Feds Seek Phased Retirement Suggestions

Officials at the Internal Revenue Service (IRS) and the US Treasury Department are asking for comments on so-called phased retirement arrangements under qualified defined benefit pension plans.

Among the questions posed in Notice 2002-43 are:

• Under what circumstances would allowing distributions from a defined benefit plan, before the employee attains normal retirement age, be consistent with the requirement that a defined benefit plan be established and maintained primarily for purposes of providing benefits after retirement?
• How would additional benefits be calculated under a defined benefit plan that provides for such (early) distributions while the employee continues employment?
• How should phased retirement arrangements be distinguished from a situation in which an employee separates from employment before normal retirement age and then is hired as a consultant or independent contractor for the former employer?

Such arrangements allow retirees, or those near retirement age, to work part time. By doing so, the employees also get more time to save for retirement and may be able to put off having to dip into their already accumulated savings.

However, many industry observers caution that the danger of phased retirement is if employees take an early withdrawal from their retirement savings and end up outliving their resources.

Making a Comment

Comments should be submitted by January 1, 2003, in writing, and should reference Notice 2002-43.

Comments should be submitted to IRS, CC:ITA:RU (Notice 2002-43), Room 5226, PO Box 7604, Ben Franklin Station, Washington, D.C. 20244 or via e-mail at Notice.Comments@irscounsel.treas.gov .

Read the full text of the IRS/Treasury notice .