Executive Director Gregory Long said at the board's May 17 meeting that Justice's decision gives IRS the upper hand in its push to seize TSP accounts in the same way it can seize private-sector 401(k) accounts. (THOMAS BROWN / STAFF)
A new Justice Department ruling apparently paves the way for the IRS to seize funds from the Thrift Savings Plan accounts of tax-delinquent federal employees, retirees and military service members.
Justice's Office of Legal Counsel on May 3 ruled that the Internal Revenue Code allowing property garnishments should trump the 1986 law that created TSP and protected its accounts from being levied.
The Federal Retirement Thrift Investment Board, which governs TSP, until now has resisted IRS efforts to seize participants' retirement savings. But Executive Director Gregory Long said at the board's May 17 meeting that Justice's decision gives IRS the upper hand in its push to seize TSP accounts in the same way it can seize private-sector 401(k) accounts. IRS can already seize federal employees' wages to repay tax debts under the Federal Payment Levy Program.
"This is a fight we are likely eventually going to lose," Long said. If the board does not comply with the ruling, IRS will likely sue the board, he said.
IRS policy is to collect funds from pension plans such as TSP "only when collection is unavailable from other sources and the taxpayer's conduct is flagrant," spokesman Robert Marvin said in an e-mail. The IRS generally would first try to recover money it is owed through a levy on wages or assets other than pension plans, he said.
Congress likely would have to change the Federal Employees' Retirement System Act that governs TSP to allow IRS levies.
Bruce Fernandez, a spokesman for the House Oversight and Government Reform subcommittee on the federal workforce, Postal Service and District of Columbia, said last week the subcommittee had just become aware of the TSP issue and is studying it, and could not yet say how lawmakers will respond.
If Congress does not change the law and the conflicting IRS and TSP laws remain, it will likely result in a lawsuit.
Long and others are concerned this move could lead to other claimants garnisheeing employees' TSP funds. Long told the board he wants any change to the Federal Employees' Retirement System Act to specifically limit new garnishments to IRS.
Dan Adcock, legislative director for National Active and Retired Federal Employees, agreed with Long. "There are other sources of income available for garnishments of other debts" besides taxes, Adcock said. "Retirement savings should be protected against that type of garnishment [for debts] like parking tickets."
If TSP accounts are opened up to IRS, Adcock wants to make sure federal employees are given the same due process and appeal rights as private-sector workers, he said.
"Our only concern is if feds and retirees are unfairly singled out for enforcement other workers aren't subject to," Adcock said. "As long as there's equity, we would have no objection. It's our position that if federal employees and retirees have tax liabilities, they should pay them and be fully compliant."
One civilian Army employee, who asked not to be named, said he is concerned by IRS' drive to levy TSP accounts. He said IRS took too much out of his wages last year to pay his overdue taxes, and said he's still waiting for the agency to repay the balance.
The prospect of the IRS improperly seizing his TSP funds — and losing out on the investment earnings he otherwise would have received from that money — scares him.
"Take my paycheck — take the whole thing if you want to," he said. "But don't mess around with my retirement account. It creates too many complications, and you could lose your investment opportunity."
According to IRS statistics released in December, 97,200 federal employees and almost 56,200 active-duty and reservist military service members were behind on their taxes, as were 41,000 civilian retirees and 81,900 military retirees. Long said he was unsure how many TSP participants were behind on their taxes.
The more than 276,000 tax-delinquent feds and service members owe IRS a combined $3 billion.
Some lawmakers have sought to make an issue out of tax-delinquent federal employees. Rep. Jason Chaffetz, R-Utah, introduced a bill in March that would fire federal employees who are seriously behind on their taxes. Democratic lawmakers say Chaffetz's bill is unnecessary and overly punitive since IRS can seize employees' salaries to repay taxes. The bill appears unlikely to go anywhere, but Chaffetz said last week at a hearing on federal hiring that he wants to revisit the issue soon.
The board will next consult with the Employee Thrift Advisory Council, a panel of union and management representatives that advises the board, on the Justice ruling, and then talk to Congress about possible changes. The board will not recommend any particular course of action to Congress.
One board member, Thomas Fink, held out hope that lawmakers may choose to exempt TSP accounts from garnishment.
"It's not a slam dunk" that Congress will side with IRS, Fink said. "It's going to irritate some participants, which are their constituents."
TSP accounts can already be garnisheed to pay for child support, alimony and to pay restitution or other costs related to a child abuse judgment. An employee who is convicted of a national security offense can also have his matching contributions, agency automatic contributions and any money earned from those contributions confiscated; in this case, employees' own contributions and related earnings cannot be seized.
Pat Niehaus, president of the Federal Managers Association, said most tax-delinquent feds quickly repay their debts and don't carry them over for several years.
"Given how much of an individual's retirement is based on TSP, I hate to see [garnishment]," Niehaus said. "But we all know we owe taxes, and it's not like there's any surprises there."