What does "retired" mean for purposes of RMD?

[M Norton]

A client has two non-owner plan participants who would be subject to the RMD rules for 2010 except they are still working. Plan provisions allow participants to delay start of RMD until after retirement. Both of these employees are working maybe one or two days a week. Is that sufficient to allow them to postpone taking the RMD?

Thanks for any input on this!

[Belgarath]

I'm not aware of any formal guidance in 401(a)(9) or the regulations. How does the plan define "retirement?" If it requires "severance from employment" then it seems to me they could postpone RMD's if they just went from full-time status to part-time status.

[QDROphile]

I have not found any definitive guidance about how to draw the line. I think regular employment one day per week is sufficient to avoid "retirement" for purposes of the rule, especially if there are no other relationships involved (e.g. family or partnership) to suggest that the employment was not bona fide. Also, it would help if the employees were participating in benefit accrual and other aspects of emplyment perquisites. The idea is not to abuse the rule by improper postponement of taxation. If the plan has terms aobut retirement or the employer has specific policies about retirement (e.g. one can be retired [wahtever else that menas] and still work one day per week) and these employees are considered retired under the policies, then I might be concerned.

[M Norton]

These are regular employees with no family or partnership relationships to the owners.

The plan document defines the required beginning date as the later of the calendar year in which the participant attains age 70 1/2 or the calendar in which the participant retires (as long as the participant is not a 5% owner).

Thanks for the replies.

I think the employer and the participants will like the answer!