New rule allows TSP to garnish wages of former feds to recover debt

Thursday - 4/24/2014, 3:08pm EDT

The Thrift Savings Plan could stand to collect more than $500,000 in unpaid debt thanks to expanded authority to garnish employees' pay even after they leave federal service.

A final rule published in the Federal Register Wednesday will allow the Treasury Department — on behalf of the Federal Retirement Thrift Investment Board, which runs the TSP — to garnish the wages of nonfederal employees who owe the TSP money.

Regulations already permit the TSP to garnish the wages of current federal employees in order to collect debt.

All told, about $532,000 of the outstanding debt owed to the TSP can be collected through wage garnishment, said Kim Weaver, the board's director of external affairs.

In many cases, the debt owed to the TSP stems from overpayments paid to participants after they leave federal service, she said.

"There are a variety of reasons an overpayment might occur and they are the same reasons that any agency or financial institution has overpayments," she said in an email to Federal News Radio.

For example, if the TSP issues a Treasury check and the recipient either doesn't initially receive it or loses it, the agency will then reissue the check.

"However, if the check is found and cashed, the participant has gotten double payment," Weaver said. "If they are no longer a federal employee, this new authority would allow us to attempt to recoup that debt."

The new rule goes into effect May 27.

Wage garnishment will not be used to collect early withdrawal penalties since the TSP automatically withholds federal taxes and a 10 percent penalty at the time of the transaction. Similarly, for TSP loans, participants have about 90 days to repay the loan, plus interest, in full. If an employee separates from federal service with a loan balance, the unpaid amount is simply taxed as income.

The 1996 Debt Collection Improvement Act allowed federal agencies for the first time to collect debt owed to them through what's known as administrative wage garnishment. The law authorizes agencies to withhold up to 15 percent of an employees' income to collect on unpaid debts. Prior to the law's enactment, agencies had to obtain a court order to garnish nonfederal employees' wages.

Agencies must provide employees with 30 days' notice before initiating the garnishment. Employees are also entitled to an administrative hearing. Their employers are barred from taking disciplinary action against them for having their wages garnished.

Unpaid debt owed to the TSP will be collected by Treasury's Debt Management Service. More than two dozen other federal agencies also use Treasury's service to collect debt owed to them.

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