The Internal Revenue Service (IRS) has released the final rules defining normal retirement age for defined benefit and money purchase pension plans. These rules allow distributions to be made from a plan upon a participant’s attainment of normal retirement age prior to severance.
 
Normal retirement age in a pension or annuity plan is generally the lowest age specified by the plan at which a participant may retire without the consent of the employer and still receive retirement benefits at the full rate set forth in the plan. While ordinarily the normal retirement age is 65, plans may specify a different retirement age if the purpose of a lower age is not to accelerate funding.
 
While defined benefit and money purchase plans are generally required to be maintained for the purpose of providing benefits after retirement, the new regulations permit payment of retirement benefits prior to severance after the participant has attained normal retirement age. The regulations also specify how low a plan’s normal retirement age may be and include an exception to anti-cutback rules to allow conforming amendments during transition.
 
The final rules clarify that pension plans are permitted to distribute benefits once the participant has reached an age that is reasonably representative of typical retirement ages for the participant’s industry. A safe harbor age of 62 is established under the final regulations. A plan therefore satisfies safe harbor if its normal retirement age is 62, or if its normal retirement age is the later of 62 or another specified date.
 
If a defined benefit or money purchase plan has a normal retirement date that is between 55 and 62 years, deference will generally be given to a good faith effort to determine the typical retirement age for the industry, as long as that effort is reasonable with respect to the facts and circumstances.
 
A normal retirement age of less than 55 years is presumed to be earlier than would be reasonably representative of the typical industry retirement age for the industry unless facts and circumstances that demonstrate otherwise are presented to the Commissioner.
 
The final rules are effective as of May 22, 2007, but will apply to government plans beginning on or after January 1, 2009. For plans ratified and in effect under collective bargaining agreements on May 22, 2007, the new regulations do not apply until after the last of the agreements terminates, or May 22, 2010, whichever is earlier.
 
To view the final rules, please click here.