A GS-07 employee of the Department of Veterans Affairs (VA) retired in November 2018. She had been enrolled in the Thrift Saving Plan (TSP) for federal employees and had accumulated $152.452 in her TSP account. Unfortunately, she ended up with about $25,000 less than that amount.
Filling Out a TSP Form Correctly Is Critical
Prior to retiring, the employee contacted a TSP representative about withdrawing her money from the TSP. She was advised to fill out a form (TSP-75) to transfer her money into another retirement account without incurring a tax obligation. In effect, she could transfer her retirement funds into another account without having to pay taxes when the money was transferred.
The VA employee filled out the TSP-75 and wanted to transfer her TSP funds to a retirement account at her credit union. But, according to the employee, there was a partial faxing error and the TSP “treated the withdrawal of funds as a regular withdrawal instead of a rollover to another retirement account.” As a result, the withdrawal of her TSP funds was subject to a mandatory 20 percent federal tax withholding. The TSP sent the employee a check in the amount of $127,381.55 based on her
The employee subsequently sent several letters requesting that the error be corrected and the transaction corrected to a “withdrawal/transfer” to another retirement account. As the money had been disbursed, that corrective action was not taken.
Filing A Lawsuit to Recover the Money
The employee retired. She also filed a lawsuit contending she was suffering financial hardship as a result of the “error”. The now retired former federal employee contended a fiduciary duty was owed to her under the Federal Retirement Thrift Investment Management System. She also alleged the government had violated a Pennsylvania criminal statute. As a result, she asked the court for “a declaratory judgment against Defendants and for the full amount of her Retirement Account, compensation for emotional distress and loss of financial living expenses, and punitive damages for the improper denial of her lawful savings.”
The lawsuit failed.
The court concluded that if the employee “had properly filled out her first TSP-75 Form, including checking the box indicating a transfer to a tax-deferred eligible IRA account, then she would have received the full amount of her Retirement Account.”
The employee represented herself in the lawsuit. According to the court, her “actions and terminology used throughout her briefing (indicated) that she was confused about the proper procedure. A withdrawal request and a transfer election are functionally distinct and have significant implications.”
And, despite being entitled to a liberal construction of the law given to a person representing herself in a lawsuit, there still has to be a legal basis for the case. In this case, she failed to “state a claim for which relief may be granted and is dismissed with prejudice.”
No Failure of Fiduciary Duty
The TSP properly followed the instructions the federal employee submitted on the TSP-75 form. While she took further steps to try and correct the error, the money had already been disbursed. As the court noted, “TSP cannot change the withdrawal request once the funds have been disbursed.
As a result, there could not be a failure of fiduciary duty as the problem occurred as a result of the employee providing incorrect instructions to the TSP.
Moreover, according to the Court, the employee could have deposited the entire amount into a new IRA at the credit union “within 60 days of the date she received her disbursement in order to exempt the disbursement from gross income for the taxable year.” She could also still petition the Internal Revenue Service for a “hardship exception” to the 60-day requirement.
No doubt, some will conclude this problem could have been avoided had the employee sought the advice of a financial advisor before moving her money. Moreover, going into court without legal representation carries its own risks.