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                                                       Calendar No. 412
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-274
_______________________________________________________________________


 
              THRIFT SAVINGS INVESTMENT FUNDS ACT OF 1996

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                              to accompany

                                S. 1080

    TO AMEND CHAPTER 84 OF TITLE 5, UNITED STATES CODE, TO PROVIDE 
        ADDITIONAL INVESTMENT FUNDS FOR THE THRIFT SAVINGS PLAN




                  May 16, 1996.--Ordered to be printed
                   COMMITTEE ON GOVERNMENTAL AFFAIRS

   TED STEVENS, Alaska, Chairman
JOHN GLENN, Ohio                     WILLIAM V. ROTH, Jr., Delaware
SAM NUNN, Georgia                    WILLIAM S. COHEN, Maine
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DAVID PRYOR, Arkansas                THAD COCHRAN, Mississippi
JOSEPH I. LIEBERMAN, Connecticut     JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii              BOB SMITH, New Hampshire
BYRON L. DORGAN, North Dakota        HANK BROWN, Colorado
    Albert L. McDermott, Staff 
             Director
  Leonard Weiss, Minority Staff 
             Director
  Michal Sue Prosser, Chief Clerk
                                 ------                                

             SUBCOMMITTEE ON POST OFFICE AND CIVIL SERVICE

   TED STEVENS, Alaska, Chairman
DAVID PRYOR, Arkansas                THAD COCHRAN, Mississippi
DANIEL K. AKAKA, Hawaii              JOHN McCAIN, Arizona
BYRON L. DORGAN, North Dakota        BOB SMITH, New Hampshire
    Patricia A. Raymond, Staff 
             Director
   Dale Cabaniss, Chief Counsel
 Kimberly Weaver, Minority Staff 
             Director
    Nancy Langley, Chief Clerk


                            C O N T E N T S

                              ----------                              
                                                                   Page
  I. Summary and Purpose..............................................1
 II. Background and Need for Legislation..............................2
III. Legislative History..............................................3
 IV. Section-by-Section Analysis......................................3
  V. Estimated Cost of Legislation....................................8
 VI. Regulatory Impact of Legislation.................................8
VII. Changes to Existing Law..........................................9


                                                       Calendar No. 412
104th Congress                                                   Report
                                 SENATE

 2d Session                                                     104-274
_______________________________________________________________________


              THRIFT SAVINGS INVESTMENT FUNDS ACT OF 1996

                                _______


                  May 16, 1996.--Ordered to be printed

_______________________________________________________________________


Mr. Stevens, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 1080]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 1080) to authorize additional investment 
funds for the Thrift Savings Plan, and for other purposes, 
having considered the same, reports favorably thereon with an 
amendment in the nature of a substitute and recommends that the 
bill as amended do pass.

                         I. Summary and Purpose

    The Federal Employees Retirement System (FERS) covers 
federal workers entering permanent civil service and postal 
jobs in 1984 and thereafter. As part of the legislation 
establishing FERS, Congress created the federal Thrift Savings 
Plan, a tax-deferred savings plan patterned after plans widely 
available in the private sector. S. 1080 would expand the 
retirement investment options available to federal employees 
through this Thrift Savings Plan, with the addition of a Small 
Capitalization Stock Index Investment Fund and an International 
Investment Stock Index Fund. Increased investment options will 
give employees more opportunity to maximize the accumulation of 
savings for retirement.
    S. 1080 is also intended to improve the liquidity of the 
accounts of those participating in the Thrift Savings Plan by 
expanding the existing loan program and creating two new 
withdrawal options. Increasing the liquidity of accounts in the 
Thrift Savings Plan will provide employees the flexibility they 
may need to increase their savings rate and encourage more 
employees to begin saving for retirement. Lastly, under S. 
1080, participants in the Thrift Savings Plan will be able to 
tailor the manner in which they receive their account upon 
retirement, allowing participants to design a retirement plan 
which most suits their financial needs.

                II. Background and Need for Legislation

    Earlier in this Congress, the Subcommittee on the Post 
Office and Civil Service undertook a review of Federal Pension 
issues. The Federal Employees Retirement System (FERS) that we 
created nearly ten years ago now provides retirement security 
to half of the Federal and Postal workforce. The voluntary 
Thrift Savings Plan (TSP) component has been embraced by FERS 
employees, and Federal employees as a group have accumulated 
more than $35 billion in their thrift savings accounts.
    Last year, the Federal Retirement Thrift Investment Board 
proposed that the Congress authorize new investment choices for 
participants in addition to the three that are currently 
available. The Plan has matured to the point where the 
additional investment options can be easily integrated by the 
Board. The addition of these two funds has the potential to 
help increase an employee's investment earnings for retirement.
    As part of the Subcommittee's review, we also looked at how 
we might improve the liquidity and flexibility of the program, 
to improve participation in the program and to encourage 
employees to save. We looked at ways to allow employees to gain 
access to their savings without jeopardizing the primary 
purpose of providing retirement income security. We also looked 
at how we might modify the withdrawal options under the program 
so that upon retirement a participant could tailor a plan to 
meet their retirement needs, for example taking a portion of 
their account in a lump sum and a portion in the form of a 
retirement annuity.
    Access to TSP funds before separation is currently limited 
by law to loans for specific purposes. This legislation would 
improve the liquidity of the TSP by authorizing withdrawals 
before separation in certain circumstances and by simplifying 
and expanding the existing TSP loan program. The changes are 
consistent with the practices of private sector 401(k) plans 
and would encourage greater voluntary participation in the TSP. 
While the overall participation in the TSP is now at 
approximately 79.5% of the total FERS population, there is 
still room for improvement. Some agencies, such as the State 
Department, the Department of defense and NASA, have 
participation rates at or above 90%. However, others such as 
the National Archives and the Department of Veterans Affairs, 
are at 69% and 72% respectively. FERS employees of the 
Architect of the Capitol have a participation rate of only 57%.
    Under S. 1080, two new withdrawal options would be 
authorized. Participants in the Thrift Savings Plan who reach 
age 59\1/2\ while still in federal service would be eligible 
for a one-time withdrawal from their account. This is the age 
after which the early withdrawal penalty of the Internal 
Revenue Code no longer applies because individuals are deemed 
to have reached retirement age. Second, in limited 
circumstances, employees would be eligible for hardship 
withdrawals in amounts needed to relieve immediate and heavy 
financial need. The need would have to be documented and such 
withdrawals are discouraged by the fact that under the Internal 
Revenue Code such a withdrawal would be treated as a taxable 
distribution and would be subject to an early withdrawal 
penalty. Nevertheless in some cases such withdrawals are 
necessary and would be authorized if justified.
    In a further effort to improve the liquidity of accounts in 
the Thrift Savings Plan and increase the savings rate for 
participants who are wary of locking up their income in the 
TSP, the existing loan program would be simplified and expanded 
by eliminating the purposes to which the loans are restricted. 
This is not intended to encourage unnecessary borrowing. 
Rather, the experience with the TSP loan program supports the 
idea that participants should be able to determine whether 
their current needs are appropriately met by borrowing from 
(and repaying) their own retirement savings account, just as is 
the case with 401(k) plans. As is the case under current law, a 
loan to a participant would be limited to an amount not 
exceeding the value of that portion of their account which is 
attributable to contributions made by the participant.
    Loan repayment in the Thrift Savings Plan has proven to be 
simple and certain. As the loan is repaid, the account is 
replenished to later serve its primary role as income for 
retirement. Only about one percent of the TSP loans issued each 
year result in taxable distributions due to nonpayment by 
active employees. The fact that loans are being repaid, 
however, is due to the repayment structure (payroll allotment) 
rather than to the limited purposes for which loans are 
currently authorized.
    When the TSP was under development in 1985, the Committee 
on Governmental Affairs first dealt with the issue of access to 
funds for retirement. In establishing the limited loan program 
we recognized that, absent some form of liquidity, employees 
might be simply unwilling to lock-up large amounts of 
retirement savings.
    Voluntary TSP participation by FERS employees now stands at 
nearly 80% overall. While this rate is impressive, those who 
are not saving might be more inclined to start (and those who 
are saving might start saving more) upon the improvement of TSP 
liquidity contained in S. 1080 as amended.

                        III. Legislative History

    Beginning in May of 1995, the Subcommittee on the Post 
Office and Civil Service undertook a review of federal pension 
issues. During three days of hearings testimony was received 
from more than twenty witnesses presenting various opinions and 
perspectives. On July 27, 1995, Senator Stevens introduced S. 
1080, to add two new investment options to the Federal Thrift 
Savings Plan, cosponsored by Senators Pryor and Roth. On April 
18, 1996, the Committee on Governmental Affairs adopted an 
amendment offered by Senator Stevens in the nature of a 
substitute to U.S. 1080, which included the liquidity 
provisions, and the Committee reported favorably on S. 1080 by 
voice vote.

                    IV. Section-by-Section Analysis

            TITLE I--ADDITIONAL INVESTMENT FUNDS FOR THE TSP

    Title I of the amendment would add two new investment funds 
to those currently offered by the Thrift Savings Fund: a Small 
Capitalization Stock Index Fund and an International Stock 
Index Investment Fund.

Section 101. Short title

    This title may be cited as the ``Thrift Savings Investment 
Funds Act of 1996''.

Section 102. Additional investment funds for the Thrift Savings Plan

    Section 102 makes changes to section 8438 of Title 5, 
U.S.C., which are necessary to authorize the addition of the 
two new investment funds. The language is similar to that in 
section 8438 with respect to the Common Stock Index Investment 
Fund, to which the two new funds bear the greatest resemblance. 
Like that fund, the two new funds are required to be index 
funds which invest in indices that represent certain defined 
sectors in the equity markets.
    Section 102 makes changes necessary to add the two new 
funds to the list of those the Federal Retirement Thrift 
Investment Board is authorized to establish by subsection 
(b)(1) of section 8438. This is consistent with the statutory 
treatment of the current investment funds. The Board is given 
the responsibility to choose indices and establish investment 
funds that fall within the parameters for each fund as set 
forth in the statute.
    The section also adds two new paragraphs to section 8438(b) 
which describe the parameters of the two new investment funds. 
New paragraph (3) of section 8438(b) describes the requirements 
for the Small Capitalization Stock Index Investment Fund. The 
Board must choose a commonly recognized index that represents 
the market value of the United States equity markets, but 
excluding that portion of the equity markets represented by the 
common stocks included in the Common Stock Index Fund. It is 
intended, therefore, that the Small Capitalization Stock Index 
Investment Fund will be designed to replicate the performance 
of an index representing smaller capitalization stocks not held 
in the Common Stock Index Investment Fund.
    New paragraph (4) describes the requirements for the 
International Stock Index Investment fund. The Board must 
choose a commonly recognized index that is a reasonably 
complete representation of the international equity markets. 
The term ``international equity markets'' excludes the United 
States equity markets, which are represented by the other 
funds.

Section 103. Acknowledgment of investment risk

    Section 103 amends section 8439(d) of Title 5, U.S.C., to 
add a reference to the two new investment funds in the section 
requiring each Thrift Savings Plan participant who invests in 
one of the enumerated funds sign an acknowledgment stating that 
he understands that the investment is made at the participant's 
own risk, that the Government will not protect the participant 
against any loss on such investment, and that a return on the 
investment is not guaranteed by the Government. As is the case 
with the Common Stock Index Investment Fund and the Fixed 
Income Investment Fund, the Small Capitalization Stock Index 
Investment Fund and the International Stock Index Investment 
Fund each carry the risk that an investment may lose value. 
Therefore, it is appropriate to require the participant to sign 
the same acknowledgment of risk statement prior to investing in 
either of these funds.

Section 104. Effective date

    Sectin 104 provides that the new funds will be offered at 
the earliest date practicable as determined by the Executive 
Director. By law, election periods are conducted every six 
months. The Board is in the process of implementing a new 
computer software system. The new system's development will 
dictate the time frame for the offering of the new funds.

              TITLE II--THRIFT SAVINGS ACCOUNTS LIQUIDITY

    Title II improves the liquidity of TSP accounts during 
employment and gives Federal employees greater flexibility with 
their account upon separation. The amendment gives the 
Executive Director discretion to determine which accounts are 
so small that they should automatically be paid out upon 
separation. Finally, the proposed legislation would eliminate 
any need for and the existence of deferred TSP benefits, 
eliminating the current requirement that participants make an 
election as to how they wish to receive their account earlier 
than is required for all other retirement accounts under the 
Internal Revenue Code. Funds will simply remain on account 
until payment is requested by a participant (or beneficiary), 
required by law, or ordered by a court.

Section 201. Short title

    This title may be cited as the ``Thrift Savings Plan Act of 
1996''

Section 202. Notice to spouses for in-service withdrawals; de minimus 
        accounts; Civil Service Retirement System participants

    Section 202 (1)(A) eliminates provisions allowing a 
modification of the date of a withdrawal election after 
separation. Under Title II elections for deferred payments are 
rendered unnecessary and eliminated. Consequently, the need to 
be able to modify the date of an election is no longer 
necessary. Funds will simply remain on account to be paid 
promptly upon request or to satisfy court-ordered or age-
related payment requirements.
    Section 202 includes technical amendments expanding the 
notice available to spouses of CSRS employees to apply to the 
new in-service withdrawals in the same manner it currently 
applies to loans.
    Subsection 2(A) would eliminate the requirement that the 
Executive Director automatically pay, upon separation, a non-
forfeitable account balance of $3,500 or less where a CSRS 
employee fails to make a valid withdrawal election. This change 
would permit the Executive Director to determine a de minimis 
amount below which the account will automatically be disbursed.

Section 203. In-service withdrawals; withdrawal elections; Federal 
        Employees Retirement System participants

    Section 203 allows TSP participants additional access to 
their TSP accounts at separation by permitting more than one 
type of withdrawal election and prior to separation by adding 
two inservice withdrawal features. Access to TSP funds upon 
separation is currently limited to one of three options; the 
legislation would permit mixed withdrawal elections. Similarly, 
access to TSP funds before separation is currently limited by 
law to loans. Such loans are further limited by the requirement 
that they be approved only for the specific purposes enumerated 
in the statute. The legislation would remove these purpose 
tests. Further, it eliminates elections for deferred withdrawal 
payments.
    Section 203 would eliminate the present statutory 
restriction which permits participants to select only one 
method of withdrawal payment upon separation. Subsection (a) 
would allow the Executive Director to offer, by regulation, a 
separated employee the opportunity to select one or more of the 
presently approved withdrawal options. It would add the option 
to a separated employee to make a one-time withdrawal or 
transfer of any or all of an account in addition to the options 
provided in subsection (a).
    Subsection (a)(3) would eliminate the requirement that the 
Executive Director automatically pay, upon separation, a 
nonforfeitable account balance of $3,500 or less, as was done 
for CSRS employees in section 1(c).
    Subsection (a)(3) would also change the date by which a 
separated participant must make a withdrawal election. 
Employees who separate from service have a number of withdrawal 
options. Currently, the statute provides that the TSP must 
purchase an annuity if the participant has not made a valid 
withdrawal election by February 1 of the year following the 
latest of (1) the year in which the participant turns age 65, 
(2) the tenth anniversary of the year in which the employee 
became subject to the provisions of FERSA, or (3) the 
employee's separation from service. Because the ten year 
anniversary of the Plan occurs in 1997, this provision would 
first take effect next year.
    The purpose of the current provision is not clear, but it 
may already have caused many participants to become confused 
regarding TSP withdrawals. The change made by this subsection 
will eliminate this arbitrary deadline and simply require that 
annuity payments be made by April 1 of the year following the 
later of the year in which the employee turns age 70\1/2\ or 
the employee's separation from service, unless a withdrawal 
election is made before that time.
    Subsection (a)(5) simplifies and expands the current TSP 
loan program by eliminating the present ``purpose'' 
restrictions on loans. Currently, loan applicants must show 
that they qualify for a loan under one of four purposes 
enumerated in the law. The proposed change would remove this 
restriction and authorize certain withdrawals.
    Subsection (a)(6) would allow employees the option to 
withdraw all or a portion of their vested funds prior to 
separation provided they have attained age 59\1/2\. Employees 
are generally considered to be of retirement age when they 
reach age 59\1/2\. Consequently, they are permitted to withdraw 
retirement funds without the early withdrawal penalty imposed 
on other inservice withdrawals by the Internal Revenue Code.
    Subsection (a)(6) would also allow participants of any age 
to withdraw their own contributions and associated earnings 
prior to separation if they are able to demonstrate a financial 
hardship. Such a withdrawal is a taxable distribution subject 
to an early withdrawal penalty under the Internal Revenue Code 
for those persons under age 59\1/2\. Thus, such withdrawals are 
clearly discouraged but would not be prohibited where there is 
a clear and demonstrable need.
    Subsection (b) would invalidate elections with deferred 
payment dates that have not been executed once participants are 
eligible to submit an election at any time for immediate 
payment.

Section 204. Survivor annuities for former spouses; notice to federal 
        employees retirement system spouses for in-service withdrawals

    Section 204 contains technical amendments eliminating 
references to changes of a withdrawal election and expanding 
the notice and consent portions of the statute available to 
spouses of FERS employees to apply to the new in-service 
withdrawals in the same manner they currently apply to loans.

Section 205. De minimus accounts relating to the judiciary

    Section 205 would eliminate the requirement that the 
Executive Director automatically pay, upon separation, a 
nonforfeitable account balance of $3,500 or less where FERS 
employees who are justices or judges as defined by section 451 
of title 28, bankruptcy judges and magistrates, or Court of 
Federal Claims judges, fail to make a valid withdrawal 
election, as was done for CSRS and other FERS employees.

Section 206. Definition of basic pay

    Eliminating the special definition of basic pay would have 
the effect of applying to the TSP the same basic pay 
calculation as applies to amounts contributed to the FERS and 
CSRS defined benefit programs. The current definition of basic 
pay for TSP purposes found at 5 U.S.C. section 8431 authorizes 
the use of the ``uncapped'' rate of pay as it relates to 
Federal Wage System employees. This unique definition has 
caused unnecessary confusion and errors in calculations by 
employing agencies. Each year since 1988 Congress has approved 
legislative language requiring that the actual rate of basic 
pay be substituted for the special definition. The elimination 
of the special definition of basic pay for TSP purposes makes 
this change permanent.

Section 207. Effective date

    Section 207 establishes that this title will take effect 
upon date of enactment and that the changes in the withdrawals 
and elections as provided under the amendments will be made at 
the earliest practicable date as determined by the Executive 
Director.

                    V. Estimated Cost of Legislation

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 1, 1996.
Hon. Ted Stevens,
Chairman, Committee on Governmental Affairs, U.S. Senate, Washington, 
        DC.
    Dear Mr. Chairman. The Congressional Budget Office has 
reviewed S. 1080, the Thrift Savings Investment Funds Act of 
1996, as ordered by the Committee on Governmental Affairs on 
April 18, 1996. The bill would add two new investment funds to 
those currently offered by the Thrift Savings Fund: a Small 
Capitalization Stock Index Fund and an International Stock 
Index fund. Further, the bill would provide current and former 
federal employees greater flexibility with their Thrift Savings 
Plan (TSP) accounts and would expand the options for 
withdrawals.
    These provisions would make TSP more attractive to federal 
employees and would tend to increase participation in the plan. 
Increased participation in TSP would reduce federal income tax 
revenues, because federal employees contribute portions of 
their salaries to TSP on a pre-tax basis. On the other hand, 
the bill would increase tax revenues by accelerating taxable 
disbursements from TSP. Discretionary costs also would 
increase, because agencies provided a limited match to employee 
contributions. For each 1 percent increase in agency matching 
contributions, the cost to the government would be about $15 
million in 1997 and about $30 million by 2002. CBO estimates 
that the bill would increase participation in TSP only 
modestly, and that the resulting effects on the federal budget 
would be small, but we cannot provide a precise estimate.
    The bill contains no intergovernmental or private sector 
mandates as defined in Public Law 104-4, and would impose no 
direct costs on state, local, or tribal governments.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Wayne 
Boyington.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).

                  VI. Regulatory Impact of Legislation

    Purusant to the requirements of paragraph 11(b), rule XXVI 
of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of S. 1080.
    S. 1080 will have minimal regulatory impact, generally 
limited to the operating procedures of the Federal Retirement 
Thrift Investment Board and the administration of the Thrift 
Savings Plan. The Federal Employees' Retirement System Act 
already provides the Executive Director with the authority to 
prescribe regulations to carry out the functions of the TSP. 
Under S. 1080, the Executive Director of the Board is given 
additional authority to prescribe the regulations necessary for 
the addition and implementation of the two new investment funds 
to the Thrift Savings Plan and the new in-service withdrawal, 
loan and mixed election options.

                      VII. CHANGES TO EXISTING LAW

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 1080, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

   TITLE 5, UNITED STATES CODE: GOVERNMENT ORGANIZATION AND EMPLOYEES

                Subchapter III--Civil Service Retirement

Sec. 8351. Participation in the Thrift Savings Plan

          * * * * * * *
    (b)(5)(B) [An election, change of election, or modification 
(relating to the commencement date of a deferred annuity)] An 
election or change of election autorized by subchapter III of 
chapter 84 of this title shall be effective in the case of a 
married employee or Member, and a loan or withdrawal may be 
approved under section 8433(g) and (h) of this title in such 
case, only after the Executive Director notifies the employee's 
or Member's spouse that [the election, change of election, or 
modification] the election or change of election has been made 
or that the Executive Director has received an application for 
such loan or withdrawal, as the case may be.
    (C) Subparagraph (B) may be waived with respect to a spouse 
if the employee or Member establishes to the satisfaction of 
the Executive Director of the Federal Retirement Thrift 
Investment Board that the whereabouts of such spouse cannot be 
determined.
    (D) Except with respect to the making of loans or 
withdrawals under section 8433(g) or (h), none of the 
provisions of this paragraph requiring notification to a spouse 
or former spouse of an employee, Member, former employee, or 
former Member shall apply in any case in which the 
nonforteitable account balance of the employee, Member, former 
employee, or former Member is $3,500 or less.
    (6) Notwithstanding subsection (4), if an employee or 
Member separates from Government employment, and such 
employee's or Member's nonforfeitable account balance is 
[$3,400 or less] less than an amount that the Executive 
Director prescribes by regulation, the Executive Director shall 
pay the nonforfeitable account balance to the participant in a 
single payment [unless the employee or Member elects, at such 
time and otherwise in such manner as the executive Director 
prescribes, one of the options available under subsection (b)].
          * * * * * * *

Sec. 8401. Definitions

          * * * * * * *
    (4) [except as provided in subchapter III of this chapter,] 
the term ``basic pay'' has the meaning given such term by 
section 8331(3);
          * * * * * * *

                  Subchapter III--Thrift Savings Plan

[Sec. 8431. Definition

    Notwithstanding section 8401 of this title, for the purpose 
of this subchapter, the term ``basic pay'', when used with 
respect to an employee or Member, means the basic pay of the 
employee or Member established pursuant to law, without regard 
to any provision of law (existing sections 5303(e), 5304(g), 
and 5382(b) of this title) limiting the rate of pay actually 
payable in any pay period (including any provision of law 
restricting the use of appropriated funds).]

Sec. 8433. Benefits and election of benefits

          * * * * * * *
    [(b) Subject to section 8435 of this title, any employee or 
Member who separates for Government employment is entitled and 
may elect--
          [(1) to receive an immediate annuity from the Thrift 
        Savings Fund;
          ((2) to defer the commencement of the payment of an 
        annuity from the Thrift Savings Fund until such date as 
        the employee or Member specifies, but not later than 
        April 1 of the year following the year in which the 
        employee or Member becomes 70\1/2\ years of age;
          [(3) to withdraw the amount of the balance in the 
        employee's or Member's account in the Thrift Savings 
        Fund in one or more substantially equal payments to be 
        made not less frequently than annually and to commence 
        before April 1 of the year following the hear in which 
        the employee or Member becomes 70\1/2\ years of age; or
          [(4) to transfer the amount of the balance in the 
        employee's or Member's account to an eligible 
        retirement plan as provided in subsection (c).
    [(c)(1) The Executive Director shall make each transfer 
elected under subsection (b)(4) directly to an eligible 
retirement plan or plans (as defined in section 402(c)(8) of 
the Internal Revenue Code of 1986) identified by the employee, 
Member, former employee, or former Member for whom the transfer 
is made.
    [(2) A transfer may not be made for an employee, Member, 
former employee, or former Member under paragraph (1) until the 
Executive Director receives from that individual the 
information required by the Executive Director specifically to 
identify the eligible retirement plan or plans to which the 
transfer is to be made.]
    (b) Subject to section 8435 of this title, any employee or 
Member who separates from Government employment is entitled and 
may elect to withdraw from the Thrift Savings Fund the balance 
of the employee's or Member's account as--
          (1) an annuity;
          (2) a single payment;
          (3) 2 or more substantially equal payments to be made 
        not less frequently than annually; or
          (4) any combination of payments as provided under 
        paragraphs (1) through (3) as the Executive Director 
        may prescribe by regulation.
    (c)(1) In addition to the right provided under subsection 
(b) to withdraw the balance of the account, an employee or 
Member who separates from Government service and who has not 
made a withdrawal under subsection (h)(1)(A) may make one 
withdrawal of any amount as a single payment in accordance with 
subsection (b)(2) from the employee's or Member's account.
    (2) An employee or Member may request that the amount 
withdrawn from the Thrift Savings Fund in accordance with 
subsections (b)(2) be transferred to an eligible retirement 
plan.
    (3) The Executive Director shall make each transfer elected 
under paragraph (2) directly to an eligible retirement plan or 
plans (as defined in section 402(c)(8) of the Internal Revenue 
Code of 1986) identified by the employee, Member, former 
employee, or former Member for whom the transfer is made.
    (4) A transfer may not be made for an employee, Member, 
former employee, or former Member under paragraph (2) until the 
Executive Director receives from that individual with the 
information required by the Executive Director specifically to 
identify the eligible retirement plan or plans to which the 
transfer is to be made.
    (d)(1) [Subject to paragraph (3)(A)] Subject to paragraph 
(3) and subsections (a) and (c) of section 8435 of this title, 
an employee or Member may change an election previously made 
under this subchapter.
    [(2) Subject to paragraph (3)(B) and section 8435(c) of 
this title, a former employee or Member who has made an 
election pursuant to subsection (b)(2) may modify the date 
specified in such election or in a previous modification under 
this paragraph.]
    (2) [(A)] A former employee or Member may not change an 
election under this section on or after the date on which a 
payment is made in accordance with such election or, in the 
case of an election to receive an annuity, the date on which an 
annuity contract is purchased to provide for the annuity 
elected by the former employee or Member.
    [(B) A modification of a date may not be made under 
paragraph (2) on or after the date on which an annuity contract 
is purchased to provide for the annuity involved, and may not 
specify a date for the commencement of an annuity earlier than 
90 days after the date on which the modification is submitted 
to the Executive Director (or such period shorter than 90 days 
as the Executive Director may be regulation prescribe).]
    (e) If an employee or Member (or former employee or Member) 
dies without having made an election under this section or 
after having elected an annuity under this section but before 
making an election under section 8434 of this title, an amount 
equal to the value of that individual's account (as of death) 
shall, subject to any decree, order, or agreement referred to 
in section 8435(c)(2) of this title be paid in a manner 
consistent with section 8424(d) of this title.
    (f)(1) Notwithstanding subsection (b), if an employee or 
Member separates from Government employment, and such 
employee's or Member's nonforfeitable account balance is 
[$3,500 or less] less than an amount that the Executive 
Director prescribes by regulation, the Executive Director shall 
pay the nonforfeitable account balance to the participant in a 
single payment [unless the employee or Member elects, at such 
time and otherwise in such manner as the Executive Director 
prescribes, one of the options available under subsection (b), 
or], unless an election under section 8435(h)(2) is made to 
treat such separation for purposes of this paragraph as if it 
had never occurred.
    (2) Unless otherwise elected under this section, and 
subject to paragraph (1), benefits under this subchapter shall 
be paid as an annuity commencing for an employee, Member, 
former employee, or former Member on [February 1] April 1 of 
the year following the latest of the year in which--
          (A) the employee, Member, former employee, or former 
        Member becomes [65] 70\1/2\ years of age; or
          [(B) occurs the tenth anniversary of the year in 
        which the employee, Member, former employee, or former 
        Member became subject to this subchapter; or]
          (B) the employee, Member, former employee, or former 
        Member separates from Government employment.
    (g)(1) At any time [after December 31, 1987, and] before 
separation, an employee or Member may apply to the Board for 
permission to borrow from the employee's or Member's account an 
amount not exceeding the value of that portion of such account 
which is attributable to contributions made by the employee or 
Member under section 8432(a) of this title.
    [(2) An application under this subsection may be approved 
only for--
    [(A) the purchase of a primary residence;
    [(B) educational expenses;
    [(C) medical expenses; or
    [(D) financial hardship.]
          (2) Loans under this subsection shall be available to 
        all employees and Members on a reasonably equivalent 
        basis, and shall be subject to such other conditions as 
        the Board may by regulation prescribe. The restrictions 
        of section 8477(c)(1) of this title shall not apply to 
        loans made under this subsection.
          (3) A loan may not be made under this subsection to 
        the extent that the loan would be treated as a taxable 
        distribution under section 72(p) of the Internal 
        Revenue Code of 1986.
          (4) A loan may not be made under this subsection 
        unless the requirements of section 8435(e) of this 
        title are satisfied.
    (h)(1) An employee or Member may apply, before separation, 
to the Board for permission to withdraw an amount from the 
employee's or Member's account based upon--
    (A) the employee or Member having attained age 59\1/2\; or
    (B) financial hardship.
    (2) A withdrawal under paragraph (1)(A) shall be available 
to each eligible participant one time only.
    (3) A withdrawal under paragraph (1)(B) shall be available 
only for an amount not exceeding the value of that portion of 
such account which is attributable to contributions made by the 
employee or Member under section 8432(a) of this title.
    (4) A withdrawals under paragraph (1) shall be subjection 
to such other conditions as the Executive Director may 
prescribe by regulation.
    (5) A withdrawal may not be made under this subsection 
unless the requirements of section 8435(e) of this title are 
satisfied.

Sec. 8435. Protections for spouses and former spouses

    (a)(1)(A) A married employee or Member (or former employee 
or Member) [may make an election under subsection (b)(3) or 
(b)(4) of section 8433 of this title or change an election 
previously made under subsection (b)(1) or (b)(2) of such 
section] may withdraw all or part of a Thrift Savings Fund 
Account under subsection (b)(2), (b)(3) or (b)(4) of section 
8433 of this title or change a withdrawal election only if the 
employee or Member (or former employee or Member) satisfies the 
requirements of subparagraph (B). A married employee or Member 
(or former employee or Member) may make a withdraw from a 
Thrift Savings Fund account under subsection (c)(1) of section 
8433 of this title only if the employee or Member (or former 
employee or Member) satisfies the requirements of subparagraph 
(B).
    (B) An employee or Member (or former employee or Member) 
may make an election or change referred to in subparagraph (A) 
if the employee or Member and the employee's or Member's spouse 
(or the former employee or Member and the former employee's or 
Member's spouse) jointly waive, by written election, any right 
which the spouse may have to a survivor annuity with respect to 
such employee or Member (or former employee or Member) under 
section 8434 of this title or subsection (b).
    (2) Paragraph (1) shall not apply to an election [or change 
of election] by an employee or Member (or former employee or 
Member) who establishes to the satisfaction of the Executive 
Director (at the time of the election or change and in 
accordance with regulations prescribed by the Executive 
Director)--
          (A) that the spouse's whereabouts cannot be 
        determined; or
          (B) that, due to exceptional circumstances, requiring 
        the spouse's waiver would otherwise be inappropriate.
          * * * * * * *
    (c)(1) [An election, change of election, or modification of 
the commencement date of a deferred annunity] An election or 
change of election shall not be effective under this subchapter 
to the extent that the election, change, [modification, or 
transfer] or transfer conflicts with any court decree, order, 
or agreement described in paragraph (2).
    (2) A court decree, order, or agreement referred to in 
paragraph (1) is, with respect to an employee or Member (or 
former employee or Member), a court decree of divorce, 
annulment, or legal separation issued in the case of such 
employee or Member (or former employee or Member) or any court 
order or court-approved property settlement incident to such 
decree if--
          (A) the decree, order, or agreement, expressly 
        relates to any portion of the balance in the employee's 
        or Member's (or former employee's or Member's) account; 
        and
          (B) notice of the decree, order, or agreement was 
        received by the Executive Director before--
                  (i) the date on which payment is made, or
                  (ii) in the case of an annuity, the date on 
                which an annuity contract is purchased to 
                provide for the annuity, in accordance with the 
                election, change, [modification,] or 
                contribution referred to in paragraph (1).
    (3) The Executive Director shall prescribe regulations 
under which this subsection shall be applied in any case in 
which the Executive Director receives two or more decrees, 
orders, or agreements referred to in paragraph (1).
          * * * * * * *
    (e)(1)(A) A loan or withdrawal may be made to a married 
employee or Member under section 8433(g) and (h) of this title 
only if the employee's or Member's spouse consents to such loan 
or withdrawal in writing.
    (B) A consent under subparagraph (A) shall be irrevocable 
with respect to the loan or withdrawal to which the consent 
relates.
    (C) subparagraph (A) shall not apply to a loan or 
withdrawal to an employee or Member who establishes to the 
satisfaction or the Executive Director (at the time the 
employee or Member applies for such loan or withdrawal and in 
accordance with regulations prescribed by the Executive 
Director)--
          (i) that the spouse's whereabouts cannot be 
        determined; or
          (ii) that, due to exceptional circumstances, 
        requiring the employee or Member to seek the spouse's 
        consent would otherwise be inappropriate.
    (2) An application for a loan or withdrawal under section 
8433(g) and (h) of this title shall not be approved if approval 
would have the result described under subsection (c)(1).
    (f) Waivers and notifications required by this section and 
waivers of the requirements for such waivers and notifications 
(as authorized by this section) may be made only in accordance 
with procedures prescribed by the Executive Director.
    (g) Except with respect to the making of loans or 
withdrawals under section 8433(g) and (h), none of the 
provisions of this section requiring notification to, or the 
consent or waiver or, a spouse or former spouse of an employee, 
Member, former employee, or former Member shall apply in any 
case in which the nonforfeitable account balance of the 
employee, Member, former employee, or former Member is $3,500 
or less.
    (h) The protections provided by this section are in 
addition to the protections provided by section 8467 of this 
title.

Sec. 8438. Investment of Thrift Savings Fund

    (a) For the purposes of this section--
          (1) the term ``Common Stock Index Investment Fund'' 
        means the Common Stock Index Investment Fund 
        established under subsection (b)(1)(C);
          (2) the term ``equity capital'' means common and 
        preferred stock, surplus, undivided profits, 
        contingency reserves, and other capital reserves;
          (3) the term ``Fixed Income Investment Fund'' means 
        the Fixed Income Investment Fund established under 
        subsection (b)(1)(B);
          (4) the term ``Government Securities Investment 
        Fund'' means the Government Securities Investment Fund 
        established under subsection (b)(10(A);
          (5) the term ``International Stock Index Investment 
        Fund'' means the International Stock Index Investment 
        Fund established under subsection (b)(1)(E);
          (7) the term ``plan'' means an employee benefit plan, 
        as defined in section 3(3) of the Employee Retirement 
        Income Security Act of 1974 (29 U.S.C. 1002(3));
          (8) the term ``qualified professional asset manager'' 
        means--
                  (A) a bank, as defined in section 202(a)(2) 
                of the Investment Advisers Act of 1940 (15 
                U.S.C. 80b-2(a)(2)) which--
                          (i) has the power to manage, acquire, 
                        or dispose of assets of a plan; and
                          (ii) has, as of the last day of its 
                        latest fiscal year ending before the 
                        date of a determination for the purpose 
                        of this clause, equity capital in 
                        excess of $1,000,000;
                  (B) a savings and loan association, the 
                accounts of which are insured by the Federal 
                Deposit Insurance Corporation, which--
                          (i) has applied for and been granted 
                        trust powers to manage, acquire, or 
                        dispose of assets of a plan by a State 
                        or Government authority having 
                        supervision over savings and loan 
                        associations; and
                          (ii) has, as of the last day of its 
                        latest fiscal year ending before the 
                        date of a determination for the purpose 
                        of this clause, equity capital in 
                        excess of $1,000,000;
                  (C) an insurance company which--
                          (i) is qualified under the laws of 
                        more than one State to manage, acquire, 
                        or dispose of any assets of a plan;
                          (ii) has, as of the last day of its 
                        latest fiscal year ending before the 
                        date of a determination for the purpose 
                        of this clause, equity capital in 
                        excess of $1,000,000; and
                          (iii) is subject to supervision and 
                        examination by a State authority having 
                        supervision over insurance companies; 
                        or
                  (D) an investment adviser registered under 
                section 203 of the Investment Advisers Act of 
                1940 (15 U.S.C. 80b-3) if the investment 
                adviser has, on the last day of its latest 
                fiscal year ending before the date of a 
                determination for the purpose of this 
                subparagraph, total client assets under its 
                management and control in excess of 
                450,000,000, and--
                          (i) the investment adviser has, on 
                        such day, shareholder's or partner's 
                        equity in excess of $750,000; or
                          (ii) payment of all of the investment 
                        adviser's liabilities, including any 
                        liabilities which may arise by reason 
                        of a breach or violation of a duty 
                        described in section 8477 of this 
                        title, is unconditionally guaranteed 
                        by--
                                  (I) a person (as defined in 
                                section 8471(4) of this title) 
                                who directly or indirectly, 
                                through one or more 
                                intermediaries, controls, is 
                                controlled by, or is under 
                                common control with the 
                                investment adviser and who has, 
                                on the last day of the person's 
                                latest fiscal year ending 
                                before the date of a 
                                determination for the purpose 
                                of this clause, shareholder's 
                                or partner's equity in an 
                                amount which, when added to the 
                                amount of the shareholder's or 
                                partner's equity of the 
                                investment adviser on such day, 
                                exceeds $750,000;
                                  (II) a qualified professional 
                                asset manager described in 
                                subparagraph (A), (B) or (C); 
                                or
                                  (III) a broker or dealer 
                                registered under section 15 of 
                                the Securities Exchange Act of 
                                1934 (15 U.S.C. 70o) that has, 
                                on the last day of the broker's 
                                or dealer's latest fiscal year 
                                ending before the date of a 
                                determination for the purpose 
                                of this clause, net worth in 
                                excess of $750,000; [and]
          (9) the term ``shareholder's or partner's equity'', 
        as used in paragraph (8)(D) with respect to an 
        investment adviser or a person (as defined in section 
        8471(4) of this title) who is affiliated with the 
        investment adviser in a manner described in clause 
        (ii)(I) of such paragraph (8)(D), means the equity 
        shown in the most recent balance sheet prepared for 
        such investment adviser or affiliated person, in 
        accordance with generally accepted accounting 
        principles, within 2 years before the date on which the 
        investment adviser's status as a qualified professional 
        asset manager is determined for the purpose of this 
        section; and
          (10) the term ``Small Capitalization Stock Index 
        Investment Fund'' means the Small Capitalization Stock 
        Index Investment Fund established under subsection 
        (b)(1)(D).
    (b)(1) The Board shall establish--
          (A) a Government Securities Investment Fund under 
        which sums in the Thrift Savings Fund are invested in 
        securities of the United States Government issued as 
        provided in subsection (e);
          (B) a Fixed Income Investment Fund under which sums 
        in the Thrift Savings Fund are invested in--
                  (i) insurance contracts;
                  (ii) certificates of deposits; or
                  (iii) other instruments or obligations 
                selected by qualified professional asset 
                managers,
        which return the amount invested and pay interest, at a 
        specified rate or rates, on that amount during a 
        specified period of time; [and]
          (C) a Common Stock Index Investment Fund as provided 
        in paragraph (2);
          (D) a Small Capitalization Stock Index Investment 
        Fund as provided in paragraph (3); and
          (E) an International Stock Index Investment Fund as 
        provided in paragraph (4).
          * * * * * * *
    (3)(A) The Board shall select an index which is a commonly 
recognized index comprised of common stock the aggregate market 
value of which represents the United States equity markets 
excluding the common stocks included in the Common Stock Index 
Investment Fund.
    (B) The Small Capitalization Stock Index Investment Fund 
shall be invested in a portfolio designed to replicate the 
performance of the index in subparagraph (A). The portfolio 
shall be designed such that, to the extent practicable, the 
percentage of the Small Capitalization Stock Index Investment 
Fund that is invested in each stock is the same as the 
percentage determined by dividing the aggregate market value of 
all shares of that stock by the aggregate market value of all 
shares of all stocks included in such index.
    (4)(A) The Board shall select an index which is a commonly 
recognized index comprised of common stock the aggregate market 
value of which is a reasonably complete representation of the 
international equity markets excluding the United States equity 
markets.
    (B) The International Stock Index Investment Fund shall be 
invested in a portfolio designed to replicate the performance 
of the index in subparagraph (A). The portfolio shall be 
designed such that, to the extent practicable, the percentage 
of the International Stock Index Investment Fund that is 
invested in each stock is the same as the percentage determined 
by dividing the aggregate market value of all shares of that 
stock by the aggregate market value of all shares of all stocks 
included in such index.
          * * * * * * *

Sec. 8439. Accounting and information

          * * * * * * *
    (d) [Each employee, Member, former employee, or former 
Member who elects to invest in the Common Stock Index 
Investment Fund or the Fixed Income Investment Fund described 
in paragraphs (1) and (3),] Each employee, Member, former 
employee, or former Member who elects to invest in the Common 
Stock Index Investment Fund, the Fixed Income Investment Fund, 
the International Stock Index Investment Fund, or the Small 
Capitalization Stock Index Investment Fund, defined in 
paragraphs (1), (3), (5), and (10), respectively, of section 
8438(a) of this title shall sign an acknowledgment prescribed 
by the Executive Director which states that the employee, 
Member, former employee, or former Member understands that an 
investment in [either] such Funds is made at the employee's, 
Member's, former employee's, or former Member's risk, that the 
employee, Member, former employee, or former Member is not 
protected by the Government against any loss on such 
investment, and that a return on such investment is not 
guaranteed by the Government.
          * * * * * * *

Sec. 8440a. Justices and judges

          * * * * * * *
    (b)(7) Notwithstanding paragraphs (4) and (5), if any 
justice or judge retires under subsection (a) or resigns 
without having met the age and service requirements set forth 
under section 371(c) of title 28, and such justice's or judge's 
nonforfeitable account balance is [$3,500 or less] less than an 
amount that the Executive Director prescribes by regulation, 
the Executive Director shall pay the nonforfeitable account 
balance to the participant in a single payment [unless the 
justice or judge elects, at such time and otherwise in such 
manner as the Executive Director prescribes, one of the options 
available under section 8433(b)].
          * * * * * * *

Sec. 8440b. Bankruptcy judges and magistrates

          * * * * * * *
    (b)(7) In the case of a bankruptcy judge or magistrate who 
receives a distribution from the Thrift Savings Plan and who 
later receives an annuity under section 377 of title 28, that 
annuity shall be offset by an amount equal to the amount of the 
distribution which represents the Government's contribution to 
that person's Thrift Savings Account, without regard to 
earnings attributable to that amount. Where such an offset 
would exceed 50 percent of the annuity to be received in the 
first year, the offset may be divided equally over the first 2 
years in which that person receives the annuity.
    (b)(8) Notwithstanding paragraph (4), if any bankruptcy 
judge or magistrate retires under circumstances making such 
bankruptcy judge or magistrate eligible to make an election 
under subsection (b) of section 8433, and such bankruptcy 
judge's or magistrate's nonforfeitable account balance is 
[$3,500 or less] less than an amount that the Executive 
Director prescribes by regulation, the Executive Director shall 
pay the nonforfeitable account balance to the participant in a 
single payment [unless the justice or judge elects, at such 
time and otherwise in such manner as the Executive Director 
prescribes, one of the options available under section 
8433(b)].
          * * * * * * *

Sec. 8440c. Court of Federal Claims judges

          * * * * * * *
    (b)(7) In the case of a Court of Federal Claims judge who 
receives a distribution from the Thrift Savings Plan and who 
later receives an annuity under section 178 of title 28, such 
annuity shall be offset by an amount equal to the amount of the 
distribution which represents the Government's contribution to 
that person's Thrift Savings Account, without regard to 
earnings attributable to that amount. Where such an offset 
would exceed 50 percent of the annuity to be received in the 
first year, the offset may be divided equally over the first 2 
years in which that person receives the annuity.
    (8) Notwithstanding paragraph (4), if any Court of Federal 
Claims judge retires under circumstances making such judge 
eligible to make an election under section 8433(b), and such 
judge's nonforfeitable account balance is [$3,500 or less] less 
than an amount that the Executive Director prescribes by 
regulation. The Executive Director shall pay the nonforfeitable 
account balance to the participant in a single payment [unless 
the justice or judge elects, at such time and otherwise in such 
manner as the Executive Director prescribes, one of the options 
available under section 8433(b)]
          * * * * * * *