Currency is a US federal agency established by the National Currency Act of 1863 and serves to charter, regulate, and supervise all national banks and the federal branches and agencies of foreign banks in the United States...

 and not the Securities and Exchange Commission; thus, there is no ticker symbol
Ticker symbol
A stock symbol or ticker symbol is a short abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both. "Ticker symbol" refers to the symbols that were printed on the ticker...

 to track actual performance (though with the individual funds except the G Fund, the comparable index is easily tracked).

Employees may choose from any or all of the individual or Lifecycle funds in which to invest (any allocation must be expressed as a whole percentage) and may change their allocation for future pay periods at any time (if the request is received before noon Eastern time it is usually effective as of the close of business that day; otherwise, it is effective the following business day). If no selection is made the default is 100 percent allocation into the G Fund. As all funds except the G Fund have a potential risk of loss of principal, an employee is required to acknowledge this risk before investing into those funds.

Employees may also choose to change the allocation percentage of their existing fund balances (referred to as "Interfund Transfers"). Prior to May 2008 employees could change the allocation as often as possible (limited to one per day) among any and all funds; beginning in May 2008 employees are limited to two unrestricted transfers per calendar month, all subsequent transfers must be into the G Fund only.

Individual funds

  • G Fund - Government Securities
    Treasury security
    A United States Treasury security is government debt issued by the United States Department of the Treasury through the Bureau of the Public Debt. Treasury securities are the debt financing instruments of the United States federal government, and they are often referred to simply as Treasuries...

     fund. These are unique government securities not available to the general public and are backed by the full faith and credit of the US Government. The G Fund was the initial fund established by the TSP when it began operations on April 1, 1987.
  • F Fund - Fixed Income Index fund. Invested in BlackRock's U.S. Debt Index Fund. Tracks the Barclays Capital Aggregate Bond Index. The F Fund was opened to Federal employees in January 1988 but was limited to only a portion of contributions; beginning January 1991 all restrictions on F Fund contributions were lifted.
  • C fund - Common Stock Index fund. Invested in BlackRock's Equity Index Fund. Replicates the total return version of the S&P 500
    S&P 500
    The S&P 500 is a free-float capitalization-weighted index published since 1957 of the prices of 500 large-cap common stocks actively traded in the United States. The stocks included in the S&P 500 are those of large publicly held companies that trade on either of the two largest American stock...

     index. The C Fund also opened to employees in January 1988 and was subject to the same restrictions as the F Fund until January 1991.
  • S Fund - Small Capitalization Stock Index fund. Invested in BlackRock's Extended Market Index Fund, which tracks the Dow Jones U.S. Completion TSM index. The S Fund opened to employees in May 2001.
  • I Fund - International Stock Index fund. Invested in BlackRock's EAFE Index Fund. Replicates the net version of the MSCI EAFE
    MSCI EAFE
    The MSCI EAFE Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the U.S. & Canada...

     index. The I Fund opened to employees in May 2001.

Lifecycle Funds

In 2005, the TSP introduced the Lifecycle Fund series. The purpose of the Lifecycle Funds are to allow for automatic reallocation of assets from more-risky stock funds (the C, I, and S Funds) into less-risky income funds (the F and G Funds) as an employee reaches retirement age, as an employee may lack the time, interest, and/or expertise to determine suitable investments at various life stages.

The current Lifecycle Funds established, along with the corresponding retirement date window, are as follows:
  • L2050 - Retirement date of 2045 and thereafter
  • L2040 - Retirement date between 2035 and 2044
  • L2030 - Retirement date between 2025 and 2034
  • L2020 - Retirement date between 2015 and 2024
  • L Income - Individuals currently receiving monthly payments


The L 2010 Fund was retired on December 31, 2010. Plan participants nearing retirement age can invest in the L Income fund: its allocations are identical to the L 2010 fund as of mid-2010.

Loan program

There are two types of loans available (a general purpose loan and a loan for a primary residence); an employee can have only two loans active at any one time, one of each type.

The minimum loan amount is $1,000 and the maximum is $50,000, but the employee must have sufficient assets in the account to take out a loan. The minimum term is one year; the maximum term is five years for the general purpose loan and 15 years for the residence loan. There is a $50 processing fee per loan. If the employee or service member is married the spouse (even if separated) must consent to the loan.

Loans must be repaid via payroll deduction (though an employee may also make additional repayments outside this process) and the interest rate charged is the G Fund return rate at the time the application is processed. After repayment an employee must wait 60 days before applying for another loan of the same type. If the employee separates from federal service before the loan is paid, the employee must repay the loan within 90 days or it will be reported as taxable income.

In-service withdrawals

The minimum withdrawal is $1,000 (or the account balance, if smaller). For married FERS employees and uniformed service members the spouse must consent to the withdrawal; for married CSRS employees the spouse need only be notified.

An employee over age 59½ may request an "age-based" withdrawal. The withdrawal is not subject to any penalties (other than income tax and loss of potential future earnings on the investment); however, the employee may not then request a post-employment partial withdrawal. An employee may make only one such withdrawal.

An employee may also request a "financial hardship" withdrawal, which is limited to one of four specific needs:
  • negative monthly cash flow,
  • medical expenses (including household improvements needed for medical care),
  • personal casualty loss
    Casualty loss
    A casualty loss is a type of tax loss that is a sudden, unexpected, or unusual event. Damage or loss resulting from progressive deterioration of property through a steadily operating cause would not be a casualty loss...

    es, or
  • legal expenses for separation or divorce.


Financial hardship withdrawals carry a steep price. In addition to the permanent withdrawal of funds (the funds cannot be repaid to the TSP) and the permanent loss of potential future earnings on the investment:
  • the employee cannot contribute to TSP for the following six months and loses any matching contributions during this time (however, the employee will still receive automatic contributions); thus, the employee loses both the tax-deferral advantages and the potential future earnings,
  • after six months the contributions are not automatically renewed; the employee must submit paperwork to renew them, and
  • the withdrawal is subject to both income tax and, if the employee is under age 59½, the early withdrawal penalty tax.


A financial hardship withdrawal can be made only once every six months.

Post-employment

Any TSP participant, if s/he leaves federal service for the public/private sector or non-profit employer, may rollover their TSP account into a qualifying retirement account (either with the new employer or an IRA).

Separated and retired participants are not eligible for TSP loans.

Upon separation, any balances less than $200 (but at least $5) will be automatically cashed out in a single payment; amounts less than $5 are not automatically cashed out and are forfeited to the TSP, but the participant may later request payment. The participant then has 60 days to complete the rollover of the funds to a qualifying account to preserve their tax-deferred status. No other option is available under these circumstances. For participants having balances of $200 or more, upon separation the following options are available (spouses' rights apply when the balance exceeds $3,500):
  • A participant may request a partial withdrawal provided that 1) the balance is at least $1,000 and 2) the participant did not make an in-service age-based withdrawal.
  • A participant may request a full withdrawal in a combination of any or all of the following options:
    • A single payment,
    • Monthly payments based on a dollar amount or request TSP compute lifetime payments, and/or
    • A life annuity (provided there is at least $3,500 available in the account to purchase the annuity), based on one of several different features depending on what is chosen (single life or joint, survivor benefit, cash refund or "10-year certain").
  • A participant who requests a single and/or certain monthly payments may rollover their payment(s) into a qualifying retirement account.
  • A participant who is receiving monthly payments may request a change in the dollar amount received each year, or switch from receiving payments based on TSP life expectancy computation to receiving a dollar amount each month. The remaining TSP account continues to accrue earnings and participants may make interfund transfer or contribution allocation changes to the balance. TSP will also continue to accept rollovers from IRAs or qualified plans while a participant is receiving monthly payments. At anytime the participant may contact TSP to request a final single payment of the remaining balance.
  • A participant may leave their funds in the TSP, but must withdraw the entire balance (or receive monthly payments) by April 1 of the year following the year the member turns age 70½ (or, if the member separated from Federal service after age 70½, the year following separation).
    • If a withdrawal is not made by this time, the participant will be paid an annuity as required by law.
    • If the participant does not provide information for TSP to purchase the annuity for either themselves or their spouse, the account will be declared abandoned. The participant may later reclaim the account by choosing a withdrawal option, but during abandonment the participant will not receive earnings on the balance.

External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
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