Early Retirement in DC Plan

[Guest new2this]

I hope this is not too much of a bonehead question..

In a Defined Contribution plan

Is it required to have an early retirement provision in the Plan Document

To have the ability to waive the 10% early withdrawal penalty when a distribution (due to separation from service) occurs at age 55

Thanks

[Jim Chad]

That is not a bonehead question. That is a GREAT question? Anybody know the answer?

[PensionPro]

A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55. (IRS Notice 87-13). This is not a plan document driven provision.

[Guest new2this]

A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55. (IRS Notice 87-13). This is not a plan document driven provision.

Thank you!

[imchipbrown]

I'm wondering whether you need to take the whole account or if a partial distribution also escapes. First impression is that something less than the whole account balance is OK (if Plan document provisions so allow).

[MWeddell]

Take a look at the portion of Code Section 72(t) cited earlier in the thread and I think you'll find that to satisfy the age 55 + separation from service exception to the 10% early distribution excise tax that the distribution must be a lump sum.

FYI, at one point this provision did depend on how "retirement" was defined in the plan document but it was changed to age 55 during the 1980s.

[Guest Sieve]

Where in IRC Section 72(t) does it say that a distribution after age 55 & termination of employment cannot be a partial distribution?

[MWeddell]

I stand corrected. Sieve is right that IRC 72(t) does not require that the distribution be a lump sum. Of course the particular plan would have to allow partial distributions to participants who have separated from service.

[BG5150]

I think the only thing an early retirement provision will get you might be accelerated vesting for someone (to 100%).

[Guest Sieve]

It also, pursuant to plan terms, might result in an allocation of a match or employer contribution despite termination before year end.