Federal Employees News Digest

Members of the Military Who Return to Civilian Service Eligible for TSP Benefits - Part II

Those Federal employees who have, or who are, separating from civilian service in order to perform military service may receive benefits from the Thrift Savings Plan (TSP) as a result of their military service. This is the second of two “Informed Investor” columns explaining what these TSP benefits are.

The TSP benefits discussed in these columns apply to a Federal employee: (1) Who separated from civilian service to perform military service or was placed in nonpay status to perform military service; (2) whose release from military service, discharge from hospitalization or other similar event occurred on or after Aug. 2, 1990; and (3) was subsequently reemployed in or restored to a position covered by FERS or CSRS pursuant to   38 United States Code (USC) chapter 43, the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) .

The first column discussed the agency automatic (one percent of SF-50 gross pay) TSP contributions and agency matching contributions that employees covered by the Federal Employees Retirement System (FERS) receive from their civilian agencies. This column discusses how both employees covered both by the Civil Service Retirement System (CSRS) and by the FERS can make up their contributions to the TSP as a result of their time off from their civilian agencies in order to perform military service.

A Federal employee who leaves Federal service and goes on military leave in order to perform military service may use the TSP contribution election that was in effect before his or her entry into military service. Or the employee may make retroactive contribution elections including an election to terminate the contribution for the period that the deported employee was on military leave. To make up missed TSP contributions, an employee must submit a written request to his or her civilian agency within 60 days of the employee’s reemployment or restoration to civilian service.

The maximum that an employee can make up in retroactive contributions to the TSP is based on the Internal Revenue Code (IRC) elective deferral limit.  This amount is $18,500 during 2018, which is the amount that Federal employees can contribute to the TSP via payroll deduction. If an employee contributed to his or her Uniformed Services TSP account during a period of military service, then the amount that the employee can make up to his or her civilian TSP account must be reduced by the amount of employee contributions to the Uniformed Services TSP account. Note that Uniformed Services TSP contributions include contributions made to the traditional TSP, to the Roth TSP, and made to the traditional TSP from tax-exempt compensation earned in a combat zone. Tax-exempt compensation includes combat zone basic special or bonus pay. Also,  while TSP contributions to a Uniformed Services TSP account from tax-exempt pay do not count against the $18,500 elective deferral limit during 2018, the contributions do count against the $18,500 limit during 2018 when determining how much an employee can make up to his or her civilian account. The two examples illustrate:

Example 1. Frank contributed $10,000 to his Uniformed Services TSP account during 2018 while on military leave from his civilian agency. Whether he contributed to his traditional Uniformed Services TSP account using tax-deferred military pay or using tax-exempt pay earned in a combat zone, Frank is permitted to make up a maximum additional $8,500 when he returns to Federal service.

Example 2. Judith contributed $2,000 from her Uniform Services basic pay and an additional $18,000 during 2018 from special and bonus pay while deployed to a designated combat zone. This is permitted since tax-exempt pay is not subject to the elective deferral limit of $18,500 during 2018. Judith would not, however, be able to make any additional contributions to her civilian TSP account when she returns to federal service because she contributed over $18,500 to her Uniform Services TSP account.

It should be noted that “catch-up” contributions – contributions made by employees over age 49 as of December 31 – can also be made up in case an employee leaves Federal service in order to perform military service. During 2018, a maximum of $6,000 in “catch-up” contributions can be made. 

All “make-up” contributions to a civilian TSP account must be deducted from future civilian pay. An employee may not write a check to his or her agency to make up the contributions missed. “Make-up” employee contributions deducted from an employee’s salary in a current calendar year are subject to the IRC deferral annual limit in effect for the year to which the contributions are attributable. This means, for example, an employee who is making up contributions for calendar year 2017 and having deductions made from salary income earned during 2018 is limited to $18,000, the elective deferral limit during 2017.

“Make-up” employee contributions will be invested according to an employee’s TSP fund allocation in effect at the time the contributions are posted to the employee’s TSP account, just as current contributions are posted. Employees are not entitled to lost earnings on “make-up” employee contributions.

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Contributors

Edward A. Zurndorfer Certified Financial Planner
Mike Causey Columnist
Tom Fox VP for Leadership and Innovation, Partnership for Public Service
Mathew B. Tully Legal Analyst

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