Spillover contributions will be coming to the Thrift Savings Plan beginning in 2021. These contributions will simplify the process for those over the age of 50 (including those who attain the age of 50 within a calendar year) by eliminating one TSP form.
The Federal Retirement Thrift Investment Board (FRTIB) is proposing to “reduce paperwork burdens” on those who are eligible to make “catch-up” contributions by allowing then to use only one form for their TSP allocations.
They propose, in proposed regulations that were posted in the Federal Register on January 23, 2020, to simplify the catch-up contribution process by no longer requiring participants to submit separate catch-up contribution election forms in addition to their other contribution election forms.
Instead, the TSP will simply continue to accept contributions based on the participant’s contribution election that is already on file, until his/her contributions reach the combined limits on catch-up contributions and other types of contributions.
So, an employee who is qualified to make “catch-up” contributions will simply submit one election form. For example (using 2020 contribution limits), an eligible participant could elect to contribute $26,000 to the TSP rather than a $19,500 deferral and a $6,500 catch-up contribution. This should alleviate the confusion that some age 50 and older employees currently feel about making the additional TSP contributions.
Catch-up contributions (introduced twenty or so years ago) were originally designed for TSP participants who hadn’t had the opportunity to contribute to the Thrift Savings Plan early in their career because the TSP didn’t come into existence until 1987.
This allowed them to make up for time when they didn’t have the opportunity to set money aside for retirement. Catch-up contributions have been continued, even though most of today’s TSP participants have had access to the plan since they were hired.
The FRTIB justifies extending this opportunity to more recently hired employees by saying that catch-up contributions are for those who “were not employed or were otherwise unable to contribute towards their retirement”.
Employing agency payroll offices will no longer submit catch-up contributions to the TSP on special payroll records designed specifically for catch-up contributions.
Instead, payroll offices will submit catch-up contributions using the same payroll records that they use to submit other types of contributions. The TSP recordkeeping system will automatically determine, based on the participant’s date of birth, whether the participant is eligible to make catch-up contributions.
When an employing agency payroll office submits contributions in excess of the elective deferral limit on behalf of a catch-up eligible participant, the TSP recordkeeping system will automatically treat the excess contributions as catch-up contributions, without requiring any additional paperwork from the participant or any special payroll records from the payroll office.
As an example (using the 2020 limits), an eligible participant would elect to contribute $26,000 to the TSP and the Thrift Plan would view the first $19,500 as going toward the elective deferral limit and the remaining $6,500 as catch-up contributions.
The restriction on matching catch-up contributions will be lifted but, according to the FRTIB, will not increase an agency’s financial obligation. It is almost certain that the proposed regulations will be implemented on January 1, 2021 as planned.
This change continues the FRTIB’s pattern of making it easier for federal employees to save for their retirement.