TSP closely watches retirement provisions in transportation bills

Federal retirees might soon be able to roll their annual leave into their Thrift Savings Plan accounts, depending on the fate of pending legislation.

Currently, federal employees’ annual leave is cashed out when they retire or resign, and they are reimbursed for it directly with a check. Under a House proposal, an employee could roll that money into the TSP plan so that the funds would not be taxed until withdrawal, according to Kim Weaver, external affairs director for the Federal Retirement Thrift Investment Board.

The measure is included in the transportation bill up for a vote in the House in the coming days, and is among provisions being tracked closely by the board, which oversees the TSP.

The other measure, included in the version of the transportation bill passed by the Senate earlier this month, would allow the Internal Revenue Service to enforce federal tax levies on civil servants by taking funds from their TSP accounts.

The board asked lawmakers for a clarification on that provision and is wary of its possible passage into law, Weaver said during a Monday meeting.

The IRS claims it has the authority to levy funds in TSP accounts, but under current law, plan funds credited to beneficiaries cannot be used for anything that does not help them.

Board officials have said subjecting the TSP funds to levy would change their intended purpose.

The fate of both provisions will depend on action on the House bill. House leadership is exploring a short-term extension on transportation authorizations, which would delay a vote on the measure, according to Weaver.

It’s uncertain whether the House will have enough support to take up its version of the legislation or whether it will default to the more fed-friendly Senate-passed bill. Currently, the House bill contains provisions that would require federal workers and members of Congress to contribute a total of 1.5 percent extra to their pensions over three years, beginning in 2013.

The House version also would eliminate a current provision in the law that supplements the retirement benefits of Federal Employees Retirement System members who are not subject to mandatory retirement and leave before age 62, also known as the FERS annuity supplement. In addition, it would require that those hired (or newly elected) after Dec. 31, 2012, be placed under a high-five average salary calculation for annuities rather than the current high-three calculation.

The Senate bill contains language allowing phased-in retirements but does not include the pension provisions.