After much concern regarding the new Treasury Regulations promulgated by the Internal Revenue Service (“IRS”) and their potential impact on members of government pensions plans, the IRS and the Department of Treasury extended the date by which a government plan must comply with final regulations on distributions from a pension plan upon attainment of normal retirement age. Under the extension, the new regulations will be effective for a governmental plan for plan years beginning on or after January 1, 2013.
As described in three previous blog entries, the IRS modified Treasury Regulation §1.401(a)-1 to provide an exception to the rule that pension benefits be paid only after retirement by permitting a pension plan to commence payment of retirement benefits to a participant after the participant has attained normal retirement age even if the participant has not yet had a severance from employment with the employer maintaining the plan.
The new regulations also require a pension plan’s normal retirement age to 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. In the case of a retirement plan where substantially all of the participants are qualified public safety officers, a normal retirement age of age 50 or later is deemed not to be earlier than the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.
Notice 2007-69, which provided temporary relief of certain plans that may have to change their definitions of normal retirement age to satisfy the new regulations, indicated that the new regulations do not contain a safe harbor or other guidance with respect to a normal retirement age conditioned on the completion of a stated number years of service. The notice requested comments on whether and how a pension plan with a normal retirement age conditioned on the completion of a stated number of years of service satisfies the requirement in §1.401(a)-1 that a pension plan be maintained primarily to provide for the payment of definitely determinable benefits after retirement or attainment of normal retirement age and how such a plan satisfies the pre-ERISA vesting rules.
Although the implementation of the new regulations has been delayed, it is critical to keep apprised of the comments regarding whether a pension plan with a normal retirement age conditioned on the completion of a stated number of years of service satisfies the new regulations. Clearly, the resolution of this issue could drastically impact many public safety officers not only in New Jersey, but across the country. Please be sure to check this blog periodically as updates regarding these regulations will be posted as more information becomes available.