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Phased Retirement-type question


Guest slt
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I have been told this is a "Phased Retirement"-type question, although honestly I have no idea what that means. I have a governmental client that wants to permit participants to receive benefits at a stated age (say, 55) but continue to work. The issue is whether they can say that normal retirement age (NRA) is age 55 and then permit the distributions. My understanding is that, generally, no distributions from a DB plan until termination or retirement.

In addition, as a governmental plan, I know the client is not subject to Section 411 (at least ERISA 411). My real problem with this issue is that the client wants to retain the reductions applicable to an age 55 retirement. Normally, an age 55 retirement (and 15 years of service) would yield an early retirement benefit, which is a reduced benefit. I'm pretty sure this would not be permitted (applying reductions on a benefit someone is getting at "normal retirement age" that is really an "early retirement" type benefit). Since Code section 411 (as amended by ERISA) does not apply to governmental plans, what is the proper way to analyze this situation? Could anyone recommend anything to me? Any thoughts?

Thanks so much! :D

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I think you are on the right track. Either a governmental plan or a private plan is permitted to make distributions upon the participant's attainment of "normal retirement age," even if the participant continues in service. However, in the case of a private plan, various Internal Revenue Code provisions ensure that (a) the plan itself defines what normal retirement age is, and (B) the unreduced benefit is payable at normal retirement age. Even though the provisions of section 411 do not by their terms apply to governmental plans, the question is whether you can have such a thing as a normal retirement age in a governmental plan if you do not satisfy these requirements. In other words, even if section 411 is not a qualification requirement by itself, is it a requirement if a governmental plan is to be able to make distributions before severance of employment? As with so many areas affecting governmental plans, the problem is that the qualification requirements of the Internal Revenue Code fit together for private plans, but the omission of many (though not all) of them for governmental plans makes it harder to see exactly how they would be applied.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Thanks Carol,

Just to share with readers, I actually answered part of my question through some research:

Revenue Ruling 71-147 (pre-ERISA, and dealing with 1.401-1) provides that the normal retirement age in a pension or annuity plan is the lowest age specified in the plan at which the employee has the right to retire without the consent of the employer and receive retirement benefits based on service to date of retirement at the full rate set forth in the plan (i.e., without actuarial or similar reduction because of retirement before some later specified age).

Therefore, saying that age 55 is the NRA and then applying reductions would be IMPERMISSIBLE.

71-147 really dealt with a profit-sharing plan and not a pension plan, but 78-120, which actually deals with a defined benefit plan, applies the same principles as 71-147 (and specifically incorporates it by reference). Therefore, one could argue that governmental plans are subject to the language in 71-147 because it is not a Section 411 issue, but a "pension plan" issue - which goes to what you were saying Carol.

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slt,

Thanks for the follow-up!

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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