Expanded TSP Deposit Flexibility

The Federal Employees and Uniformed Services Retirement Equity Act would allow federal and postal employees, as well as members of the armed forces, to deposit unused annual leave into their Thrift Savings Plan (TSP) retirement accounts. Reps. Lynch (D-MA) and Chaffetz (R-UT) – the Chair and Ranking Member of the Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia – sponsored this bipartisan bill.  The Federal Workers Alliance strongly supports this bill.

Background:

Under current law, federal employees receive a lump-sum payment for any accumulated annual or vacation leave at retirement, upon deployment, or in certain job transfer situations such as when an employee is re-assigned owing to a Department of Defense installation closure. Currently, any TSP contributions stemming from the lump sum payment are subject to the existing Internal Revenue Service (IRS) annual contributions limits, and the Federal Retirement Thrift Investment Board’s (FRTIB) Executive Director would be given the authority to issue any needed regulations for implementation.

In September 2009, the IRS issued regulations allowing employees to deposit any cash payment they received from their employer for accumulated leave into their 401(k) plans.  However, the Federal Thrift Retirement Board found that current law precludes this option for federal employees.  Therefore, separate legislation is needed under Title 5 to allow such contributions for the TSP.

Many federal employees carry over the maximum amount of 240 hours of annual leave each year, and this legislation could significantly increase their TSP accounts and their retirement savings in general.

This bill would let federal employees roll over the value of their leftover leave as long as it does not push them above the cap on annual retirement contributions of $16,500 for employees younger than 50 and $22,000 for those who are 50 and older.