IRS Seeks Public Comment on Applicability of Normal Retirement Age Rules to Governmental Plans | Practical Law

IRS Seeks Public Comment on Applicability of Normal Retirement Age Rules to Governmental Plans | Practical Law

The Internal Revenue Service (IRS) and the Treasury Department anticipate issuing guidance on the applicability of the normal retirement age rules to governmental plans under Section 414(d) of the Internal Revenue Code (IRC). IRS Notice 2012-29 invites public comment on the proposed guidance.

IRS Seeks Public Comment on Applicability of Normal Retirement Age Rules to Governmental Plans

by PLC Employee Benefits & Executive Compensation
Law stated as of 19 Apr 2012 • USA (National/Federal)
The Internal Revenue Service (IRS) and the Treasury Department anticipate issuing guidance on the applicability of the normal retirement age rules to governmental plans under Section 414(d) of the Internal Revenue Code (IRC). IRS Notice 2012-29 invites public comment on the proposed guidance.
The IRS has announced that, along with the Treasury Department, they anticipate issuing guidance on the applicability to governmental plans of normal retirement age requirements. Notice 2012-29 describes the anticipated guidance and invites public comments to be submitted by July 30, 2012.
Governmental plans are defined under IRC Section 414(d) as a plan established and maintained for its employees by the US, a state government or any government agency. The IRS also recently issued proposed rules relating to the definition of certain governmental plans (see Legal Update: IRS Issues Advance Notice of Proposed Rulemaking on Governmental Plans). The anticipated IRS guidance would:
  • Clarify that governmental plans that are not subject to IRC Section 411(a)-(d) and do not provide for in-service distributions before age 62 do not need to have a definition of normal retirement age.
  • Modify the age-50 safe harbor rule for qualified public safety employees to remove the requirement that all employees must be covered by the same governmental plan.
  • Extend the effective date of the regulations relating to distributions from a pension plan on attainment of normal retirement age for governmental plans to annuity starting dates in plan years beginning on the later of:
    • January 1, 2015; or
    • the end of the first legislative session of the body with the authority to amend the plan that begins on or after the date that is three months after the final regulations are published in the Federal Register.
For governmental plans, the definition of normal retirement age is significant for:
  • Plan qualification:
    • when applying pre-ERISA vesting rules; and
    • to specify circumstances in which in-service distributions are permitted.
  • Participant eligibility for:
    • certain favorable tax treatment, including IRC Section 402(l), which provides an income exclusion for certain distributions for health insurance and long-term care insurance premiums to eligible retired public safety officers who separate from service on attainment of normal retirement age; and
    • the special catch-up provisions under Treasury Regulation 1.457-4(c)(3)(v)(A).
The IRS and the Treasury Department specifically request comments on:
  • Whether an additional rule should be provided under which retirement after 20 to 30 years of service may be a normal retirement that is reasonably representative for qualified public safety employees.
  • Other categories of governmental employees who have career spans similar to qualified public safety employees (commencing at a young age and continuing for a limited period) that would justify a similar rule.
  • The overall retirement patterns of other government employees to assist them in determining the earliest age that is reasonably representative of the typical retirement ages for such employees.
For more information on the definition of a governmental plan, see Legal Update: IRS Issues Advance Notice of Proposed Rulemaking on Governmental Plans.
For an overview of an IRS determination letter and the determination letter application process, see Practice Note: Applying for an IRS Determination Letter.