IRS Normal Retirement Age Regulations
** UPDATED April 19, 2012: Effective Date Delayed **
On April 18, 2012, the IRS and the Treasury Department issued Notice 2012-29 stating that they intend to amend the 2007 normal retirement age (“NRA”) regulations to modify how they will apply to governmental plans. Most significantly for now, the Notice states that the agencies intend to amend the existing regulations to change their effective date for governmental plans to annuity starting dates occurring 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 3 months after the final regulations are published in the Federal Register (which is expected to be in the coming months, after the close of a comment period). The Notice further provides that governmental plan sponsors may rely on this notice with respect to the extension until such time as the 2007 NRA regulations are so amended. This means that in general, governmental plan participants planning to retire before January 1, 2015 would not be affected by any changes made as a result of the 2007 NRA regulations. Additional updated information is provided below, at the end of the information previously posted in this Summary.
In 2007, the IRS issued final regulations which may set rules for the earliest age at which a participant in a qualified retirement plan can retire (known as the “normal retirement age”). Prior to these final regulations, there was no specific definition of normal retirement age in the Internal Revenue Code that qualified plans had to use. In general, under the final regulations, a plan’s normal retirement age cannot 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.” Treas. Reg. § 1.401(a)-1(b)(2)(i). A normal retirement age of 62 or greater is always acceptable under the regulations; in addition, for plans in which substantially all of the participants are qualified public safety employees, a normal retirement age of 50 or greater is always acceptable under the regulations. Qualified public safety employees are employees of a State or political subdivision who provide police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision. Later in 2007, the IRS issued additional guidance stating that under the final regulations, retirement plans generally cannot use normal retirement ages based on the completion of a stated number of years of service. While these regulations are already effective for most retirement plans, the IRS has extended the effective date for governmental retirement plans twice. Currently, they are set to begin applying to governmental plans for plan years beginning on or after January 1, 2013. The IRS has stated that its extensions are for the purpose of receiving comments and considering the unique impact these regulations would have on governmental plans.
Many governmental retirement plans, including CPRB-administered plans, allow retirement before age 62 (and before 50 for plans in which substantially all of the participants are qualified public safety employees), and/or allow retirement eligibility to be reached by completing a stated number of years of service. It is possible that the regulations, once effective, will require changes to the retirement eligibility provisions of some or all of the nine plans administered by the CPRB. These changes, if required, could impact participants currently intending to retire on or after January 1, 2013 and before they reach age 62 (or 50, for plans in which substantially all of the participants are qualified public safety employees). While the regulations in current form do not absolutely prohibit retirement before age 62 (or 50, for plan in which substantially all of the participants are qualified public safety employees), it is impossible to tell at this time what sort of retirement age before 62 (or 50) might be acceptable under the CPRB-administered plans, since this will be determined based on the relevant facts and circumstances in each case. Each plan administered by the CPRB has different retirement eligibility requirements, and some plans may qualify for the special rules for qualified public safety employees, so the impact of these regulations will be different for each plan.
The CPRB will continue to monitor the status of the regulations and their effect on the plans it administers, but cannot predict exactly how they will impact individuals intending to retire from CPRB-administered plans on or after January 1, 2013 and below the threshold ages described above. It is possible that the IRS will extend the effective date for governmental plans again, revise the final regulations with regard to governmental plans, or decide that they should not apply to governmental plans at all. CPRB will update this website and fact sheet in the event there are any additional developments. In the meantime, participants may wish to contact the IRS or their congressional or senate representative with concerns or questions about this issue.Update for Notice 2012-29
On April 18, 2012, the IRS and the Treasury Department issued Notice 2012-29 stating that they anticipate modifying the way the 2007 regulations will apply to governmental plans. Specifically, the agencies are considering issuing regulations clarifying that for governmental plans, the 2007 definitions of normal retirement age (described in the first paragraph of the original summary, above) would only apply to plans that allow participants to receive distributions from the plan while still working (such distributions are known as “in-service distributions”). If adopted, this could mean that CPRB-administered plans do not need to make any changes that would affect when participants become eligible to retire, or it could mean that only limited changes would be necessary. Because the actual regulations themselves have not yet been issued, we still cannot predict with any certainty what the impact on CPRB-administered plans will be.
The Notice also indicates that the agencies are considering a modification to the rules that would allow an earlier normal retirement age for qualified public safety officers even if they participate in the same plan as other, non-public safety employees. Previously, the rules allowed this only for plans made up substantially of qualified public safety officers.
Finally, as noted earlier, the Notice extends the effective date of the 2007 NRA regulations for governmental plans.
We will continue to monitor the status of these regulations and the impact they will have, if any, on CPRB-administered plans. We understand that the regulations are concerning to many of our members, but believe this recent Notice indicates the IRS and Treasury Department understand these concerns and are attempting to alleviate them. Interested parties can continue to submit comments to the IRS, or to their congressional or senate representatives.