May 10, 2012 – The IRS recently announced that they are considering additional guidance related to the normal retirement regulations and their application to governmental plans. Notice 2012-29 was released to describe the changes that the IRS is contemplating and requests comments.
In 2007, the IRS issued final regulations which provided that a plan’s normal retirement age could not be less than age 62. However, for qualified public safety employees, the normal retirement age could be as low as age 50.
The IRS is considering making two clarifications in relation to the final regulations for governmental plans. First, a plan that does not allow in-service distributions before age 62 would not be determined to fail to meet the requirements of the final regulations even if the plan does not define normal retirement age, or has a definition of normal retirement age that does not satisfy the definition in the final regulations.
Second, a governmental plan could define normal retirement age for a group of employees as age 50 if substantially all of the employees are qualified public safety employees. This is allowed regardless of whether or not the public safety employees group is covered by a separate plan. Therefore, the plan would have one definition of normal retirement age for group of public safety employees, and another definition for all the other employees.
As a part of this guidance, the IRS also announced that they intend to extend the effective date for governmental plans to annuity starting dates that occur in plan years beginning on or after the later of (1) January 1, 2015 or (2) the close of the first regular legislative session beginning on or after the date that is 3 months after the final regulations are amended. The IRS indicated that governmental plan sponsors may rely on the Notice in regards to the extension.
The IRS will be taking written comments regarding this potential guidance until July 30, 2012.
If you have any questions regarding how this guidance may affect your plan, please contact your Nyhart consultant.