Direct OPM to transfer CSRS payments to the TSP?

[kenkeller]

I am a CSRS retiree who has found that I have never spent all of the funds received from my CSRS pension in any of the years I've been retired. This caused me to research whether I could direct OPM to transfer some of the CSRS funds I receive to my TSP account in a tax-deferred transaction. The TSP advised me that they would accept such a transfer but it would require OPM approval because there is presently no provision for doing this. So, I wrote this letter to OPM and copied the Chairmen and Ranking Members of the relevant committees in the House of Representatives. If you are interested in having the right to direct OPM to transfer CSRS payments to the TSP, please consider writing to your representatives and relevant committee members (listed at the bottom of my letter). I would also welcome any suggestions or comments you might care to share with me on this post.

LETTER:

To:
Kenneth J. Zawodny
AssociateDirector for Retirement Services
UnitedStates Office of Personnel Management
1900 E Street, NW
Washington, DC 20415-1000

DearSir:


Throughthis letter I am requesting your ruling on whether a retiree coveredby the Civil Service Retirement System may direct OPM to make atax-deferred rollover of funds attributable to their retirementaccount into the Thrift Savings Plan. I have been advised informallyby a OPM representative that this is not being done and I request aformal determination from your office on this issue.


Background: I have been retired from federal service for several years and havebeen receiving CSRS benefits. I have not fully spent the amounts Ireceived from CSRS in any of these years. I would like to reservethese funds, (from a retirement plan to which I contributed and towhich I am entitled) for later years in my life when I expect to havemuch higher medical expenses. I believe that I should have the rightto direct OPM to rollover funds from CSRS into my Thrift Savings Planaccount as a tax-deferred transaction in the same manner that any IRAcan transfer funds in a tax-free rollover to another type ofretirement account.


Insupport of this request, I present the following arguments:

• In creating the Federal Employees Retirement System (FERS), it was the intent of Public Law 99–335, title I, §100A, June 6, 1986, 100 Stat. 516, that: "The purposes of this Act are—"(1) to establish a Federal employees' retirement plan which is coordinated with title II of the Social Security Act [42 U.S.C. 401 et seq.]; "(2) to ensure a fully funded and financially sound retirement benefits plan for Federal employees; "(3) to enhance portability of retirement assets earned as an employee of the Federal Government; "(4) to provide options for Federal employees with respect to retirement planning; "(5) to assist in building a quality career work force in the Federal Government; "(6)to encourage Federal employees to increase personal savings for retirement; and "(7) to extend financial protection from disability to additional Federal employees and to increase such protection for eligible Federal employees."
• The principles that governed the establishment of FERS should apply equally to the Civil Service Retirement System. However, under the current process, the goals the Act (highlighted in the above paragraph) are obstructed by current OPM practice because CSRS payments are made regardless of the recipient's current needs. As one ages, it typically becomes more critical to have funds available for medical care and these funds should receive the protection afforded by other retirement accounts until the retiree determines that they are required.
• Current IRS regulations not only allow for the tax-deferred transfer of funds (rollover) from one IRA or retirement account into another, but the Thrift Savings Plan also accepts such transfers. The funds provided to retirees under CSRS are an entitlement for which recipients should have the right and ability to determine the timing and method of receipt. This is consistent with the Act's objective of providing options for Federal employees with respect to retirement planning.
  
  

If,in your determination you decide that OPM should not enable suchrollovers from CSRS, I request that you provide a precise explanationfor your determination, including citation of any applicable law orauthorities, as well as any appeal rights to that decision.



Respectfully,






KennethKeller



cc:
The Hon.Gerry Connolly, Ranking Member, Subcommittee on GovernmentOperations
TheHon. Trey Gowdy, Chairman,House Committee on Oversight and Government Reform
The.Hon. Elijah Cummings, Ranking Member, House Committee on Oversightand Government Reform,
TheHon. Mark Meadows, Chairman,Subcommittee on GovernmentOperations
TheHon. Jim Jordan, Chairman, Subcommittee on Healthcare,Benefits, and Administrative Rules
TheHon. Raja Krishnamoorthi,Rankingmember, Subcommittee on Healthcare,Benefits, and Administrative Rules



2471Rayburn House Office Building
Washington,D.C. 20515

 

[nnuut]

WOW! Let us know what the decision is.

 

[evilanne]

Interesting request but I'm not sure if this is the best option. I can see where transferring part of retirement benefit would be advantageous to your beneficiary(s), but only if you would get a larger lump sum amount to invest in TSP and you have a relatively short life expectancy. I'm sure that any future value would be discounted significantly if they agreed to a partial transfer. Such a transfer would reduce your current payments and associated tax liability but once RMDs kick in at 70.5, you will have little control over your withdrawals and associated taxes. If your pension is more than you need, why not just invest any extra in a regular brokerage account? Beneficiaries get a stepped up basis and taxed at capital gains rates rather than ordinary income.

 

[uscfanhawaii]

So can I assume that if the answer is in the affirmative, that it would apply to FERS as well as CSRS?

 

[nasa1974]

Interesting request but I'm not sure if this is the best option. I can see where transferring part of retirement benefit would be advantageous to your beneficiary(s), but only if you would get a larger lump sum amount to invest in TSP and you have a relatively short life expectancy. I'm sure that any future value would be discounted significantly if they agreed to a partial transfer. Such a transfer would reduce your current payments and associated tax liability but once RMDs kick in at 70.5, you will have little control over your withdrawals and associated taxes. If your pension is more than you need, why not just invest any extra in a regular brokerage account? Beneficiaries get a stepped up basis and taxed at capital gains rates rather than ordinary income.

I think I understand what kenkeller is attempting since you cannot add any additional money to your TSP account once you retire. However, I agree with you that you that it would be much easier to open a separate account with a local brokerage firm. But it would take time to build the new account from zero vs. adding it to your current TSP account that should have thousands in it already. The other option would be to take your TSP funds and transfer to a new account with a local brokerage firm.

 

[RazorCat]

I like kenkeller’s idea. We should have pretty much total flexibility with our TSP accounts whether active or separated from service. It is, after all your money. As is your pension. And I hope his request is fulfilled. More investmenting options is good.
Personally, I moved quite a bit out of TSP to other investments, so I would just move the pension overage to one of those accounts and carry on.

 

[kenkeller]

Evilanne, you make some good points and maybe this approach isn't the best option, but my suggestion is aimed at giving flexibility to individuals based on the specifics of their situation. The funds that come from CSRS have been earned by us over the years and we should have the discretion of determining how to deploy them. The premise here for me is that I know my medical expenses will increase in future years and I want to optimize the amount of funds available to me, for which I believe the TSP provides the best options. Also, if I die in the short-term, the funds in my TSP pass on to my heirs in a tax-deferred account that will benefit their long-term planning and put less of a burden on them to save for their retirement out of their current incomes. Pushing tax deferrment down the road into future tax years is an excellent strategy for building family wealth over generations.

 

[kenkeller]

I would assume that rights conferred to CSRS recipients would also be extended to FERS retirees.

 

[kenkeller]

Opening a separate brokerage account would of course be an option, but that doesn't address the taxable income issue. Under my proposal, funds received through a retirement account (CSRS) could pass through to another retirement account (TSP) without immediate tax consequence. The individual would thus be able to reduce taxable income in the current year and defer taxes on the transferred amount until they are withdrawn from TSP due to need or because of a Required Minimum Distribution. This benefit would also apply to a spouse who inherits an IRA because required distributions are based on the spouse's age.

 

[kenkeller]

I intend to share any responses received with this Forum, but I'd also encourage everyone to write to their congressional reps and the key committee members to let them know that this is an issue that should be addressed.