Leaderboard

This would require a change in the law, as age 65 comes out of IRC 401(a)(14). Since you posted this on the 401(k) forum, what would be the practical effect of the change for a 401(k) plan? Normal retirement age doesn't really mean much in a 401(k) plan.

Sure, you're allowed to have an earlier NRA than the latest allowed by law. But we're contemplating making the latest age later, which would only be of interest to plans that want to use the latest possible NRA. I don't know about the employee thing. This is what IRC 411(a) says: and 411(a)(8) Says nothing about being an employee on the date they attain normal retirement age. I also don't see anything to that effect in the 411 regs. I would be happy to be proven wrong though. The way I read this, a participant who defers their distribution (and is eligible to do so, i.e. not subject to mandatory cash-out) until NRA becomes 100% vested. Interestingly, though, our plan document (FT William cycle 3 401(k)) only says that "a Participant shall become fully (100%) vested upon his attainment of Normal Retirement Age while an Employee."

Thanks. And for a participant whose benefit became non-forfeitable long before normal retirement age, how many plans do not allow a distribution, even after severance-from-employment or age 59½ (or both), until the participant attains normal retirement age?

The only type of DC plan that I can think of that would be impacted by a change in the NRA would be a target benefit plan, and those types of designs are quite rare. In a typical profit sharing plan, the plan's definition of NRA really only ever comes into play when a participant who is less than fully vested in employer contributions attains normal retirement age and becomes fully vested as a result. Since NRA can be defined as the later of age 65 and 5 years of plan participation, and the longest permissible vesting schedule in a DC plan is 6 years, it is rare for this to occur. But it does happen sometimes, usually either because a participant failed to work enough hours each year to earn a year of vesting service, or because a participant who terminated employment delayed their distribution until NRA.

From my experiences with many individual-account retirement plans, I remember no situation in which attaining the plan’s normal retirement age entitled a participant to vesting or a distribution to which she was not otherwise entitled under the plan. But such a situation is possible. How often does it happen? In what kinds of circumstances? Are there kinds of employers or occupations for which it’s more likely to happen? Are there kinds of plan designs in which it’s more likely to happen?