GENERAL COUNSEL

DEPARTMENT OF THE TREASURY                                  WASHINGTON, D.C.                                       March 5, 1998

The Honorable Dan Burton
Chairman
Committee on Government Reform and Oversight
U.S. House of Representatives
Washington, D.C. 20515

Dear Mr. Chairman:

This letter presents the views of the Department of the Treasury on H.R. 3249, the "Federal Retirement Coverage Correction Act." We endorse the general objectives of H.R. 3249, but strongly believe the following matters should be clarified as the bill goes through the legislative process.

Treatment of Retirees

Under section 415 of the Internal Revenue Code, contributions to a retirement plan cannot be made for retirees by employers because they are not receiving current compensation, unless it relates back to prior years. The current language of H.R. 3249 implies that this problem will be corrected by regulation, but we believe a statutory authorization would be required to clarify this matter.

Election to be Transferred from CSRS to FERS

With reference to section 102(b)(2)(C) of the bill, the rule provides that if the total government contributions to the Civil Service Retirement and Disability Fund (CSRDF) are less than the amount needed to be transferred to the Federal Old-Age and Survivors Insurance Trust Fund and the Federal Disability Insurance Trust Fund (OASDI) when an employee transfers from the Civil Service Retirement System (CSRS) to the Federal Employees' Retirement System (FERS), then "the shortfall shall be made up by the agency in or under which the employee is then employed." The Committee should note that such payments of the employee under the Federal Insurance Contributions Act (FICA) also are considered wages subject to FICA unless provided otherwise.

The application of section 415 of the Internal Revenue Code of 1986 to the makeup contributions to the Thrift Savings Plan (TSP) under section 102(c)(1) needs to be clarified. We recommend that a new section 102(c)(1)(E) be added which reads as follows:

In no event may the sum of the amounts determined under paragraphs (A),(B) and (C) for an individual with respect to a given limitation year exceed the amount that, if added to the amount of the contributions that were actually made by such individual to the Thrift Savings Fund with respect to such year (if any) would cause the total to exceed any limitation under section 415 or any other provision of the Internal Revenue Code of 1986 that would have applied to such employee with respect to such year.

We suggest deleting the reference to section 415 limits under section 102(c)(2)(C)(i) because this would now be in new section (E).

Election to be Transferred from CSRS-Offset to FERS

Section 103(b)(1) states that in the case of an employee who elects to be transferred to FERS, section 102(b) shall apply "(relating to disposition of contributions to the CSRDF), but disregarding provisions relating to transfers to OASDI trust funds." Section 102(b) involves transfers to the OASDI trust fund. We believe this provision is confusing, and that the Administration's bill provides much simpler and clearer treatment with respect to needed transfers.

In addition, section 163(a) provides for reasonable fee reimbursement. An actual dollar limit would prevent conflicts over what is a reasonable versus an excessive claim for reimbursement.

The Office of Management and Budget has advised that there is no objection from the standpoint of the Administration's program to the submission of this report to your Committee.

Sincerely,

/s/

Edward S. Knight
General Counsel

cc: The Honorable Henry Waxman