Bulletin 15-4
December 4, 2015

Public Safety Employees’ Exemption to the Early Withdrawal Penalty

Public Law 114-26, the Defending Public Safety Employees' Retirement Act, was signed by the President on June 29, 2015. This bill amends the Internal Revenue Code to allow specified federal law enforcement officers, customs and border protection officers, federal firefighters, and air traffic controllers (“public safety employees”) who separate from service during or after the year they turn age 50 to make a withdrawal from the TSP without incurring a 10% early withdrawal penalty.

This change is effective for withdrawals from the TSP paid after December 31, 2015. 

Agency Responsibilities

It is the responsibility of individual employing agencies to determine whether an individual is a public safety employee. The TSP does not have the necessary information to make that determination. Therefore, the TSP will treat as eligible for the exemption only those participants who are (1) identified by their employing agencies as public safety employees and (2) determined by the TSP to have separated during or after the year they turn 50. To facilitate this identification, the TSP has created a new Employment Code for public safety employees: “P.” Until the agencies can modify their systems to allow the submission of the new Employment Code, payroll offices can use the Data Submission and Report Retrieval Application (DSUB) to identify public safety employees. The new separation code will appear in the DSUB Employment Code menu as “P—Separated—PSEE.” See the end of this bulletin for a complete list of TSP Employment Codes.

Submitting a “P” Code

When a public safety employee separates from federal service, the servicing payroll office must submit an Employee (06) Data Record (EDR) containing the new “P” Employment Code and the appropriate Employment Code Date corresponding to the date of separation. Agencies should submit the “P” code regardless of the employee’s age.

When the separated participant requests a withdrawal, the TSP system will use the “P” Employment Code, Employment Code Date, and Date of Birth to determine whether the participant is eligible for an exemption to the early withdrawal penalty. In January of the year following the distribution, the TSP will issue a 1099-R that accurately reflects a qualifying public safety employee’s exemption from the early withdrawal penalty. The law applies to withdrawals from the TSP paid after December 31, 2015. Therefore, 1099-Rs mailed beginning in 2017 for the 2016 tax year will be the first to reflect the exemption.

If an agency determines that an employee who separated with an “S” (Separated) code before the creation of the “P” code qualifies as a public safety employee, the agency may resubmit an EDR for that employee with the appropriate “P” code. If agencies do not identify public safety employees by sending the “P” code, the 1099-R will not reflect an exemption to the early withdrawal penalty. In this case, qualifying individuals would have to establish their eligibility for the exemption by filing IRS Form 5329 directly with the IRS.

TSP Employment CodeTSP Employment Code Date
S

Separated from Federal service or transferred to a retirement system under which TSP participation is NOT authorized, OR a participant whose erroneous FERS or CSRS coverage is corrected to “FICA only”

Effective date of separation
P

Public Safety Employee separation

Effective date of separation
B

Retired on an OPM approved disability retirement (as of 2003, this code no longer exempts employee from IRC early withdrawal penalty)

Effective date of separation
D

Died in service

Date of death
T

Transferred to another Federal agency or payroll office

Effective date of transfer to another agency
N

Not separated. Used to correct an erroneous employment code.

00/00/0000
Blank

Used when submitting an EDR to establish the account, or when a participant is transferred (blank employment code submitted by the gaining agency will overlay the “T” code)

Left blank

 

Jim Courtney
Director, Office of Communications
Office of Communications and Education