Death Benefits

The Board administers the TSP, which was established by the Federal Employees' Retirement System Act of 1986 (FERSA), Pub. L. 99-335, 100 Stat. 514. The provisions governing the TSP are codified primarily in subchapters III and VII of Chapter 84 of Title 5, United States Code (1994). The TSP is a tax-deferred retirement savings plan for Federal employees which is similar to cash or deferred arrangements established under section 401(k) of the Internal Revenue Code. Sums in a participant's TSP account are held in trust for that participant. 5 U.S.C. 8437(g). The disbursement of death benefits from the TSP is governed by the provisions of 5 U.S.C. 8433(e) and 8424(d). Under section 8433(e), if a TSP participant dies before he or she has completed a withdrawal election, the account is to be disbursed in accordance with the order of precedence set forth at section 8424(d). Final regulations governing the payment of the TSP account to a beneficiary were published in the Federal Register on June 13, 1997 (62 FR 32426). These regulations do not address how the account will be invested between the participant's death and disbursement of the account to the beneficiary(ies). In the past, the Board has maintained the account as it was invested upon the participant's death; the Board will not maintain a separate account for a beneficiary and will not permit a beneficiary to direct how the account should be invested. However, it may take several months before the Board can identify and locate the appropriate beneficiary(ies) of an account and pay the account balance to the beneficiary(ies). During this time, monies in some investment funds can experience significant changes in value as a result of fluctuations in the market. FERSA permits a participant to elect to invest all or any portion of his or her contributions in several investment options. At present, all investment options except the Government Securities Investment (G) Fund are invested in securities that fluctuate in value as market conditions change. In contrast, monies in the G Fund are invested in short-term Government securities backed by the full faith and credit of the United States and do not fluctuate in value. Before a participant can invest in an investment fund other than the G Fund, he or she must provide a one-time acknowledgment that the investment is made at the participant's risk, that the participant is not protected by the United States Government or by the Board against any loss on the investment, and that neither the United States Government nor the Board guarantees any return on the investment. FERSA does not grant to beneficiaries the right to own or control the TSP account of a deceased participant; instead, the account is paid out to them as quickly as administratively feasible. Thus, beneficiaries are not solicited to acknowledge the risk of investment in market securities pending payout to them. Because monies in investment funds other than the G Fund remain subject to market risk even after a participant's death, however, and because beneficiaries have neither acknowledged nor have any control over that risk, the Board proposes to transfer the entire TSP account into the G Fund after receiving written notice of the participant's death if a participant dies with any portion of his or her account in an investment fund other than the G Fund. The account will continue to accrue earnings at the G Fund rate in accordance with part 1645 until the account is paid in accordance with the order of precedence set forth in paragraph (a) of this section. This action will eliminate the market risk to the beneficiary and will preserve the value of a deceased participant's account until it can be paid out.

Regulatory Flexibility Act

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

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.

List of Subjects in 5 CFR Part 1651

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 1651 of chapter VI of title 5 of the Code of Federal Regulations is amended as follows:

PART 1651--DEATH BENEFITS

1. The authority citation for part 1651 continues to read as follows:

Authority: 5 U.S.C. 8424(d), 8433(e), 8435(c)(2), 8474(b)(5) and 8474(c)(1).

2. Section 1651.1 is amended by adding in alphabetical order the definitions of ``C Fund'', ``F Fund'', ``G Fund'', and ``Investment fund'', to read as follows:

Sec. 1651.1 Definitions.

* * * * * C Fund means the Common Stock Index Investment Fund established under 5 U.S.C. 8438(b)(1)(C); * * * * * F Fund means the Fixed Income Investment Fund established under 5 U.S.C. 8438(b)(1)(B); G Fund means the Government Securities Investment Fund established under 5 U.S.C. 8438(b)(1)(A); Investment fund means the C Fund, the F Fund, the G Fund, or any other TSP investment fund created subsequent to December 27, 1986; * * * * * 3. Section 1651.2 is amended by adding a new paragraph (c) to read as follows:

Sec. 1651.2 Entitlement to benefits.

* * * * * (c) If a participant dies with any portion of his or her TSP account in an investment fund other than the G Fund, the Board will transfer the entire account into the G Fund after receiving written notice of the participant's death. The account will continue to accrue earnings at the G Fund rate in accordance with part 1645 until it is paid in accordance with the order of precedence set forth in paragraph (a) of this section.

[FR Doc. 99-3324 Filed 2-10-99; 8:45 am] BILLING CODE 6760-11-P