Divorce and Your Thrift Savings Plan (TSP)
Many federal employees and members of the uniformed services participate in the Thrift Savings Plan (TSP). This is an asset that is subject to division during divorce, and the contributions made during the time of the marriage are considered community property in California. The TSP is a defined contribution plan that is similar to the 401(k) plans offered by private employers.
Just like FERS and CSRS plans, ERISA does not apply to the Thrift Savings Plan, so instead of being called a QDRO, the Order dividing these benefits is called a Retirement Benefits Court Order (RBCO). A RBCO can be utilized only for a spouse, former spouse, child or other dependent of the TSP participant.
METHODS OF DIVISION
Any award under a RBCO must be stated as either a specific dollar amount, a percentage of the account, or as a formula which accounts for contributions made during the marriage (where all variables in the formula are available on the face of the order or from TSP account records). Usually this percentage, dollar amount, or amount arrived at by a formula are awarded as of the “valuation date.” The valuation date is often the date of separation. In their judgment or marital settlement agreement, the parties should also address whether earnings and losses from the valuation date to the date of actual account division should be included as part of the award to the non-participant spouse (“Alternate Payee”).
Minimum Account Balance. It is also important to note that for an account balance of less than $3,500, the entire amount is distributed to the participant upon retirement and the Federal Retirement Thrift Investment Board cannot make any payments directly to an Alternate Payee if the account is worth less than $3,500. If the account is below this amount, a RBCO is not appropriate and the non-participant spouse will need to seek other remedies with the assistance of his/her family law attorney. Under California law an Alternate Payee is still entitled to his/her community interest in the account, but he/she will have to obtain it in another way, such as an equalizing payment at the time of divorce or a payment directly from the participant upon retirement.
The treatment of any loans that are outstanding with the plan as of the date of account division is also critical when dividing a TSP account as it can have a huge effect on the amount awarded to the Alternate Payee. When a percentage of the account is assigned to the Alternate Payee including an outstanding loan in the account balance, i.e. adding the amount of the loan back in, it will result in a larger portion for the Alternate Payee. Subtracting or excluding the outstanding loan from the account balance will reduce the amount paid to the Alternate Payee. Usually, the parties will evaluate when the loan was taken out by the Plan Participant and what the funds were used for to determine if the loan should be considered a community loan (included in the account) or the Participant’s own loan (excluded for the purposes of calculation).
ACCOUNT FREEZE / INJUNCTION
Due to the Participant’s ability to take out a loan before a court order dividing the account can be filed, it can be wise to file a separate order freezing the TSP account, or a preliminary injunction prohibiting loans or withdrawals.
If you need help or have a question about dividing a TSP due to your divorce or legal separation, call 619-786-7376 to speak with one of our California QDRO attorneys today or email us at email@example.com.
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