bulletin 07-3: tsp loan default process · bulletin 07-3: tsp loan default process author: susan...
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07-3Thrift Savings Plan
BULLETIN for Agency TSP Representatives
Federal Retirement Thrift Investment Board • 1250 H Street, NW • Washington, DC 20005
Subject: TSPLoanDefaultProcess
Date: October4,2007
TheThriftSavingPlan(TSP)hasimplementeditsloandefaultprogram.ThisprogramismandatedbyInternalRevenueServiceregulationswhichapplytoall401(k)plans,includingtheTSP.Essentially,theregulationsprovidethatattheendofeachcalendarquarter,plansliketheTSPmustidentifyloanaccountsthataremissingpaymentsandnotifyparticipantsthattheyhaveuntiltheendofthefollowingquartertopaythemissingamount.Ifthepay-mentsarenotmadeup,theloanbalanceisdeclaredataxabledistribution.Theamountofthedistributionistreatedasincomeandmaybesubjecttoa10%earlywithdrawalpenaltytax.(See“RepayingaLoan”inthebookletTSP Loans.)
I. Implementation
A. Inpreparationforthisprocess,onMarch31,2006,theTSPreamortizedatotalof36,545loansthatweremissing2½ormorepaymentstogiveparticipantsachancetostartfresh.
B. ThefirstquarterlydefaultcyclebeganonJune30,2006,thelastbusinessdayofthesecondquarter.Anyloanthatwasmorethan2½paymentsbehindwasiden-tifiedasbeingindefault(exceptloansbelongingtoparticipantsinnonpaystatuslessthan12months,orparticipantsinmilitarynonpaystatus).Approximately20,000participantsweresenta“pendingloandefaultnotice.”
ThisnoticeinformsparticipantsthattheymustbringtheirloanaccountsuptodatebysubmittingmissedloanpaymentsdirectlytotheTSPbeforetheendofthequarterinwhichthenoticewassent.Thenoticeprovidesthecurrentamountneededtobringtheloanintoagoodstanding.Thisamountisthe“cureamount”andisonlyvalidfor30days.Itdoesnottakeintoconsiderationanyfuturemissedpayments.ParticipantsaretoldtocontacttheTSPtoobtaincurrentcureamountsiftheydonotsubmitapaymentwithin30daysorcontinuetomisspayments.Ifthepaymentsarenotmadeup,theloanswillbecometaxabledistributionsattheendofthequarter.AcopyofthenoticeisincludedwiththisbulletinasAttachment1.
Inquiries: QuestionsconcerningthisbulletinshouldbedirectedtotheFederalRetirementThriftInvestmentBoardat202-942-1460.
Chapter: ThisbulletinmaybefiledinChapter8,LoanProgram.
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C. ParticipantNotifications.
(1) EndofQuarterParticipantNotices.
Attheendofeachquarterthatfollows,theTSPevaluatesthestatusofloansforallparticipants(exceptthosewhohavebeeninnonpaystatusforlessthan12monthsorareinnonpaystatusduetomilitaryservice).Iftheloanisinacurrentpaymentstatus,noactionwillbetaken.Ifnot,thenoneofthefollowingactionswilloccur:
a. Iftheparticipanthadbeensentthependingloandefaultnoticeattheendofthepriorquarterandtheloanpaymentshavenotbeenmadeup,theloanwillbedeclaredataxabledistribution.Theparticipantwillbenotifiedthattheloanhasbeenclosed,andagenciesandserviceswillbenotifiedviathe19401Reportthatloanpayments(ifany)shouldbestopped.(SeeAttachment2foracopyofthisnotice.)
b. Iftheparticipanthadnotbeensentthependingloandefaultnotice,onewillbeissued.Theloanwillbesubjecttoataxabledistributionifpay-mentsarenotmadeupbytheendofthefollowingquarter.
(2) Mid-QuarterReminderNotice.Iftheparticipantwassentapendingloandefaultnotice(1)(b)andtheloanhasnotbeen“cured,”aremindernoticewillbesenttotheparticipantapproximatelymid-quarter.AcopyofthatisAttachment3.
II.AgencyActions
A. PendingLoanDefaultReport(19402Report).
Attheendofeachquarter,theTSPwillsendeachsubmittingpayrollofficeareportlistingtheirparticipantswhohavebeensentthePendingLoanDefaultNotice.Thisreportisverysimilartothe19401;itprovidestheparticipant’sSocialSecuritynumber,name,loannumber,loanpayoffamount,lastpaymentdate,andLWOPstatus.Itisbrokendownbydepartmentandagency.AcopyofthereportisAttachment4.
B. Agencypersonnelandpayrollofficescanassisttheirparticipantsintwoways:
(1) Ifpaymentsareerroneouslynotbeingmade,theyshouldbestartedimme-diately.Ifpaymentsareincorrect,theyshouldbechangedtotheappropri-ateamount.TheAgencyTechnicalServices(ATS)canprovideassistancetopayrollofficesasnecessary.Agencypersonnelshouldalsoremindpartici-pantsthattheymustsendthecureamounttomakeupthedeficiency(inadditiontotheloanpaymentsmadebypayrolldeductions)topreventthetaxabledistributionsattheendofthequarter.Itistheparticipants’respon-sibilitytoensurethattheirloanpaymentsarecurrent.ParticipantsshouldbereferredtotheTSPtoobtainthelatestcureamount.
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(2) Ifparticipantsareonleavewithoutpay(LWOP)ormilitaryLWOPandreceivedapendingloandefaultnotice,thentheTSPwasnotnotifiedofthatstatus.Itisextremelyimportantthatagencies(orservices)promptlysubmitFormTSP-41,NotificationtoTSPofNonpayStatus,totheTSP.(Youmayfaxtheformto1-866-817-5023.)Thisformwillensurethattheparticipants’loan(s)willbesuspendedandnotsubjecttoataxabledis-tributionduetomissingpayments.(NOTE:LoanpaymentscannotbesuspendedduetoLWOPformorethanayearunlesstheparticipantisonmilitaryLWOP.)
FormoreinformationaboutparticipantsinnonpaystatusandtheeffectonTSPloans,pleaseseeTSPBulletin04-8,RevisionoftheBookletTSP Loans,datedMay4,2004.Thereisalsoafactsheet,EffectofNonpayStatusonTSPParticipa-tion,datedMay2005.ThesepublicationsareavailableontheTSPWebsite.
Agenciesareadvisedthattheymayreceivecallsfromparticipantsconcerningthependingdefaultnotice.Theyshouldprovideassistanceasnecessarytoensurethatpaymentsarebe-ingproperlydeductedorthattheTSPispromptlynotifiedofaLWOPstatus.However,asindicatedontheloanagreementsthattheysigned,participantsareresponsibleforrepayingtheirloans,includinganymissedpaymentsandassociatedinterest.
PAMELA-JEANNEMORANDirectorOfficeofParticipantServices
Attachments
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Report No: TSP 19402 Thrift Savings Plan Run Date: 05/24/07 Payroll Office No: 99999999 Pending Loan Default Information Report Run Time: 06:25:25 Payroll Office Nm: TEST OF DEPT. Page No: 1 Process Taxable Distribution Date: 06/29/2007 ** Sensitive Personnel Data - Use is Restricted ** Date of Loan Payment Date of LWOP End Dept Agcy Pers SSN Last Name First Name Middle Name Birth Number Amount Last Pmt Date Code Code OfId ----------- ----------------- ------------ ------------ ---------- -------- ---------- ---------- ---------- ---- ---- ---- 999-99-9999 SAMPLE PART E 11/15/1965 9999999G 50.00 05/22/2007 00/00/0000 DL ES 3226