TSP

Like all 401(k) type plans, the TSP provides spousal rights for spouses of employees and retirees. For all federal benefits, the definition of spouse includes a legally married same-sex spouse. What’s interesting is that the rights granted to the spouse are different depending on whether the civilian employee/retiree is covered under CSRS or FERS. Spousal rights for uniformed service participants are the same as those for FERS participants, regardless of whether the uniformed services participant is in the legacy retirement system or the blended retirement system.

For FERS and uniformed services participants, unless the spouse waives his or her right, they are entitled to receive a specific type of TSP annuity (i.e., joint-life with a 50% survivor benefit and no additional features). There are many different options offered in the current TSP annuity (which is offered by MetLife) and, in my opinion, this spousal default choice is one of the least appealing. By saying this, I do not mean to imply that any of the TSP annuity choices are at all appealing. The TSP’s annuity contract is up for competition this year and it is possible that there will be more (and more flexible) choices available after the competition is over. TSP annuities are far and away the least popular choice among TSP withdrawals, so it appears that most spouses are knowingly waiving their right to an annuity.

However, if you are a FERS or uniformed services participant, you will want to fully discuss the TSP withdrawal options with your spouse in order to get his/her informed consent. Once your spouse is aware of the alternatives, it is very likely that they will happily give their consent for another method of withdrawal.

The spouses of CSRS participants have significantly less in the way of rights. All that is required is that the TSP notify the spouse of the choice made by the employee or retiree. The notification letter that the spouse will receive after the CSRS employee or retiree begins withdrawals specifically states that the spouse has no right to the TSP account.

Why is there such a difference in the way spouses are treated? There are a couple of possibilities and the one you are most likely to believe will be colored by your view of our elected representatives.

1. At the time the rules were set, all federal employees, including those who serve us in Congress, were under the CSRS system. They didn’t want their spouses telling them what to do with their TSP accounts, so they only gave spousal protection to the spouses of future hires under the FERS system.
2. After seriously considering the matter and carefully weighing the alternatives, our representatives realized that the TSP was a much larger part of the retirement of a FERS person and, therefore, a much greater part of a survivor’s income. In addition, many CSRS employees would have been retiring in the near future with small TSP balances. Therefore, they offered protection only to the spouses of FERS employees and retirees.

Though I lean towards the cynical position (number 1) I suspect the truth lies in between the two.