Calendar year in which the employee retires from employment with the employer maintaining the plan.

[pookah]

Employee is 72. His last day at work was 12/31/14 and he worked a full day. He did not go back to work in 2015. What is the "calendar year in which the employee retires from employment"? 2014 or 2015?

I don't find any support anywhere, but I would contend that in 2014 he was still working. In 2015 he was retired, making his required beginning date 4/1/16.

Thoughts? Support?

[Bird]

I would say he retired in 2014.

[GMK]

I'm with Bird.

For example, compare it to health coverage. If he was covered under the group medical plan for December, his COBRA notice would say that his last day of coverage is December 31, 2014, and that he is eligible for continuation coverage starting on January 1, 2015. He is not an employee in 2015. His last year of employment is 2014. His RBD is 4/1/15.

Administration Simplification Rule #8: The employment status change office is closed on the last day of the month.

[pookah]

Is there any guidance out there? I would argue that in 2014 I worked all the work I could. At no point was I retired. I suggest the calendar year in which I retire from employment (which is the regulatory language) is the first day that I don't work after that. My dilemma is that I can find no source that defines this one way or the other.

That's what I'm looking to find. I am not looking for a straw poll or consensus. Short of that, is there any reason why this is not a reasonable position to take with regard to the IRS?

To respond to GMK, I think your health analogy actually supports my theory--12/31 was my last day of employment; 1/1 was my first day of retirement.

[My advice to clients is to avoid the question and come in to work and retire on 1/2. Unfortunately not everyone asks me before the fact. I would their required beginning date to be in 15 months rather than 3.]

[Belgarath]

This issue has been debated endlessly, and as far as I know, there is no official guidance. If you can get hold of it, the IRS said UNOFFICIALLY, to the ABA Taxation section, back in 2003, that the last day of work is the date of retirement.
Q&A - 12 of that session. I don't have it handy, or I'd post it, but it is unofficial anyway. That's the only source I know of.

As far as taking a reasonable stance, while your position is arguably reasonable (I don't happen to agree, but that doesn't mean anything) - from a practical viewpoint, do you really want to advise your client to take the aggressive position when the penalty is 50%? Which likely won't get picked up for years, so it continues to accumulate each year? Hardly seems worth it to me - personally, I choose the conservative route.

As an aside, I don't believe the IRS has much interest in taking a position that defers receipt of revenue, but that's just my own cynical view...

[Tom Poje]

lets say he deferred and his final paycheck shows up in Jan 2015.

even for tax purposes it appears he 'worked' in 2015 as that is what his w-2 indicates, his deferral shows up on the 2015 ADP test, etc.

but then, my brain gears don't always mesh properly

[Belgarath]

Hi Tom - an interesting twist, and a good point. So let me ask you - (and I'm not trying to be a wise guy) if YOU had a client with a 3 million dollar account balance, would you advise, in that situation, that it was ok to put it off for another year? Would you do it for yourself if you were in that situation? I'm just curious as to how strongly you feel that the "aggressive" position is safe? (P.S. - if your account balance is 3 million, I salute you!)

I'm not certain receiving a paycheck in January necessarily has any bearing upon this question. If we extend your example a bit to illustrate the point, suppose you terminated on December 23rd - but you get a paycheck in January. How does that have any bearing on whether you are considered terminated for the prior year or not?

Anyway, I'll be interested in your opinion. Thanks.

[hr for me]

We had this argument years ago, but it was for date of death. When SAP first came out, it made the DOD the first day the person was "fully dead" rather than the actual date of death. SAP at the time at least was programmed by Germans(?) and that was what worked for them. We had to re-program it to get the correct DOD as stated in our plan documents (both 401k and pension).

Your last day of work is your termination date. I am not sure you could distinguish termination from retirement date as both are your last day of work. From the employer standpoint, they track start to end date (not day before start and day after end). From the employee standpoint, I could see how it could be confusing as that is the first day they are "retired and not working at all". I can see where communication in plan docs/spds/etc should be very careful to define the retirement date one way or the other. But if I did a straw poll, I think it would suggest the viewpoint of last day worked.

[Bird]

I'm pretty sure the IRS said at some point that the last year in which you worked is the year in which you retired. I thought it was not too long ago but everything blurs together so maybe it was the 2003 ABA conference noted by Belgarath.

I am quite sure the IRS would find your argument unconvincing.

[david rigby]

This is the only relevant item I could find in the Gray Book, and I have not checked to see if there is other (later) official guidance.

Gray Book 2004-42
Treas. Reg. §1.401(a)(9)-2, A-2(a) provides that except in the case of a 5%-owner, the “required beginning date” is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70-1/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan.

If December 31, 2003 is the employee’s last day at work, and the last day for which he is paid or entitled to payment of wages, is that the date of “retirement”. Or is January 1, 2004, the first day he is not employed, the retirement date? When is the employee’s required beginning date?

RESPONSE
“Retirement” is the last day worked, not the definition of retirement date in the plan. What date is an employee’s last day worked is a facts and circumstances determination. The facts and circumstances are based on the employer’s practice concerning the last day an individual is considered an employee.


The above Response is a summary, prepared by representatives of the Program Committee, of the oral responses to the question posed to certain staff members of the Treasury and IRS, which represent only personal views of the individuals who provided them. Accordingly, the Response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.

Copyright © 2004, Enrolled Actuaries Meeting
All rights reserved by Enrolled Actuaries Meeting. Permission is granted to print or otherwise reproduce a limited number of copies of the material on the diskette for personal, internal, classroom, or other instructional use, on the condition that the foregoing copyright notice is used so as to give reasonable notice of the copyright of the Enrolled Actuaries Meeting. This consent for free limited copying without prior consent of the Enrolled Actuaries Meeting does not extend to making copies for general distribution, for advertising or promotional purposes, for inclusion in new collective works, or for sale or resale.

[John Feldt ERPA CPC QPA]

Quote from above: the first day the person was "fully dead"

Immediately reminded me of Miracle Max (Billy Crystal) when he said "It just so happens that your friend here is only MOSTLY dead. There's a big difference between mostly dead and all dead."

Not sure how that fits into the IRS view here, however.

[jpod]

If my status as an active employee and my work obligations to my employer end at 5pm on 12/31, I have entered into retirement on 12/31. Stated differently, unless that status and those obligations end at the instant the ball drops on Times Square, I would view myself as having retired in the current year.

[chc93]

What about this... Business closes at 5:00:00 PM each day. Work to 5:00:00 PM on Dec 31. Then "retirement" starts at 5:00:01 PM on Dec 31. But since business is already closed, next business day is the "first retirement date"... or Jan 1 (assuming business is open, otherwise first day business is open after 5:00:01 PM Dec 31). In this case, think I would say that I worked on Dec 31, and retired on Jan 1 (or first business day following), not retired on Dec 31 since I worked to the end of Dec 31.

[jpod]

You could say that but I think most people would say you were wrong.

[mbozek]

Q did the plan issue a 1099R for 2014? As I understand it is up to the employer to determine the date of retirement.

Why is it wrong to say that employees first day of retirement is the day after the last day worked or paid for, since employee cannot be both employed and retired on the same day.

[Mike Preston]

Why not? Personally, I like the 5:00pm working, 5:01pm retired concept which I believe holds water whether the employer is open for business after 5:00pm not not.

[NJ Mike]

I also like the 5:00 theory. Our standard is if someone works on December 31, we consider them d retired on January 1. By any chance did this person receive Holiday pay for January 1st?

[Tom Poje]

so just have the person show up one day in Jan, and sign a paper that says "I officially retire today, you don't have to pay me for my troubles today, it is my gift to you"

[GMK]

^Doesn't that bring some FLSA proubles, Tom?

[hr for me]

Well a person can be employed and terminated on the same day. A person can be working and disabled on the same day. A person can be employed and dead on the same day. Not sure why that same person can't be employed and retired on the same day, using the same logic. Unless you want to go with the "first day the person is fully whatevered (not working, dead, disabled. retired). If you do, I would spell that out in all plan documents.

Yes, if the person actually worked on 1/1, FLSA would require payment to the employee for whatever time period is worked (and possibly the whole day if exempt).

[pookah]

This highlights the issue with "termination dates". Is it the last day I worked or the first day I didn't? That's why (and I think I indicated earlier) I essentially agree with Tom (although I wouldn't gift my pay, but might not work a whole day).

The big lesson when advising clients is to have significant terminations occur either the day before or the day after the end of an accounting (or other significant) period to avoid the semantic ambiguity. When advising sponsors, make sure they consistently document dates, but with a mind to the effects of placing it on one side of the line or the other.

In response to jpod's post #12, the question is what if you wanted to be retired in 2015, not 2014? Is it what you consider yourself or what others do? Again, based on responses (whether ultimately correct or not), I'd say just go to work on the 2nd.

As another question, what if you left work on 12/31, but died on 1/2?

[mbozek]

Employees can stop working and continue to be employed for several reasons such as taking all vacation days after last day of work before termination occurs. As Indicated above there is no IRS requirement that an employee is deemed retired on the last day of work. Its up to the employer to decide when the employee retired. Under the gray book the determination of the employees last day of work is based on facts and circumstances based on the employers practice of what constitutes the last day of work.

For example an employee can be terminated on May 25 and paid for that day but severance pay will not begin until May 26. Employees last day of work is May 25.