Many family law practitioners are unaware of recent changes to the requirements for drafting and submitting court orders dividing Thrift Savings Plan benefits. This article will provide an overview of the Thrift Savings Plan, a “refresher” of the rules related to the division of the Thrift Savings Plan in divorce cases, and a summary of relevant new requirements and procedures.
Overview of the Thrift Savings Plan (TSP)
The Thrift Savings Plan (“TSP”) is a retirement savings plan for federal employees covered by the Federal Employee Retirement System (“FERS”) or the Civil Service Retirement System (“CSRS”), members of the uniformed services, and certain civilians of other categories of federal service (such as some congressional positions). The TSP is similar to the private sector’s 401(k) plan. The purpose of the TSP is to provide eligible participants with a long-term savings plan featuring advantages such as automatic payroll deductions, a diversified selection of investment options, choice of tax treatments for contributions, agency matching in some circumstances, and various options for designation of beneficiaries and distribution of accumulated assets upon retirement.
The TSP has 5 individual investment funds:
The Government Securities Investment Fund (G Fund) – invested in short-term U.S. Treasury Securities; a low volatility investment.
The Fixed Income Index Investment Fund (F Fund) – tracks the Bloomberg U.S. Aggregate Bond Index; a broad index representing the U.S. government, mortgage-backed, corporate, and foreign government sectors of the U.S. bond market.
The Common Stock Index Investment Fund (C Fund) – tracks the S&P 500 Stock index (a market index made up of the stocks of 500 large U.S. companies); a moderately volatile investment.
The Small Capitalization Stock Index Investment Fund (S Fund) – tracks the Dow Jones (a market index of companies not included in the S&P 500 index).
The International Stock Index Investment Fund (I Fund) – tracks the MSCI EAFE (a broad international market index, made up of primarily large companies in more than 20 developed countries); volatility of investment is moderately high.
The TSP also offers the Lifecycle Fund or “L Fund,” which is a fund designed by investment professionals to include a diversified portfolio of each of the 5 individual funds. Particular asset allocations are based on personal assumptions regarding future investment returns, inflation, economic growth, and interest rates.
TSP Loans
A participant may take loans against his/her TSP by borrowing against his/her own contributions and earnings on those contributions. There are two types of permissible loans: (1) general-purpose loans and (2) loans for the purchase or construction of a primary residence. A participant may only have two loans at one time. Only one of those loans may be for a primary residence). The loan must be repaid with interest. With very limited exceptions, spouses of FERS and/or uniformed services participants must consent to any loans. Spouses of CSRS participants are notified of loans.
Participants may also take “financial hardship” or “age-59-1/2” withdrawals from their TSP while still serving in their employment positions. These withdrawals, known as “in-service withdrawals,” deplete the balance of the account by the amount of the withdrawal, and are subject to taxes and a 10% penalty. Legal expenses related to separation or divorce are among the “hardships” that would support an in-service withdrawal. As with loans, FERS and/or uniformed services’ spouses must consent to an in-service withdrawal. CSRS spouses are notified of the withdrawal.
Dividing a TSP in Divorce
A TSP is divisible in divorce pursuant to a Retirement Benefits Court Order (“RBCO”). Note that the order is not a “QDRO,” which is an order that divides private-sector retirement plans pursuant to ERISA. An RBCO is a court order (certified and signed by a judge) that complies with the following requirements:
- Relates to alimony payments or marital property rights of a spouse or former spouse (or to the support of a child or other dependent) of a TSP participant;
- Contains a statement that the order is issued pursuant to a state’s domestic relations laws;
- Clearly identifies the name of the plan (“Thrift Savings Plan”) and specifies the account if the participant has more than one (“Uniformed Services TSP account” or “Civilian TSP account”);
- Includes the following information for both the participant and payee: name, last known mailing address, last 4 digits of participant’s social security number, and full social security number of payee;
- Clearly sets forth the amount or percentage of benefits to be paid;
- Clearly sets forth when to calculate the award (“valuation date”);
- Does not require the plan to pay more benefits than the participant has earned;
- Does not require the plan to provide any benefit not otherwise provided by the plan; and
- Does not require the plan to pay benefits to a payee that are already required to be paid to another payee pursuant to a previously issued RBCO.
Splitting TSP in Divorce
The award to the former spouse must be a specific dollar amount or percentage of the participant’s account as of a valuation date (such as the parties’ date of separation). The valuation date may not be a future date (unless the future date is the date of liquidation). The amount awarded to the former spouse may not exceed the participant’s account balance as of the date of valuation.
TSP Divorce Calculator
For purposes of calculating the former spouse’s benefit, a participant’s account balance will include any loan balance outstanding as of the valuation date. This means the loan amount will be “added back in” and the resulting figure will be divided unless the RBCO provides otherwise.
Understanding the Retirement Benefits Court Order
The RBCO can include or exclude earnings and losses from the valuation date to the liquidation date. If the RBCO is silent as to earnings and losses, the former spouse will not receive earnings and losses between the valuation date and the liquidation date. If earnings are awarded, the TSP record keeper will calculate the earnings based on the participant’s investments as of the date of valuation (regardless of whether the participant has changed his/her investments after the date of valuation). Consider the scenario where the former spouse is awarded 40% of the participant’s account balance as of June 1, 2023, plus/minus gains and/or losses from that date to the date of distribution/liquidation. If the participant changes his investments after June 1, 2023, and the new investments perform poorly, the former spouse’s share is still calculated based on the (better performing) investments as of June 1, 2023. This could result in the former spouse receiving more than 40% of the account balance as of the date of liquidation.
Hiccups, Changes, and New Procedures.
In 2020, the Federal Retirement Thrift Investment Board transitioned to a private company, Accenture Federal Services (“AFS”). For purposes of managing TSP record-keeping and implementing more modern features (such as a TSP mobile app, the ability to electronically sign documents, designate/change beneficiaries, and undertake certain transactions on a “user-friendly” website, and a procedure for uploading RBCOs). The process did not turn out to be smooth, with AFS officials admitting in August of 2022 to mistakes and design problems that “negatively impacted the participant experience and TSP brand.”
The call center experienced significant challenges. Participants were unable to make certain transactions or view historical data/statements and waits for customer service assistance were long and frustrating. The chaos caught the attention of Congress, and lawmakers asked the Government Accountability Office to conduct a “comprehensive examination” of the missteps. This investigation is underway (as is a class action lawsuit filed on behalf of certain TSP participants).
In the meantime, family law practitioners should be aware of the following changes and new procedures:
- Form RBCO. The Thrift Savings Plan Court Order Center provides a form RBCO on its new website: https://qoc.rk.tsp.gov/qoc/b/QdroOvrw010QdroOvrwFederal.htm. Use of this form (without any handwritten changes) should easily result in an order that will be approved. The “form order” is not required, and drafts created by the parties may still be submitted. They will be approved so long as they meet all of the RBCO requirements.
- Review of draft RBCOs. Draft RBCOs (as well as entered orders) may now be uploaded to the Thrift Savings Plan Court Order Center for review and/or implementation via the website: https://qoc.rk.tsp.gov/qoc/b/CsSndDocs010sndOvrw.htm.
- What TSP does upon receipt of an RBCO. Upon receipt of a draft RBCO, the TSP recordkeeper will (a) restrict the participant’s benefit activity by prohibiting distributions, loans and/or withdrawals until the order is qualified or 18 months after the order (even just a draft order) is received, (b) review the order to ensure that it meets all requirements, and (c) notify the parties within 20 calendar days of receipt whether it meets the requirements. Assuming the draft order is approved, the parties are then directed to (re)submit the order once it has been signed by a judge and certified by the clerk of court. Court-certified orders may now be uploaded for implementation. They may also be mailed to: TSP Court Order Center, c/o Broadridge Processing, PO Box 120, Newark, NJ 07101-0120.
- Review fee. There is now a $600 fee for reviewing and processing the RBCO. Upon receipt of a draft or signed court order, and prior to reviewing the order to determine whether it qualifies as an RBCO, the $600 fee will be deducted from the participant’s TSP account balance. If the order is rejected and never thereafter determined to be qualified, the fee is not refunded. The fee is, however, only charged once (meaning, it is not charged again to review revisions to a previously rejected order). The RBCO can direct the TSP record keeper to split the fee between the participant and the payee. In this case, the record keeper will deduct the payee’s portion of the fee from his/her payment and credit it back to the participant.
- Obtaining statements. Gone are the days when counsel for the former spouse could write to the Thrift Savings Investment Board and/or submit form TSP-92D and easily obtain copies of the participant’s TSP statements. Form TSP-92D (and many others) were declared obsolete pursuant to a TSP bulletin issued February 2, 2023. If litigation is pending, a Subpoena Duces Tecum may be issued to (and will be accepted by): Court Order Center, c/o Broadridge Processing – Thrift Savings Plan, Post Office Box 120, Newark, New Jersey 07101-0120. Remember to specify on the Subpoena that the entity has agreed to accept service via first-class mail at the noted address. This will help to avoid any potential ethical problems associated with issuing an out-of-state subpoena).
- Asking for help. Parties and/or their counsel can now ask for help and even expect assistance within a reasonable period of time! Specifically, the TSP Court Order Center promises a response within two business days to emails sent to courtorder@tsp.gov, so long as the email includes the sender’s full name, reference to the Thrift Savings Plan including the participant’s full name, and the last four digits of the participant’s social security number.
Heather A. Cooper is one of three founding partners of Cooper Ginsberg Gray, PLLC, a family law firm in Fairfax, Virginia. Heather has a particular interest in the division of retirement benefits in divorce and is a frequent lecturer on the topic.