Selecting a Normal Retirement Age in the Plan Document

Experts from Groom Law Group and CAPTRUST answer questions concerning retirement plan administration and regulations.

I work with a new 501(c)(3) organization that is starting up a 403(b) plan. In my review of the adoption agreement for my recordkeeper’s plan document, it asks me to select a ‘normal retirement age.’ Does it make a difference what age I select? Our plan is 100% vested in all contributions.”

Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:

First of all, the Experts commend you for your thorough review of the vendor-provided plan document/adoption agreement; many of the elections you make within the adoption agreement are quite important and will have a significant impact on plan operation. Having said that, the Experts agree with you that this particular decision is probably not one of them, unless you have a particular plan feature that is tied to normal retirement age.

Normal retirement age is defined as the age at which someone can receive full retirement benefits upon leaving the workforce. It is often confused with the age (if any) at which an individual has a right to receive an in-service distribution from the plan, but it has nothing to do with that determination. In-service distributions can be separately restricted by the plan sponsor.

In defined benefit (DB) plans, normal retirement age is extremely important, since an individual who retires prior to that age generally receives an actuarially reduced benefit. In 457(b) plans, normal retirement age can also be significant, since it determines the timing of the special 457 plan three-year catch-up contribution election. However, in 403(b) plans, normal retirement age is typically only important if employer contributions are subject to a vesting schedule, since an employee may be immediately vested in his/her employer contributions if the service requirement is waived upon attainment of that age.  Since your plan provides for 100% vesting for all contributions, this feature should have no special consideration for your plan.

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.

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