for Agency TSP Representatives
Effect of Nonpay Status on Thrift Savings Plan Participation
TSP Bulletin for Agency and Service representatives
This bulletin explains how placement in nonpay status (i.e., leave without pay (LWOP)) affects an employee’s Thrift Savings Plan (TSP) participation. It supersedes TSP Bulletin 12-20, Effect of Nonpay Status on Thrift Savings Plan Participation, dated August 16, 2012.
Note: This bulletin does not apply to participants who are furloughed (or have their paychecks delayed) due to a lapse in appropriations. Participants should be referred to tsp.gov/shutdown for additional information in these instances. This bulletin also does not apply to participants placed on LWOP to perform an assignment with a state or local government agency under the provisions of the Intergovernmental Personnel Act or to participants placed on LWOP to serve as full-time officers or employees of a union. Those participants can continue to contribute to their TSP accounts, and their employing offices must continue to deduct and send in loan payments, as explained in 5 CFR part 1620.
Revision to Form TSP-41, Notification to TSP of Nonpay Status
The best way to notify the TSP that an employee has been placed in nonpay status or has returned from nonpay status is by using Form TSP-41, Notification to TSP of Nonpay Status, which must be completed, signed, and submitted by an agency official. Form TSP-41 was developed specifically for this purpose, so a correctly completed form contains all the information needed by the TSP to process a suspension of loan payments when a participant is placed in nonpay status. When the participant returns to pay status, the agency must submit a subsequent Form TSP-41 with the participant’s return date. When the TSP receives this nonpay end date, the participant’s loan is reamortized. This means that the loan is placed in good standing and the TSP establishes a new schedule of payments for the loan.
Special note about the nonpay end date: Agencies cannot cancel or correct an end date after submitting Form TSP-41 because once the TSP receives that end date, the loan is automatically reamortized. Once a loan has been reamortized, the TSP expects loan payments to resume, even if the participant has not actually returned to pay status. So it is extremely important not to anticipate the participant’s return date. Instead, an agency should complete Form TSP-41 only after the participant returns to pay status. If the period of nonpay status is extended after the end date is reported to the TSP, the agency must contact Agency Technical Services (ATS) for assistance.
The new version of Form TSP-41 is in effect as of February 18, 2020. Previous versions of the form will not be processed after April 17, 2020. Any copies of Form TSP-41/TSP-U-41 with a date prior to February 2020 should be immediately discarded (recycled), and agencies that provide links to electronic versions of those forms should disable those links.
The new version of Form TSP-41 includes a revision to Section II (Type of Nonpay Notification) of the form. Agencies use this section of the form for any of the following reasons:
- To indicate the beginning of a participant’s nonpay status, including the reason for it and the start date.
- To indicate the end of a participant’s nonpay status by providing the end date.
- To correct the reason for nonpay status or the start date that was previously submitted.
- To cancel a nonpay start date that was previously submitted.
Form TSP-41 may only be used for one of these purposes (labeled 4a, 4b, 4c, and 4d on the form) at a time. For example, agencies should not submit a TSP-41 to both begin a nonpay status and end one, anticipating the end date.
The form also includes fields for the agency address, telephone, and fax number. This information will enable the TSP to notify the agency if the form has been completed incorrectly or cannot be processed. In such cases, the TSP will send notices to both the agency and the participant to inform them that the form did not process and provide the reason for rejection.
Other Acceptable Documentation
If a participant is unable to have his or her agency submit Form TSP-41, a letter from the agency is acceptable documentation. The letter must be on official letterhead, and must contain the participant’s name, date of birth, and full Social Security number; the beginning date of the nonpay status, the type of nonpay (military or general), and the signature and title of the representative providing the information. Participants may send a copy of the SF-50, Notification of Personnel Action, documenting the nonpay status or, if being placed “LWOP for Military Service” status, a copy of their military orders.
- Contribution elections
Placement in nonpay status does not affect an employee’s eligibility to make TSP contribution elections, including elections to make catch-up contributions.
Agencies must process contribution elections made by employees in nonpay status just as they process contribution elections made by employees in pay status. See TSP Bulletin 12-18, Participation in the Thrift Savings Plan, dated May 7, 2012, for more information on processing contribution elections.
Contribution allocations and interfund transfers
Placement in nonpay status does not affect a participant’s eligibility to make a contribution allocation or an interfund transfer. The TSP will process investment requests made by participants in nonpay status just as it processes investment requests made by participants in pay status.
- Determining contributions
If a participant is in nonpay status for an entire pay period, TSP employee and agency contributions are not made for that pay period. This is true even if the individual is receiving benefits from the Office of Workers’ Compensation Programs (OWCP). TSP contributions, including the Agency Automatic (1%) Contributions made to the accounts of participants covered by FERS,1 are based on the basic pay the participant earned for the pay period. Because the basic pay is zero, TSP contributions are zero. (A participant receiving OWCP benefits is not receiving basic pay, which is defined by law in 5 U.S.C. § 8331.)
Generally, participants cannot make up TSP contributions that are missed during periods of nonpay. An exception exists, however, for civilian employees who are placed in nonpay status to perform duty with the uniformed services (“LWOP for Military Service” status) and who subsequently return to their civilian positions under the provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). Such employees are entitled to make up and receive contributions missed during the period of military service. See TSP Bulletin 02-7, TSP Participation of Individuals Who Return to Civilian Service or Pay Status Following Military Service, dated April 3, 2002, for more information about TSP benefits resulting from the application of the provisions of USERRA.
- If a participant receives some basic pay for working a portion of a pay period, the following rules apply:
- The Agency Automatic (1%) Contribution for the pay period is determined using the basic pay the employee earned for the pay period.
- If the participant elected to contribute a percentage of pay, the employee contribution for the pay period is determined using the basic pay earned during that pay period.
- If the participant elected to contribute a whole dollar amount, and the amount exceeds the participant’s net pay for the pay period, no employee contribution is made for that pay period.
- The Agency Matching Contribution for the pay period is determined using the basic pay the participant earned and the employee contribution made for the pay period.
- For more information about basic pay and determining TSP contributions, see TSP Bulletin 05-17, Elimination of Percentage Restrictions on Employee Contributions to the Thrift Savings Plan, dated November 30, 2005.
- Effect of nonpay status
- Participants in nonpay status are not eligible to receive TSP loans until they return to pay status. Under the provisions of the TSP loan program, loan payments must be made through payroll allotments.
- Loan payments cannot be made from paychecks unless the amount of the paycheck is enough to cover the entire loan payment. Payroll offices are not to adjust the amount of loan payments based on partial pay; the full loan payment must be made if there are sufficient funds in the participant’s paycheck to do so.2
- If the participant’s nonpay status is expected to last less than 30 days, the agency is not required to notify the TSP. If the nonpay status is expected to last—or has been extended to a period of—more than 30 days, the agency must submit Form TSP-41 (or other acceptable documentation).
- If the TSP receives documentation of a participant’s approved nonpay status,3 the participant’s loan payments may be suspended for up to one year. However, this suspension of loan payments does not increase the maximum repayment period. A general purpose loan must still be repaid within 5 years of its issuance date; a residential loan must still be repaid within 15 years of its issuance date. An exception exists for civilian participants placed in “LWOP for Military Service” status. In such cases, loan payments may be suspended for the entire period of military service, and the maximum repayment period is extended by the period of military service.
Each calendar quarter, the TSP conducts a sweep to identify loans that are in default by an amount equal to or greater than two and one-half payments. Participants whose loans are identified during this process are notified and given until the end of the following calendar quarter to pay the missing amount or, if in an authorized nonpay status, to provide documentation to the TSP. If the participant fails to pay the missing amount or to provide documentation of his or her nonpay status, the loan will be closed and a taxable distribution of the unpaid balance, plus accrued interest, will be declared. This could have severe tax consequences for the participant.
The names of participants who are pending taxable distributions are listed on TSP report 19402 (Pending Loan Default Information Report), which is prepared on the last day of each calendar quarter and made available through the web-based data submission application. Agencies should review the 19402 report at the beginning of each quarter. If any employees are listed on the report who are actually in an authorized nonpay status, the agency should submit Form TSP-41. If any employees are listed on the report who are actually separated from federal service, the agency should submit a separation code to the TSP.
See the TSP booklet Loans for more information about what happens to a TSP loan when a participant enters nonpay status, what happens when loan repayment problems are found, what a taxable distribution is, and what triggers it.
- Participant and agency responsibilities
- Participants are responsible for repaying their loans according to the terms established by their original Loan Agreement (or, if applicable, the most recent reamortization confirmation notice).
When a participant is placed in approved nonpay status, an agency representative should provide the participant with a copy of the fact sheet, Effect of Nonpay Status on Your TSP Account. If the participant has a TSP loan outstanding, the agency must notify the TSP of the nonpay status and provide all the information required by Form TSP-41
- When the participant returns to pay status, the agency must resume the participant’s loan payments and submit documentation to notify the TSP of the return to pay status. Otherwise, there may be financial consequences to the participant.
- Once the participant’s loan has been reamortized following his or her return to a pay status, the TSP will provide Report 19401 (Loan Status Report) to the payroll office to show the amount of the new payments. The payroll office must then submit this amount.4
TSP In-Service Withdrawals
Participants who are in nonpay status may withdraw funds from their TSP account if they are age 59 ½ or older (an age-based withdrawal) or if they are experiencing financial hardship. The TSP booklet In-Service Withdrawals contains additional information about these options.
- FERS refers to the Federal Employees’ Retirement System, the Foreign Service Pension System, and other equivalent Federal retirement systems.
- Individual participants, on the other hand, may make partial loan prepayments by submitting a check or money order directly to the TSP.
- Approved nonpay status is the result of an agency official’s approval of the participant’s absence from duty (e.g., administrative furlough, leave without pay, or suspension). AWOL (absence without leave) is not an approved nonpay status.
As explained in the TSP booklet Loans, when an agency informs the TSP of the participant’s return to pay status, the loan will be reamortized automatically unless the current payment amount will repay the loan in full by the maximum time limit.