The Thrift Savings Plan

At the outset, the military chose to call its plan “TSP-UNISERV,” but it is increasingly referred to simply as “TSP,” similar to its civil service equivalent. If a person has simultaneous or consecutive military and civil service employment, the interplay between the two plans can be complex. It is usually possible to combine the accounts, but it takes a specific application to do so, and tax-exempt military contributions ( i.e., those made as a result of a combat zone tax exclusion) in a military TSP account may not be transferred to a civilian TSP account.
As of October 8, 2001,military members were authorized to begin participating in the same Thrift Savings Plan (TSP) that has been in effect for civil service employees since 1987. Pub. L. No. 106-398 (Oct. 30, 2000); 5 C.F.R. § 1600-1690. The TSP is a defined contribution-type plan for federal employees, similar to a private employer’s 401(k) plan. It is a mechanism for diverting pretax funds into retirement savings. Military members, therefore, now have both a defined benefit and a defined contribution-type retirement program, both of which should be addressed upon divorce.

The military plan was phased in by allowing ever-greater percentages of basic pay to be contributed through 2005, when it reached 10 percent, after which only IRS regulations govern contribution limits. If contributions are made to the TSP from basic pay, they also may be made from any incentive or special pay (including bonus pay) received, again subject to IRS limits.

The military service secretaries are permitted, but not required, to designate “critical specialties.” Members within those specialties serving on active duty for a minimum of six years would receive government contributions, matching some of the sums contributed from basic pay.

Contributions may be invested in a variety of funds: the “Government Securities Investment” or “G” fund, the “Common Stock Index Investment” or “C” fund, the “Fixed Income Index Investment” or “F” fund, the “Small Capitalization Stock Index Investment” or “S” fund, and the “International Stock Index Investment” or “I” fund.

The TSP is expressly excluded from regulations governing civil service defined benefit plans. 5 C.F.R. § 838.101(d). It is administered by a board (the Federal Retirement Thrift Investment Board), which is entirely separate from the Office of Personnel Management (OPM), and has its own governing statutory sections and regulations. 5 U.S.C. § 8435(d)(1)-(2), 8467; 5 C.F.R. Part 1653, Subpart A.

The TSP Board has its own finance center (Thrift Savings Plan Service Office, National Finance Center, P.O. Box 61500, New Orleans, LA 70161-1500), which is the primary contact for participants who have left federal service. It also handles questions about loans, contribution allocations, interfund transfers, designations of beneficiaries, and withdrawals for all participants. (TSP Service Office, 1-877/968-3778, fax: 504/255-5199.)

Withdrawal and borrowing

It is important to find out whether a military member is or has been a participant in the Thrift Savings Plan. If so, the next step is to determine whether any funds have been withdrawn or borrowed from the plan.

Withdrawal of TSP funds by a participant is normally limited to those separating from service, but in-service withdrawals may be made in two categories: “age-based” withdrawals for participants 591/2 or older, and special “financial hardship” withdrawals. Notably, one of the four categories for such financial hardship withdrawals is “legal expenses for separation or divorce.” The other three conditions that can cause a permissible “financial hardship” withdrawal are “negative monthly cash flow,” “medical expenses” (including household improvements needed for medical care), or “personal casualty losses.”

Counterintuitively, however, if a member is married, the spouse must normally consent to an in-service withdrawal, whether or not the parties are separated. The criteria for a claim of “exceptional circumstances,” under which no spousal consent is required, are very strict. Having a separation agreement, a prenuptial agreement, a protective or restraining order, or a divorce petition does not, in itself, support a claim of exceptional circumstances. As with everything else, there is a form (TSP-16) for making an “exceptional circumstances” application for withdrawal without spousal consent.

Spousal consent is required for any loans borrowed against the TSP. Again, a specific category of “hardship” for loan purposes is “unpaid legal costs associated with a separation or divorce.” Such a loan, if taken, accrues interest at the same rate paid on the “G” category of investments.

As to both loans and withdrawals, the Federal Retirement Thrift Investment Board will honor most court orders restricting distribution (such as preliminary injunctions prohibiting withdrawals) or safeguarding funds for other purposes (such as child support or alimony awards). Thus, in divorce cases or successive-spouse cases, some element of a “race to the courthouse” could occur, with the nonmilitary spouse attempting to get a restraining order on file and served on the TSP before the member can withdraw funds. Obviously, if the servicemember manages to reduce or eliminate the value of the TSP prior to a court-ordered division, that fact should be taken into account.

Upon separation from service, a tangle of other rules take effect. First, TSP accounts of less than $200 are automatically distributed at the time of separation. If the account is between $200 and $3,500, the sums may be left in the TSP or withdrawn in a single payment or multiple payments (cashed or rolled over into an IRA or other retirement account). For accounts containing more than $3,500, the TSP balance can be partially or fully withdrawn in a single payment, or by way of a series of monthly payments, or by way of a life annuity. Any combination of the full withdrawal options is called a “mixed withdrawal.”

Spousal rights provisions apply only if the TSP account contains more than $3,500. If the participant is married and wants to make a partial withdrawal of funds, the spouse’s notarized written consent is required.

If a full withdrawal is desired, the default is for the funding of a joint and survivor annuity with the “survivor” being the spouse at the time of withdrawal. The default annuity funded pays a 50-percent survivor benefit, has level payments, and does not include a cash refund feature. If the participant chooses any full withdrawal method other than the default (“prescribed”) annuity, the spouse must make a written, notarized waiver of his or her right to the prescribed annuity (again, unless “exceptional circumstances” can be demonstrated).

Spousal rights provisions apply only if the TSP account contains more than $3,500. If the participant is married and wants to make a partial withdrawal, the spouse's written consent is required

Sometimes, obtaining a joint life annuity with someone other than the spouse is possible. Generally, this would be a former spouse or other person with an insurable interest in the life of the participant; not all options are available with each form of annuity.

All of these withdrawals presume that the TSP Board had not previously been served with a valid court order awarding a portion of a TSP account to a current or former spouse or one that requires payment for enforcement of child support or alimony obligations. If the board had been served with such an order, it would comply with the order before permitting purchase of an annuity or other withdrawal.

Court-ordered divisions

Although the agency administering the TSP has proved more flexible than either the military or the OPM, its regulations have spawned yet another acronym for dividing benefits—“RBCO” for Retirement Benefits Court Order.

No QDRO is required for a TSP distribution; the TSP will honor any order that expressly relates to the TSP account of the participant, has a clearly determinable entitlement to be paid, and provides for payment to someone other than the TSP participant. This includes payments directly to the attorney for the former spouse. Attorneys drafting TSP orders should note that plan balances are calculated on the last day of the month.

A spousal share may be rolled over to an IRA or other eligible plan; no taxes are withheld. Otherwise, the spouse is taxed on the distribution, and 20 percent is withheld.

If the money is paid to a third party, however, such as a child (or, presumably, either party’s attorney), the participant is stuck with the amount of the distribution as part of gross income for that year, and 10 percent is withheld. These rules provide a way of shifting the tax burden of funds to be withdrawn and used to pay attorney’s fees, just by changing the payee of the withdrawal.

If your client is a spouse seeking a portion of a TSP account, specify that the award is to be paid along with interest and earnings. If such language is in the order, the spouse will receive the same accumulations attributable to the spousal share that the participant receives as to the account; if such language is not in the order, the spouse will receive no accumulations, interest, or earnings on the defined share through the date of distribution. A court order also may specify an interest rate to be applied to a distribution from a given date.

The TSP will honor post-decree orders, which it refers to as “amendatory court orders,” and which presumably include nunc pro tunc amendments to decrees and partition judgments relating to omitted assets.

Survivorship benefits

A TSP account has no “survivorship” benefits, per se, as it is a cash plan such as a 401(k). However, plan participants can and should designate beneficiaries to receive the account balance in the event of the participant’s death by means of Form TSP-U-3 (Designation of Beneficiary). In the absence of the form, regular intestate succession rules determine the distribution of the TSP account. FA

Marshal S. Willick is the principal of the Willick Law Group, an A/V-rated family law firm in Las Vegas, Nevada. He is a Fellow of the American and International Academies of Matrimonial Lawyers, and former chair of the Nevada Bar Family Law Section. He has authored several books and numerous articles on family law and retirement benefit issues. He can be reached at

Published in Family Advocate, Volume 28, No. 2, Fall 2005. © 2005 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.