The Internal Revenue Service (IRS) has issued proposed regulations relating to the definition of normal retirement age for governmental retirement plans. In 2007, the IRS issued regulations regarding normal retirement age for all qualified retirement plans. The 2007 regulations generally mandated that pension plans define normal retirement age as no younger than the earliest age that is reasonably representative of the typical retirement age for the industry in which participants are employed. The 2007 regulations further provided that a normal retirement age of age 62 or later is automatically deemed to satisfy the “reasonably representative” requirement. Through a series of notices, the IRS delayed the application of the 2007 regulations to governmental plans because of special concerns that applied to governmental plans. The IRS then announced in 2012 that it intended to modify the regulations as they applied to governmental plans. In the newly-issued proposed regulations, the IRS announces modifications to the 2007 normal retirement age regulations for purposes of their application to governmental plans.
Governmental Plan Safe Harbors
Under the amended regulations, a governmental plan would be permitted to rely on the age 62 safe harbor contained in the 2007 regulations. Therefore, a governmental plan will be deemed to comply with the “reasonably representative” requirement if the normal retirement age is age 62 or the later of age 62 and another specified date (such as the fifth anniversary of plan participation).
Additionally, the IRS proposes four new safe harbors for a governmental plan’s definition of normal retirement age. Governmental plans would be able to rely on the following safe harbor definitions of normal retirement age for satisfying the “reasonably representative” requirement:
- The later of age 60 or the age at which the participant has been credited with at least five years of service.
- The later of age 55 or the age at which the participant has been credited with at least 10 years of service.
- 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 equals 80 or more.
- The participant’s age when the number of years of service that have been credited to the participant equals 25; although this safe harbor may only be used in combination with another safe harbor.
Qualified Public Safety Employee Safe Harbors
In addition to the safe harbor definitions above, the proposed regulations include the following additional safe harbors that governmental plans can use for participants who are public safety employees:
- Age 50 or later without regard to whether substantially all of the participants in the plan are qualified public safety employees.
- 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 equals 70 or more.
- The participant’s age when the number of years of service that have been credited to the participant equals 20 or more.
Multiple Normal Retirement Ages
The proposed regulations also clarify that governmental plans can use more than one normal retirement age for different classifications of employees and different normal retirement ages for employees hired before or after a certain date.
The regulations would be effective for plan years beginning on or after the later of (1) January 1, 2017 or (2) the close of the first regular legislative session of the legislative body with the authority to amend the plan that begins on or after the date that is three months after final regulations are published. The proposed regulations are open for comment for 90 days.