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                         June 7, 2002

TSP proposes new death benefits rule

By Irene Brown
Editor

The Federal Retirement Thrift Investment Board, which governs the TSP, has proposed changing the rules governing death benefits. The proposed change appeared in the May 17 Federal Register.

The new rule would give widows and widowers of federal employees and military personnel a choice on what to do with their spouses’ TSP accounts.

The current rule only allows transfer of those accounts into an individual retirement account. Under the proposal, beneficiaries would be able to roll the accounts over into their own TSP or 401k accounts.

TSP officials said the proposal was made to go along with the recent change in Internal Revenue Code.

"A change in the tax law last year allowed the IRS to make transfers of death benefits more flexible," officials explained. "We are hoping to do the same type of thing for our plan members."

The Federal Register announcement also proposes changes to rules affecting the TSP accounts of federal employees who return to civil service after a stint in the military.

Those proposed changes are:

- To allow civilians returning to work after a period of military service to make up contributions to their civilian TSP accounts. However, those contributions would be reduced by the amount they contributed to their military TSP accounts while on active-duty.

- To require agencies to make matching contributions to employees’ civilian accounts based on their contributions while on active-duty. This change would only affect employees covered by the Federal Employees Retirement System.

- To also give those employees matching contributions for all makeup contributions they make to their civilian TSP accounts.