There are federal employees who are losing their federal jobs due to reductions-in-force (RIFs) or elimination of job positions. Most of these employes are not eligible to immediately retire from federal service. A question that these employees may be asking: What happens to their Thrift Savings Plan (TSP) accounts? This column discusses “vesting” requirements with respect to the TSP.
The term “vested” with respect to a retirement plan refers to a departing employee’s eligibility in the employer-sponsored retirement plan to keep the money from their retirement account when they leave the employer. When it comes to the TSP, TSP participants are immediately “vested” (that is, they are entitled to keep) all of their TSP contributions (to the traditional TSP and to the Roth TSP) made via payroll deductions and the associated earnings on their contributions Those employes who have directly rolled over traditional IRAs and traditional qualified retirement plan accounts (such as a 401(k)-retirement plan the previously participated in) into their traditional TSP are immediately vested in those rollover accounts.
FERS-covered employees receive matching TSP contributions from their agencies. The maximum agency TSP contribution is 4 percent. In order to receive the maximum annual 4 percent TSP matching contribution from their agency, a FERS-covered employee must contribute to either the traditional TSP and/or to the Roth TSP at least 5 percent of their salary each pay date. FERS-covered employees are immediately “vested” in any of their agency matching contributions and associated earnings on the matching contributions. There is no minimum amount of service time a FERS-covered employee must meet in order to be vested in agency matching contributions.
A FERS-covered employee is also entitled to receive from their agency an automatic 1 percent of their annual salary (SF 50 salary) TSP contribution. This is true whether or not the FERS-covered employee makes contributions to the TSP via payroll deductions. Unlike agency TSP matching contributions, there is a minimum amount of time in service a TSP participant must meet in order to be vested in the agency automatic (1 percent) contribution and associated earnings in their accounts.
If a FERS-covered employee separates from federal service before meeting the TSP vesting requirement, then the agency automatic (1 percent) contributions and associated earnings will be automatically forfeited to the TSP. Note that a FERS employee who dies in federal servcie is deemed to be vested 100 percent in the TSP. This includes the deceased employee’s contributions, agency matching contributions and agency 1 percent automatic contributions plus associated earnings no matter how many years of service the employee had completed before his or her death. Consequently, the deceased employee’s beneficiary (or beneficiaries) will be entitled to all the funds in the employee’s account.
For most FERS employees, the TSP vesting requirements is three years. However, employees serving in certain federal positions need to complete two years of service in order to meet the TSP vesting requirement for the 1 percent agency automatic contribution.
TSP Vesting Code
The TSP vesting code corresponds to the number of years FERS employees must serve in order to be vested in the agency automatic one percent of annual SF-50 salary and associated earnings in their TSP accounts. When an agency hires an individual into federal service, the agency must determine or verify the employee’s TSP Vesting Code. This code is one of the elements submitted to the TSP on the Employee Data Record (EDR), also referred to as the EDR or the “06 record”.
The following table summarizes the TSP Vesting Codes for federal employees:
TSP Service Computation Date
The TSP Service Computation Date (TSP SCD) is the date (either actual or constructed) which marks the beginning of a FERS TSP participant’s federal service. The TSP SCD is included on the EDR. The TSP SCD has two uses:
1. Vesting in TSP agency automatic 1 percent contributions. When a FERS-covered employee separates from federal service, the TSP uses the TSP SCD along with the TSP Vesting Code and separation date to determine if the employee is vested in the agency automatic 1 percent contribution and associated earnings account.
2. TSP participant’s application for a TSP loan. When a TSP participant applies for a TSP loan, the TSP performs a series of tests prescribed by the Internal Revenue Code to determine how much the TSP participant may borrow. One of these tests involves the vested account balance. Therefore, calculating a TSP participant’s maximum loan amount depends on having a correct TSP -SCD on file.
Whether an employee intends to leave federal service, remain in federal service, or retire from federal service, it is important that the employee understand the TSP vesting rules. They are encouraged to check their TSP SCD to make sure it is correct. If they have any problems or questions, they are advised to contact their Human Resources or Personnel Office.