Divorce and Federal Employees – Part III: Court Orders and the Thrift Savings Plan

Divorce is something that most individuals including federal employees would prefer to avoid. Some federal employees in the past, there are currently some federal employees, and there will be in the future some federal employees who will unfortunately continue to face the experience of divorce.

This is the last of three columns discussing divorce and federal employees and how court orders can affect a federal employee’s Thrift Savings Plan (TSP) account.

A court order related to a divorce could affect a federal employee’s TSP account in the following ways:

(1) A portion of the employee’s TSP account may be given to the employee’s ex-spouse; and/or

(2) A portion of the employee’s TSP account can be garnished for alimony and/or child support.

Court Orders and the TSP

A TSP account can be divided by means of:

(1) A court decree of divorce, annulment or legal separation; or

(2) A court order approved property settlement agreement incident to such a decree. A court order may be issued at any stage of a divorce, annulment or legal separation proceeding.

The TSP labels this document as a “retirement benefits court order.” To be accepted by the TSP, a court order must meet the requirements found in Title 5 U.S. Code and Title 5 Code of Federal Regulations (CFR) part 1653, subpart A.

The TSP will review a complete copy of a court order containing all pages and documents and must provide either within the court order or through a separate document the following items:

(1) The TSP participant’s Social Security number;

(2) The name and mailing address of each payee;

(3) If the current or former spouse of the TSP participant is a payee, the Social Security number of the payee. If the court order requires the payment to be mailed in care of a third party, it must provide the state of legal residence of the spouse payee; and

(4) if the court order is written in a language other than English, a certified English translation of the entire court order.

It should be noted that a Qualified Domestic Relations Order (QDRO) – a court order that applies to a qualified retirement plan (such as 401(k) retirement plan) that are governed by the Employee Retirement Income Security Act of 1974 (ERISA) – does not apply to the TSP. This is because the TSP in not covered by the rules under ERISA.

Nevertheless, a qualifying retirement benefits court order for the TSP must meet four basic requirements, as set forth in the CFR. These four requirements are:

• A qualifying retirement benefits court order must be issued in any of the 50 states, the District of Columbia, the Commonwealth of Puerto Rico, Guam or the Northern Mariana Islands.

• A qualifying retirement benefits court order must expressly relate to the TSP. This means it must specifically contain the name “Thrift Savings Plan.” Terms such as “government benefits,” “Thrift Savings” or “Thrift Savings Account” are not acceptable.

• If the court order requires a payment from a TSP account, the court order must clearly describe the payee’s entitlement. The court order can only award a specified dollar amount, a fraction or a percentage of the TSP participant’s account, as of a specified past or current date.

• A court order can require a payment only to be to the TSP participant’s current or former spouse or to the TSP participant’s dependents. The TSP will not honor a court order asking for a single payment to be made jointly. For example, a single payment of $20,000 to be divided among the former spouse and the TSP dependents is not acceptable. The court order must separately specify the dollar amount, percentage or fraction of the award made to each eligible payee.

The TSP will not honor a court order that requires payment in the future. An acceptable court order is one that is used to prevent a TSP participant from withdrawing from his or her TSP account during a divorce action. The TSP will upon receiving a valid court order as soon as possible freeze a participant’s account. This freeze occurs if the court order names the TSP and provides that the TSP participant may not obtain a TSP loan or withdrawal. The purpose of the court order is to give to the TSP participant’s spouse some or all of participant’s TSP account. Once an account is frozen, no new loans or withdrawals are permitted from the account until the action is resolved. All other account activity including contributions, inter-fund transfers, and payments on existing loans may continue.

Garnishment of a TSP Account for Alimony or Child Support

A TSP account can be garnished with a writ, order, summons, or other similar document in order to satisfy a garnishment order that is brought to enforce a TSP participant’s alimony or child support obligations. The TSP calls such a document a “legal process.”

The TSP will review only a complete copy of the legal process. A complete legal process includes:

(1) The TSP participant’s Social Security number;

(2) The name and mailing address of each payee;

(3) If the current or former spouse of the participant is a payee, the Social Security number of the spouse or former spouse payee; and

(4) If the legal process is written in a language other than English, a certified English language translation of the entire legal process.

A legal process must also meet three requirements:

1. The legal process must be issued by a court or administrative agency of competent jurisdiction in any of the 50 United States, the District of Columbia, or a territory or a possession of the United States. Or by a court in a foreign country with which the United States has entered into an agreement to honor such processing or by an official pursuant to an order of such a court or administrative agency competent jurisdiction or pursuant to state or local law.

2. The legal process must expressly relate to the TSP – it must specifically contain the name “Thrift Savings Plan.”

3. The legal process must either expressly require the payment of a stated dollar amount from the TSP participant’s account to satisfy his or her child support or alimony debt, or it must require the TSP to freeze the participant’s account pending receipt of an order to make such a payment from the account. The TSP will not honor a legal process that awards a percentage or fraction of an account.

A TSP participant who is liable for alimony or child support can be prevented withdrawing from his or her TSP account.

There are four steps taken by the TSP once a legal process has been received:

Step 1. The TSP participant’s account will be frozen as soon as possible after receiving a document that purports to be a qualifying legal process.

Step 2. The TSP will then evaluate whether the legal process is complete. If it is not, the TSP will remove the freeze within 30 days of the TSP’s written request for the complete legal process.

Step 3. When the TSP receives a complete legal process, the TSP will evaluate it to determine whether it is a qualifying legal process.

Step 4. The TSP will mail a decision letter to the participant and provide a copy to all other parties having an interest in the actions. The decision letter will describe the effect the legal process will have on the participant’s account and state when the freeze will be removed from the account. If the legal process is not qualifying, the decision letter will explain why. If the legal process is qualifying and requires a payment from the TSP, the letter also will explain how the payment amount will be calculated and when the payment will be made.

The party who owes federal and state (if applicable) income tax on the distribution will receive tax reporting and withholding information.

If a TSP participant’s account was frozen upon a receipt of an order to withhold, the freeze will be removed:

• Upon receipt of an order removing the freeze

• After payment pursuant to a qualifying order to deliver, or

• If the TSP informs the parties in writing that the document is not a qualifying legal process.