2012 Federal Employees Almanac
Chapter 7, Section 5: Impact on Thrift Savings Plan Accounts
- By Almanac Staff
- February 19, 2012
A TSP account can be divided by a court decree of divorce, annulment, or legal separation, or a court order or court-approved property settlement agreement incident to such a decree. A court order may be issued at any stage of a divorce, annulment, or legal separation proceeding. The TSP calls such a document a "retirement benefits court order" (court order).
A TSP account also can be garnisheed with a writ, order, summons, or other similar document in the nature of a garnishment that is brought to enforce a participant's child support or alimony obligation. The TSP calls such a document a "legal process."
The TSP will review only a complete copy of a court order or legal process. To be complete, a court order must contain all pages and attachments. It also must provide (or be accompanied by a document that provides):
- the participant's Social Security number;
- the name and address of each payee;
- if the current or former spouse of the participant is a payee, the SSN of the spouse-payee (if it requires the payment to be mailed in care of a third party, it must also provide the state of legal residence of the spouse-payee); and
- if it is written in a language other than English, a certified English language translation of the entire court order.
A qualifying retirement benefits court order or a legal process for the TSP must meet these requirements:
- It must be issued by a court in any of the 50 United States, the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, or the Virgin Islands, or by any Indian court.
- It must expressly relate to the TSP. This means that it must specifically contain the name "Thrift Savings Plan." Terms such as "all retirement benefits," "government benefits," "federal retirement benefits," "thrift savings," or "thrift savings account" are not adequate.
- If it requires a payment from a TSP account, it must clearly describe the payee's entitlement. For example, it can award a specified dollar amount or a fraction or a percentage of the participant's account as of a specific past or current date. If the court order describes the payee's entitlement by using a formula, all of the variables in the formula must be included in the court order or be available from TSP records.
- It can require a payment only to the participant's current or former spouse or to the participant's dependents. The TSP will not honor a court order asking for a single payment to be made jointly (for example, $10,000 to be divided among the former spouse and dependents). The court order must separately specify the amount of the award made to each person.
Account information requests relating to the TSP must be submitted to the TSP Service Office, P.O. Box 385021, Birmingham, AL 35238, phone from the United States and Canada toll-free (877) 968-3778, TDD (877) 847-4385; other callers (404) 233-4400.
Submit court orders and legal processes to the TSP Legal Processing Unit, P.O. Box 4390, Fairfax, VA 22038-4390; fax (703) 592-0151; overnight delivery: TSP Legal Processing Unit, 12210 Fairfax Town Center, Unit 906, Fairfax, VA 22033.
Divorce, Separation, or Annulment Decrees
A court order can be used to prevent a participant from withdrawing his or her TSP account during a divorce action. As soon as practicable after receiving a court order that is issued in an action for divorce, annulment, or legal separation, the TSP will "freeze" a participant's account if:
- the court order names the TSP and provides that the participant may not obtain a TSP loan or withdrawal; or
- the court order purports to divide a participant's TSP account.
Once an account is frozen, no new loans or withdrawals are permitted from the account until the action is resolved. All other account activity will be permitted, including investment decisions and payments on existing loans.
The freeze will be removed from the participant's TSP account as follows:
- If the account was frozen upon receipt of an incomplete court order, the freeze will be removed if a complete copy of the order is not received within 30 days of the TSP's written request for a complete copy.
- If the account was frozen in response to a court order issued to preserve the status quo, the freeze will be removed when the TSP receives a court order that removes the freeze, or when the TSP receives a court order that purports to require a payment from the TSP.
- If the account was frozen in response to an order that purports to require a payment from the TSP, or in response to a freeze order, the freeze will be removed as follows:
- If the court order requires a payment from the TSP, the freeze will be removed after the payment is made.
- If the court order is not qualifying, the account will remain frozen for 45 days from the date on which the TSP informs the parties in writing that the order does not qualify. The freeze will be removed sooner if the TSP receives a written agreement--signed by both of the parties involved in the divorce proceeding--that it may be removed.
Child Support or Alimony Decrees
A legal process to enforce a participant's child support or alimony obligation must be complete and must meet legal requirements paralleling those described above for divorce, separation or annulment decrees.
A participant who is liable for alimony or child support can be prevented from withdrawing his or her TSP account. The participant's account will be frozen as soon as practicable after the TSP receives a legal process that:
- expressly names the TSP; and
- either requires a payment from the TSP to satisfy a child support or alimony debt or requires the TSP to withhold a portion of the participant's account in anticipation of an order to make such a payment.
If the participant's account was frozen upon the TSP's receipt of a complete document purporting to be a qualifying legal process:
- If the legal process requires a payment from the TSP, the freeze will be removed after the payment is made.
- If the legal process does not qualify to require a payment from the TSP, the freeze will be removed as soon as practicable after the TSP informs the parties in writing that the document is not a qualifying legal process.
Some states allow a two-step garnishment process. The first step consists of an order to withhold, which freezes the debtor's assets. The second step consists of an order to deliver, which requires the recipient to pay a specified amount of the debtor's assets to a third party.
If the account was frozen upon receipt of an order to withhold, the freeze will be removed:
- upon receipt of an order removing the freeze;
- after payment pursuant to a qualifying order to deliver; or
- after the TSP informs the parties in writing that an order to deliver does not require a payment from the TSP.
Calculating the Amount of Entitlement
Court Order--If a court order awards a percentage or fraction of a TSP account as of a specific day, the payee's entitlement is determined based on that day's account balance. If a court order awards a percentage or fraction of a TSP account and does not specify a date for calculating the award, the payee's entitlement is determined based on the effective date of the order. If a court order awards a fixed dollar amount, the payee's entitlement is that dollar amount.
If a court order describes a payee's entitlement as a fixed dollar amount and as a percentage or fraction of the account, the payee's entitlement is the specified dollar amount, even if the percentage or fraction, when applied against the account balance, yields a different result.
A court order cannot require the TSP to pay more than the participant's vested account balance. Therefore, if the payee's entitlement exceeds the participant's vested account balance when the TSP pays the award, the TSP will only pay the vested account balance.
Legal Process--Because a legal process can only award a specific dollar amount, the payee's entitlement is determined based on the participant's vested account balance at the time of payment.
If a payment is made to a current or former spouse, it will be taxable income to that individual. If a payment is made to someone else (such as to a child for child support), it will be taxable income to the TSP participant.
The TSP must withhold for federal income tax from payments unless the person responsible for paying taxes is allowed to request that there be no withholding.
If you are the current or former spouse of a TSP participant, you may be able to ask the TSP to transfer all or a portion of your court-ordered payment to a traditional individual retirement account, eligible employer plan, or Roth IRA. If you receive the payment directly, you may be able to eposit (roll over) the payment into your traditional IRA, eligible employer plan, or Roth IRA yourself.
If you are the current or former spouse of a TSP participant and you have your own TSP account, you may roll over--or ask the TSP to transfer--the payment into your TSP account.
"Beneficiary participant accounts" are accounts established for spouse beneficiaries of deceased TSP participants when the beneficiaries choose to keep the accounts in place rather than withdraw the money or have it transferred or rolled over to another retirement savings plan. Court orders may be processed against these accounts, though special rules apply. Court-ordered payments made from a beneficiary participant account may not be transferred or rolled over. If a beneficiary participant remarries, his or her new spouse will not be able to transfer or roll over any court-ordered payments made from the beneficiary participant account. The payment will be taxable for the year in which it is made.
The TSP tax notice Tax Treatment of Thrift Savings Plan Payments Made Under Qualifying Orders is available at https://www.tsp.gov/pdf/formspubs/octax92-36.pdf, from agency personnel offices, and from the TSP Service Office at the address under General, above.