Federal employees who missed out on making contributions to the Thrift Savings Plan due to government error can make up those contributions without penalty, under new regulations.
Under the old regulations, TSP make-up contributions were always counted against the IRS limit on tax-deferred contributions in the year in which they were made, rather than the limit of the year to which they were attributable. This year's limit is $10,000.
Now investors placed in the wrong retirement system or otherwise affected by a government benefits mistake are able to make back payments without jeopardizing their yearly limit on investments.
This change will primarily affect those in the Federal Employees Retirement System who make more than $100,000 per year, because TSP investments are limited to 10 percent of an employee's salary, according to Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board.
"If someone is earning $100,000 and plans on contributing 10 percent and for some reason all contributions weren't deducted from his paycheck last year, he would not be prevented from making back contributions," Trabucco said.
An employee can only make up contributions if his or her agency made an error, such as placing the employee in the wrong retirement system or dealing improperly with an employee's investment choices. The agency that made the error is also responsible for paying matching back contributions and earnings.
The Federal Retirement Thrift Investment Board has made the interim regulations effective immediately. However, the new regulations will be published in the Federal Register on Thursday for public comment.
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