The Federal Retirement Thrift Investment Board (FRTIB), has issued a new rule that could apply to a some investors in the Thrift Savings Plan (TSP) who are no longer federal employees. There is a comment period on the rule that will last until May 23, 2014 for those who may be interested in voicing an opinion. As noted in the Federal Register, this rule will become effective on May 27, 2014 without any further action, unless adverse comment is received by May 23, 2014.
The rule reads:
“This regulation implements the authority established under the Debt Collection Improvement Act of 1996 (DCIA) for the Federal Retirement Thrift Investment Board (Agency) to order a non-Federal employer to withhold up to 15 percent of an employee’s disposable income to pay a non-tax delinquent debt owed to the Agency or Thrift Savings Fund.”
The new regulation will have limited application to a small number of investors in the Thrift Savings Plan. Its purpose will be to allow the Treasury Department to use a full range of options to collect money owed to the FRTIB.
Here is what this rule means according to Kim Weaver, Director of the Office of External Affairs for the Federal Retirement Thrift Investment Board who kindly provided clarification.
The new rule will allow the Department of the Treasury to use administrative wage garnishment on behalf of the FRTIB. The Treasury’s Debt Management Services (DMS) collects debts on behalf of federal agencies. Once agencies refer debts to DMS, the DMS uses a variety of collection tools to collect the money owed. These tools may include payment agreement options, credit bureau reporting, the Treasury offset program, private collection agencies, or litigation by Department of Justice.
This rule adds administrative wage garnishment to the set of existing debt collection tools used by the Thrift Savings Plan (TSP). Existing regulations already permit the Treasury Department to garnish the wages of federal employees. This final rule will permit Treasury to garnish the wages of non-federal employees on behalf of the FRTIB.
Currently, there are about $532,000 dollars of outstanding debt owed to the FRTIB that be collected using administrative wage garnishment. To put this into perspective, the TSP currently has assets of more than $400 billion invested so the outstanding debt is relatively small.
The new rule is not related to loans made to an investor in the TSP. To the extent a TSP participant has an outstanding TSP loan and retires, the loan recipient has about 3 months to repay the loan. If the participant does not do that, the remaining balance of the loan would be considered taxable income for that year.
The new rule is more likely to come into play when a former federal employee owes money to the TSP because benefits have been overpaid and the investor is no longer a federal employee. A overpayment may occur for several reasons.
For example, if a participant does not receive or loses a Treasury check, a check may be re-issued to that person. However, if the initial Treasury check is found and cashed, the participant has received a double payment. If the person who has received the check is no longer a Federal employee, the new rule would allow the TSP to recoup the excess payment that had been paid out.
For readers with questions about wage garnishment, see the Department of the Treasury regulation a 31 CFR 285.11 for details regarding the administrative wage garnishment procedures that are adopted by this new rule. At least 30 days before an agency initiates garnishment proceedings, it will provide the debtor written notice informing him or her of the nature and amount of the debt, the intention of the agency to collect the debt through deductions from pay, and an explanation of the debtor’s rights regarding the proposed action.
A hearing on the garnishment may be held as explained in the Federal Register notice.