90 FR 118 pgs. 26423-26424 - Method of Correcting Errors Involving Retired Lifecycle Funds
Type: RULEVolume: 90Number: 118Pages: 26423 - 26424
Pages: 26423, 26424FR document: [FR Doc. 2025-11471 Filed 6-20-25; 8:45 am]
Agency: Federal Retirement Thrift Investment Board
Official PDF Version: PDF Version
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FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Part 1605
Method of Correcting Errors Involving Retired Lifecycle Funds
AGENCY:
Federal Retirement Thrift Investment Board.
ACTION:
Final rule.
SUMMARY:
The Federal Retirement Thrift Investment Board (FRTIB) amends its regulation regarding the method for correcting errors involving Lifecycle Funds that no longer exist. Specifically, it reverts to the use of a constructed share price to calculate breakage and the value of negative adjustments for errors involving Lifecycle Funds that no longer exist as of June 1, 2022.
DATES:
The effective date is June 23, 2025.
FOR FURTHER INFORMATION CONTACT:
For press inquiries: Jim Kaplan, Office of External Affairs, (202) 864-7150.
For information about this final rule: Charles Stone, Office of General Counsel, (202) 253-9006.
SUPPLEMENTARY INFORMATION:
The FRTIB administers the TSP, which was established by the Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514. The TSP is a tax-advantaged retirement savings plan for Federal civilian employees and members of the uniformed services. The TSP is similar to cash or advantaged arrangements established for private-sector employees under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)). The provisions of FERSA that govern the TSP are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79.
On May 8, 2025, the FRTIB proposed to amend its regulation regarding the method for correcting errors involving Lifecycle Funds that no longer exist. (90 FR 19431). Interested parties were invited to participate in this rulemaking effort by submitting written comments on the proposal to the FRTIB by June 9, 2025. The FRTIB received only one comment. The commentor only requested clarification on the formulas being adopted in the rule. Specifically, the commentor indicated that certain terms in the rule were vague and proposed language to clear up ambiguity for: "final posted share price," "current L Income fund share price," and "relevant share price modifier." This comment was considered, and changes were incorporated into the final rule below.
TSP Lifecycle Funds
The TSP offers five core funds (the G, F, C, S, and I Funds). In addition, the TSP offers eleven Lifecycle Funds, which consist of a diversified mix of the five core funds. The Lifecycle Funds are designed to align with the investing participant's target retirement date. Most of the Lifecycle Funds are labeled with a year (L 2025, L 2030, L 2035, L 2040., etc. ) that represents the target retirement date. One of the Lifecycle Funds-the L Income Fund-is not associated with a target retirement date. The L Income Fund has a conservative investment strategy-it is designed to preserve assets, and to generate income rather than investment growth.
Every quarter (three months), the asset allocations of all the Lifecycle Funds except the L Income Fund are automatically adjusted, gradually shifting them from higher risk and reward to lower risk and reward as they get closer to their target dates. In the year a Lifecycle Fund reaches its target date and is retired-and goes out of existence-any money still in the fund automatically becomes part of the L Income Fund. For example, this year, the L 2025 Fund will be rolled into the L Income Fund. A Lifecycle Fund that no longer exists is referred to as a "retired" Lifecycle Fund.
Correction of Errors Involving Retired Lifecycle Funds
Once a Lifecycle Fund is retired, TSP participants are no longer able to invest their contributions in that fund. However, the FRTIB is sometimes required to calculate lost earnings ( i.e., breakage) for errors involving a retired Lifecycle Fund. Breakage is the loss incurred (negative earnings) or the gain realized (positive earnings) on late and makeup contributions. Similarly, the FRTIB must sometimes process the removal of erroneous contributions ( i.e., a negative adjustment) previously made to a now-retired Lifecycle Fund. The value of a negative adjustment equals the amount of the erroneous contributions plus earnings (positive or negative) on that amount.
Section 1605.2 contains a formula for calculating breakage, and section 1605.12 contains a formula for calculating the value of negative adjustments. The current share price of the relevant investment fund is a variable in each of these formulas. Because a retired Lifecycle Fund no longer exists, there is no current share price. In the past, the FRTIB used a constructed share price to calculate breakage and the value of negative adjustments for errors involving retired Lifecycle Funds.
The first TSP Lifecycle Fund to ever be retired was the L 2010 Fund. On October 14, 2010, the FRTIB published a proposed rule explaining the FRTIB's anticipated use of a constructed share price to calculate breakage and the value of negative adjustments for errors involving retired Lifecycle Funds. (75 FR 63106). Under that proposed rule, the constructed share price for a retired Lifecycle Fund would be determined as follows: The retired Lifecycle Fund's share price on the date it was retired, multiplied by the current L Income Fund share price, divided by the L Income Fund shared price on the date the Lifecycle fund was retired. The FRTIB received no public comments. On December 1, 2010, the FRTIB published the proposed rule as final without modification. (75 FR 74607).
Impact of the Transition to a New Recordkeeper
[top] In November 2020, the FRTIB awarded a contract to a new service provider (called a recordkeeper) that maintains and operates the technology platforms necessary to process TSP transactions. The transition from the prior TSP recordkeeper to the new TSP recordkeeper was an enormous technological project that occurred over the course of 18 months. During that transition period, the new TSP recordkeeper informed the FRTIB that the new TSP recordkeeper was unable to calculate a constructed share price for retired Lifecycle Funds. Accordingly, the FRTIB amended its regulations to provide that the share price of the L
Final Rule
The new TSP recordkeeper has since informed the FRTIB that the new TSP recordkeeper can use a constructed share price to calculate breakage and the value of negative adjustments for errors involving Lifecycle Funds retired on or after June 1, 2022-the date the new TSP recordkeeper began processing TSP transactions. 1 Accordingly, the FRTIB proposes to revert to the use of a constructed share price to calculate breakage and the value of negative adjustments for errors involving Lifecycle Funds that are retired on or after June 1, 2022. This will provide the participant with a composite of the return of the Lifecycle Fund before it was retired, and the return of the L Income Fund after the Lifecycle Fund was retired. The TSP recordkeeper will continue to use the share price of the L Income Fund to calculate breakage and the value of negative adjustments for errors involving Lifecycle Funds retired before June 1, 2022.
Footnotes:
1 ?No Lifecycle Funds have been retired since June 1, 2022. But the L 2025 Fund will retire this summer.
Regulatory Flexibility Act
I certify that this regulation will not have a significant economic impact on a substantial number of small entities. This regulation will affect Federal employees and members of the uniformed services who participate in the Thrift Savings Plan, which is a Federal defined contribution retirement savings plan created under the Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335, 100 Stat. 514, and which is administered by the FRTIB.
Paperwork Reduction Act
I certify that these regulations do not require additional reporting under the criteria of the Paperwork Reduction Act.
Unfunded Mandates Reform Act of 1995
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602, 632, 653, 1501 1571, the effects of this regulation on State, local, and Tribal governments and the private sector have been assessed. This regulation will not compel the expenditure in any one year of $100 million or more by State, local, and Tribal governments, in the aggregate, or by the private sector. Therefore, a statement under section 1532 is not required.
Submission to Congress and the General Accountability Office
Pursuant to 5 U.S.C. 801(a)(1)(A), the FRTIB submitted a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Government Accountability Office before publication of this rule in the Federal Register . This rule is not a major rule as defined at 5 U.S.C. 804(2).
List of Subjects in 5 CFR Part 1605
Employee benefit plans, Government employees, Pensions, Reporting and recordkeeping requirements, Retirement.
Ravindra Deo,
Executive Director, Federal Retirement Thrift Investment Board.
For the reasons stated in the preamble, the FRTIB amends 5 CFR part 1605 as follows:
PART 1605-CORRECTION OF ADMINISTRATIVE ERRORS
1. The authority citation for part 1605 continues to read as follows:
Authority:
5 U.S.C. 8351, 8432a, 8432d, 8474(b)(5) and (c)(1). Subpart B also issued under section 1043(b) of Public Law 104-106, 110 Stat. 186 and §?7202(m)(2) of Public Law 101-508, 104 Stat. 1388.
Subpart A-General
2. Amend §?1605.2 by revising paragraph (b)(3) to read as follows:
§?1605.2 Calculating, posting, and charging breakage on late contributions and loan payments.
(b) * * *
(3) Determine the dollar value on the posting date of the number of shares the participant would have received had the contributions or loan payments been made on time. If the contribution or loan payments would have been invested in a Lifecycle Fund that retired prior to June 1, 2022, then the share price of the L Income Fund will be used; but if the Lifecycle Fund retired on or after June 1, 2022, then a constructed share price for the retired Lifecycle Fund will be used. The constructed share price shall equal the final posted share price of the Lifecycle Fund on the business day the fund is retired, multiplied by the current L Income Fund share price at the time the correction is made, divided by the final posted share price of the L Income Fund on the business day the fund is retired. The dollar value shall be the number of shares the participant would have received had the contributions or loan payments been made on time multiplied either by the share price of the L Income Fund or the constructed share price, as determined by the posting date; and
Subpart B-Employing Agency Errors
3. Amend §?1605.12 by revising paragraph (c)(2)(ii) to read as follows:
§?1605.12 Removal of erroneous contributions.
(c) * * *
(2) * * *
(ii) Multiply the price per share on the date the adjustment is posted by the number of shares calculated in paragraph (c)(2)(i) of this section. If the contribution was erroneously contributed to a Lifecycle Fund that is retired on the date the adjustment is posted and the Lifecycle Fund retired prior to June 1, 2022, then the share price of the L Income Fund will be used; or if the Lifecycle Fund retired on or after June 1, 2022, then a constructed share price for the retired Lifecycle Fund will be used. The constructed share price shall equal the final posted share price of the retired Lifecycle Fund on the business day the fund is retired, multiplied by the current L Income Fund share price at the time the correction is made, divided by the final posted share price of the L Income Fund on the business day the fund is retired.
[FR Doc. 2025-11471 Filed 6-20-25; 8:45 am]
BILLING CODE 6760-01-P