In the latest iteration of rulemaking efforts that have been going on for years, the Internal Revenue Service (IRS) has issued a notice of proposed rulemaking for the applicability of normal retirement age regulations to governmental pension plans.
The regulations would provide rules relating to the determination of whether the normal retirement age under a governmental plan (within the meaning of section 414(d) of the Internal Revenue Code) that is a pension plan satisfies the requirements of section 401(a) and whether the payment of definitely determinable benefits that commence at the plan’s normal retirement age satisfies these requirements.
In response to a call for comments in 2012, the IRS received a range of comments regarding the pre-Employee Retirement Income Security Act (ERISA) vesting rules that apply to a governmental plan’s normal retirement age. In particular, the IRS received many comments requesting rules that would permit governmental plans to define normal retirement age by reference to a period of service. Comments also focused on whether a governmental plan is required to include an explicit definition of normal retirement age.
Under the proposed rule, the terms of a governmental plan are not required to include an explicit definition of the term normal retirement age in order to satisfy section 401(a). However, in the absence of an explicit definition of normal retirement age, the terms of the plan must specify the earliest age at which a participant has the right to retire without the consent of the employer and to receive retirement benefits based upon the amount of the participant’s service on the date of retirement at the full rate set for in the plan. That age (the earliest age described in the preceding sentence) will be considered the plan’s normal retirement age for purposes of any statutory or regulatory requirements based on a normal retirement age.
Governmental plans don’t need to have a definition of normal retirement age if they don’t provide for in-service distributions before age 62.NEXT: Reasonably representative age and safe harbors
The proposed regulations would apply the reasonably representative requirement in the 2007 normal retirement age regulations for governmental plans. Thus, the normal retirement age under a governmental plan must be an age that is not earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.
The rule provides several safe harbors:
- A normal retirement age of at least age 62 is deemed to satisfy the reasonably representative requirement;
- A normal retirement age that is the later of age 60 or the age at which the participant has been credited with at least 5 years of service;
- A normal retirement age that is the later of age 55 or the age at which the participant has been credited with at least 10 years of service;
- A normal retirement age that is the participant’s age if the sum of the participant’s age plus the number of years of service that have been credited to the participant under the plan equals 80 or more; and
- Any age with 25 years of service (in combination with a safe harbor that includes an age).
The proposed regulations include three safe harbors specifically for qualified public safety employees.
- A normal retirement age of age 50 or later is deemed to satisfy the reasonably representative requirement;
- A normal retirement age that is the participant’s age when the sum of the participant’s age plus the number of years of service that have been credited to the participant under the plan equals 70 or more; and
- Any age with 20 years of service.