Federal Retirement Thrift Investment Board   •   1250 H Street, NW •   Washington, DC 20005

07-U-3Thrift Savings Plan

BULLETIN for Service TSP Representatives

Inquiries: QuestionsconcerningthisbulletinshouldbedirectedtotheFederalRetirementThriftInvestmentBoardat202-942-1460.

Chapter: ThisbulletinmaybefiledinChapter8,LoanProgram.

Subject: TSPLoanDefaultProcess

Date: October4,2007

TheThriftSavingPlan(TSP)hasimplementeditsloandefaultprogram.ThisprogramismandatedbyInternalRevenueServiceregulationswhichapplytoall401(k)plans,includingtheTSP.Essentially,theregulationsprovidethatattheendofeachcalendarquarter,plansliketheTSPmustidentifyloanaccountsthataremissingpaymentsandnotifyparticipantsthattheyhaveuntiltheendofthefollowingquartertopaythemissingamount.Ifthepay-mentsarenotmadeup,theloanbalanceisdeclaredataxabledistribution.Theamountofthedistributionistreatedasincomeandmaybesubjecttoa10%earlywithdrawalpenaltytax.(See“RepayingaLoan”inthebookletTSP Loans.)

I. Implementation

A. Inpreparationforthisprocess,onMarch31,2006,theTSPreamortizedatotalof36,545loansthatweremissing2½ormorepaymentstogiveparticipantsachancetostartfresh.

B. ThefirstquarterlydefaultcyclebeganonJune30,2006,thelastbusinessdayofthesecondquarter.Anyloanthatwasmorethan2½paymentsbehindwasidentifiedasbeingindefault(exceptloansbelongingtoparticipantsinnonpaystatuslessthan12months,orparticipantsinmilitarynonpaystatus).Approxi-mately20,000participantsweresenta“pendingloandefaultnotice.”

ThisnoticeinformsparticipantsthattheymustbringtheirloanaccountsuptodatebysubmittingmissedloanpaymentsdirectlytotheTSPbeforetheendofthequarterinwhichthenoticewassent.Thenoticeprovidesthecurrentamountneededtobringtheloanintoagoodstanding.Thisamountisthe“cureamount”andisonlyvalidfor30days.Itdoesnottakeintoconsider-ationanyfuturemissedpayments.ParticipantsaretoldtocontacttheTSPtoobtaincurrentcureamountsiftheydonotsubmitapaymentwithin30daysorcontinuetomisspayments.Ifthepaymentsarenotmadeup,theloanswill

(continued on next page)

-2-

becometaxabledistributionsattheendofthequarter.AcopyofthenoticeisincludedwiththisbulletinasAttachment1.

C. ParticipantNotifications.

(1) EndofQuarterParticipantNotices.

Attheendofeachquarterthatfollows,theTSPevaluatesthestatusofloansforallparticipants(exceptthosewhohavebeeninnonpaystatusforlessthan12monthsorareinnonpaystatusduetomilitaryservice).Iftheloanisinacurrentpaymentstatus,noactionwillbetaken.Ifnot,thenoneofthefollowingactionswilloccur:

a. Iftheparticipanthadbeensentthependingloandefaultnoticeattheendofthepriorquarterandtheloanpaymentshavenotbeenmadeup,theloanwillbedeclaredataxabledistribution.Theparticipantwillbenotifiedthattheloanhasbeenclosed,andagenciesandserv-iceswillbenotifiedviathe19401Reportthatloanpayments(ifany)shouldbestopped.(SeeAttachment2foracopyofthisnotice.)

b. Iftheparticipanthadnotbeensentthependingloandefaultnotice,onewillbeissued.Theloanwillbesubjecttoataxabledistributionifpaymentsarenotmadeupbytheendofthefollowingquarter.

(2) Mid-QuarterReminderNotice.Iftheparticipantwassentapendingloandefaultnotice(1)(b)andtheloanhasnotbeen“cured,”aremindernoticewillbesenttotheparticipantapproximatelymid-quarter.AcopyofthatisAttachment3.

II.ServiceActions

A. PendingLoanDefaultReport(19402Report).

Attheendofeachquarter,theTSPwillsendeachsubmittingpayrollofficeareportlistingtheirparticipantswhohavebeensentthePendingLoanDefaultNotice.Thisreportisverysimilartothe19401;itprovidestheparticipant’sSocialSecuritynumber,name,loannumber,loanpayoffamount,lastpaymentdate,andLWOPstatus.Itisbrokendownbydepartmentandagency.AcopyofthereportisAttachment4.

B. Servicesandpayrollofficescanassisttheirparticipantsintwoways:

(1) Ifpaymentsareerroneouslynotbeingmade,theyshouldbestartedim-mediately.Ifpaymentsareincorrect,theyshouldbechangedtotheap-propriateamount.TheAgencyTechnicalServices(ATS)canprovideas-sistancetopayrollofficesasnecessary.Servicesshouldalsoremindpar-ticipantsthattheymustsendthecureamounttomakeupthedeficiency

-3-

(inadditiontotheloanpaymentsmadebypayrolldeductions)topreventthetaxabledistributionsattheendofthequarter.Itistheparticipants’responsibilitytoensurethattheirloanpaymentsarecurrent.ParticipantsshouldbereferredtotheTSPtoobtainthelatestcureamount.

(2) Ifparticipantsareonleavewithoutpay(LWOP)ormilitaryLWOPandreceivedapendingloandefaultnotice,thentheTSPwasnotnotifiedofthatstatus.Itisextremelyimportantthatservice(oragencies)promptlysubmitFormTSP-U-41,NotificationtoTSPofNonpayStatus,totheTSP.(Youmayfaxtheformto1-866-817-5023.)Thisformwillensurethattheparticipants’loan(s)willbesuspendedandnotsubjecttoataxabledis-tributionduetomissingpayments.(NOTE:LoanpaymentscannotbesuspendedduetoLWOPformorethanayearunlesstheparticipantisonmilitaryLWOP.)

FormoreinformationaboutparticipantsinnonpaystatusandtheeffectonTSPloans,pleaseseeTSPBulletin04-8,RevisionoftheBookletTSP Loans,datedMay4,2004.Thereisalsoafactsheet,EffectofNonpayStatusonTSPParticipa-tion,datedMay2005.ThesepublicationsareavailableontheTSPWebsite.

Servicesareadvisedthattheymayreceivecallsfromparticipantsconcerningthependingdefaultnotice.Theyshouldprovideassistanceasnecessarytoensurethatpaymentsarebe-ingproperlydeductedorthattheTSPispromptlynotifiedofaLWOPstatus.However,asindicatedontheloanagreementsthattheysigned,participantsareresponsibleforrepayingtheirloans,includinganymissedpaymentsandassociatedinterest.

PAMELA-JEANNEMORANDirectorOfficeofParticipantServices

Attachments

1 66666 0000000 1 0000000 0000000 0000000 1 11 6 6 0 / 0 11 0 / 0 0 / 0 0 / 0 11 1 1 6 0 / 0 1 1 0 / 0 0 / 0 0 / 0 1 1 1 66666 0 / 0 1 0 / 0 0 / 0 0 / 0 1 1 6 6 0 / 0 1 0 / 0 0 / 0 0 / 0 1 1 6 6 0 / 0 1 0 / 0 0 / 0 0 / 0 1 111111111 66666 0000000 111111111 0000000 0000000 0000000 111111111 ttttttttt 0000000 0000000 777777777 0000000 66666 2222222 9999999 t 0 / 0 0 / 0 7 0 / 0 6 6 2 2 9 9 t 0 / 0 0 / 0 7 0 / 0 6 2 9 9 t 0 / 0 0 / 0 7 0 / 0 66666 2 9999999 t 0 / 0 0 / 0 7 0 / 0 6 6 2 9 t 0 / 0 0 / 0 7 0 / 0 6 6 2 9 t 0000000 0000000 7 0000000 66666 222222222 9999999 ssssssss 1 9999999 4 0000000 2222222 s 11 9 9 44 0 / 0 2 2 s 1 1 9 9 4 4 0 / 0 2 sssssss 1 9999999 4444444 0 / 0 2 s 1 9 4 0 / 0 2 s 1 9 4 0 / 0 2 ssssssss 111111111 9999999 4 0000000 222222222

Report No: TSP 19402 Thrift Savings Plan Run Date: 05/24/07 Payroll Office No: 99999999 Pending Loan Default Information Report Run Time: 06:25:25 Payroll Office Nm: TEST OF DEPT. Page No: 1 Process Taxable Distribution Date: 06/29/2007 ** Sensitive Personnel Data - Use is Restricted ** Date of Loan Payment Date of LWOP End Dept Agcy Pers SSN Last Name First Name Middle Name Birth Number Amount Last Pmt Date Code Code OfId ----------- ----------------- ------------ ------------ ---------- -------- ---------- ---------- ---------- ---- ---- ---- 999-99-9999 SAMPLE PART E 11/15/1965 9999999G 50.00 05/22/2007 00/00/0000 DL ES 3226