Correction of Administrative Errors

The Board published a final rule governing the correction of administrative errors in the Federal Register on December 24, 1996 (61 FR 68464). This rule revises the section of those regulations which limited TSP makeup contributions when a retroactive adjustment to an employee's pay included a correction for the employee's missed TSP contributions during the period of retroactivity. At the time the regulations were issued, the Board interpreted I.R.C. 402(g) (26 U.S.C. 402(g)) and its discussions with the Internal Revenue Service (IRS) as requiring that such makeup contributions always be counted against the IRS deferral limit for the year in which they were actually made, rather than the limit for the year to which they were attributable. On June 25, 1997, however, the U.S. District Court for the Northern District of New York rejected, in Kahmann v. Reno, 967 F. Supp. 731 (N.D.N.Y.), the Government's argument that I.R.C. 402(g) and the Board's derivative regulation prevented an employee from making TSP contributions erroneously denied by her agency in excess of the current year's section 402(g) limit. The court ordered the Government to permit the employee to make up missed contributions to the TSP applying the relevant prior years' section 402(g) limits. Accordingly, the Board published an interim regulation in the Federal Register on January 29, 1998 (61 FR 58973), calling for prior- year attribution for makeup employee contributions to the TSP, consistent with the district court's holding and reasoning. The Board has received two written comments on the interim rule. The first commenter, the manager of a payroll office of a component of a Federal agency, suggested that the Board's interim rule was in conflict with IRS regulations. However, the Board also received a written comment from the IRS clarifying the scope of its earlier communications with the Board. Without addressing the Kahmann decision, the IRS nevertheless affirmed that the Board's interim regulation was not contrary to the provisions of the I.R.C. applicable to the TSP, in that the tax treatment of the TSP is set forth in I.R.C. 7701(j). Because section 7701(j) does not contain all of the same restrictions as are placed on a qualified cash or deferred arrangement (described in I.R.C. 401(k)), including the I.R.C. 402(g) limit on deferrals, the IRS agreed with the Board that a participant's makeup contributions to the TSP may properly be attributed to the year in which the contributions should have been made. According to the IRS, such makeup contributions to correct a prior year error would therefore not be includible in the TSP participant's current year income, provided that they do not cause the applicable limit (i.e., the limit under section 402(g) for the year to which the contributions are attributable) to be exceeded. Accordingly, the Board is adopting the provisions of the interim rule as a final rule without change.

Regulatory Flexibility Act

I certify that this amendment will not have a significant economic impact on a substantial number of small entities. It will only affect TSP participants.

Paperwork Reduction Act

I certify that these regulations do not require additional reporting under the criteria of the Paperwork Reduction Act of 1980.

Unfunded Mandates Reform Act of 1995

Pursuant to the Unfunded Mandates Reform Act of 1995, section 201, Pub. L. 104-4, 109 Stat. 48, 64, the effect of these regulations on State, local, and tribal governments and on the private sector has been assessed. This regulation will not compel the expenditure in any one year of $100 million or more by any State, local, and tribal governments in the aggregate, or by the private sector. Therefore, a statement under section 202, 109 Stat. 48, 64-65, is not required.

Submission to Congress and the General Accounting Office

Under 5 U.S.C. 801(a)(1)(A), the Board submitted this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States before the publication of this rule in today's Federal Register. This rule is not a major rule as defined in section 804(2) of title 5, United States Code.

List of Subjects in 5 CFR Part 1605

Administrative practice and procedure, Employee benefit plans, Government employees, Pensions, Retirement. Roger W. Mehle, Executive Director, Federal Retirement Thrift Investment Board.

For the reasons set forth in the preamble, part 1605 of chapter VI of title 5 of the Code of Federal Regulations is amended as follows:

PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS

1. The authority citation for Part 1605 continues to read as follows:

Authority: 5 U.S.C. 8351 and 8474.

2. Section 1605.2 is amended by revising paragraph (c)(5) to read as follows:

Sec. 1605.2 Makeup of missed or insufficient contributions.

* * * * * (c) * * * (5) When establishing a schedule of makeup contributions, the employing agency must review any schedule pro posed by the affected participant, as well as the participant's prior TSP contributions, if any, to determine whether the makeup contributions, when combined with prior contributions, would exceed the annual contribution limit(s) contained in sections 402(g) and 415 of the Internal Revenue Code (I.R.C.) (26 U.S.C. 402(g) and 415) for the prior year(s) with respect to which the contributions are being made. (i) The employing agency must not permit contributions that, when combined with prior contributions, would exceed the applicable annual

contribution limit(s) contained in I.R.C. 402(g) and 415. (ii) A schedule of makeup contributions may be suspended if a participant has insufficient net pay to permit the makeup contributions. If this happens, the period of suspension should not be counted against the maximum number of pay periods to which the participant is entitled in order to complete the schedule of makeup contributions. * * * * * 3. Section 1605.4 is amended by revising paragraph (c)(1) to read as follows:

Sec. 1605.4 Back pay awards and other retroactive pay adjustments.

* * * * * (c)(1) Makeup employee contributions required under paragraphs (a) and (b) of this section must be computed before the back pay or other retroactive pay adjustment is made. The makeup employee contributions must be deducted from the back pay or other retroactive pay adjustment and contributed to the TSP. However, contributions must not be made that would cause the participant to exceed the annual contribution limit(s) contained in sections 402(g) and 415 of the Internal Revenue Code (I.R.C.) (26 U.S.C. 402(g) and 415) for the prior year(s) with respect to which the contributions are being made, taking into consideration the TSP contributions already made in (or with respect to) that year. * * * * * [FR Doc. 98-11603 Filed 4-30-98; 8:45 am] BILLING CODE 6760-01-P