Federal Retirement:

Nondiscrimination Rules for Thrift Savings Plan

GGD-87-80BR: Published: May 22, 1987. Publicly Released: Jun 3, 1987.

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Pursuant to a congressional request, GAO reviewed Internal Revenue Code provisions which allow employees to defer taxes on contributions to the federal thrift savings plan until retirement.

GAO found that, since tax reform: (1) the nondiscrimination rule limits the contributions of highly paid federal and public schools employees to not more than one and one-quarter times the percentage of salary deferred by other employees; (2) the rule does not apply to plans available to other tax exempt organizations; (3) federal employees covered under the civil service retirement system have no incentive to participate in the thrift savings plan, since they are eligible to make tax-deferred contributions to individual retirement accounts (IRA); and (4) employees cannot withdraw funds in the thrift plan unless they left government service, transferred the money to IRA, and paid a 10-percent penalty.

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