Reasonable NRA in Pension Plan

[Guest PSH]

In May, the IRS issued final regulations that define a "reasonable normal retirement age" that pension plans may use. If a plan's NRA is below age 62, it must be an age that is representative of the typical NRA for the industry. The regulations gave no help in defining what's typical for an industry. I can't find any stats that would help me determine what's typical. What are others using? Are there published stats or benchmarks somewhere?

[Andy the Actuary]

It is distressing that the regs speak of the industry and not the facts and circumstances of the situation. One interpretation would be that industry refers to the North American Industry Classification System -- i.e., the 6 digit code. It seems that frequently you have to struggle to classify a business (e.g., how would you classify "pooper scooper" service). It looks like normal retirement ages 55 to 61 might be a wink whereas under 55 requires a demonstration. One decision seems clear: Unless your adopting age 62 or later as NRA, it's best to obtain a "D" letter in respect of the amendment.

"Typical retirement age" is an interesting notion. Suppose an industry (e.g., anesthesiology) publishes retirement information and it fits a bell curve with 45-50 and 65-70 being the head and tail and the mean being 57. So is the typical retirement age 57 so that normal retirement age must be no earlier than 57? You could contrive an example where 1/2 leave at age 60 and 1/2 at 65. So are both 60 and 65 typical or is age 62 typical?

This is simply another example of loose drafting creating more issues and diverting the IRS's attention from the critical issue of addressing PPA2006. This never would have happened during the IRA Cohen regime.

[benpat3]

What about the IRS clarifying that a Normal Retirement Age can not be conditioned on the completion of a stated number of years of service? If a Plan does have this provision, what does the Plan need to do? Plan provides that may retire after 28 years of service regardless of age. The IRS states that this does not satisfy the vesting and accrual rules of Section 411.

[mwyatt]

Us here in MA are looking at a pension plan set up for the keys at the MTA (Mass Transit Authority) wherein one guy just retired in his mid-40s w/ a $140k annual pension (never mind the inherent 415 violation). Plan provides for full retirement after 23 years. Next time you're in Boston, you'll know why the transit system is in trouble. Oh, but that's a government plan, so never mind. Just our tax dollars at work.