Normal Retirement Age

[Guest meggie]

If governmental defined benefit pension plans are exempt under IRC 411, would you agree that they are not required to meet the requirements under 411(a)(8)-Normal Retirement Age- for IRS qualification purposes? If true, would you also agree that the local statutes would govern the minimum definition of NRA? I checked ADEA section 623,Prohibition of Age Discrimination, Section(i)to see if there may be any overriding issue there. I think that section allows for the NRA definition under IRC411, but I'm unclear as to whether or not it is required.

[david rigby]

Non-attorney opinion: I think you are correct that governmental plans are exempt from all of IRC 411, thus permitting other statutes to apply. Those are usually state laws, rather than local ordinances.

However, notice IRC 411(e)(2), which steers you to the IRC provisions in effect immediately prior to ERISA.

[Carol V. Calhoun]

Section 411(e)(2) by its terms subjects governmental plans to pre-ERISA vesting rules under sections 401(a)(4) and 401(a)(7). However, section 401(a)(5)(G) provides that 401(a)(4) (presumably including the vesting rules thereof) will not apply to state and local government plans. (Other governmental plans are technically not exempt, but it is anticipated that a pension technical corrections or similar bill will exempt them, if such a bill ever passes.)

Thus, the only federal vesting rule is pre-ERISA section 401(a)(7), which read as follows:

• (a) Requirements for Qualification.-A trust created or organized in the United States and forming part of a stock bonus, pension, or profit-sharing plan of an employer for the exclusive benefit of his employees or their beneficiaries shall constitute a qualified trust under this section-

* * *

(7) A trust shall not constitute a qualified trust under this section unless the plan of which such trust is a part provides that, upon its termination or upon complete discontinuance of contributions, under the plan, the rights of all employees to benefits accrued to the date of such termination or discontinuance, to the extent then funded, or the amounts credited to the employees' accounts are nonforfeitable.  This paragraph shall not apply to benefits or contributions which, under provisions of the plan adopted pursuant to regulations prescribed by the Secretary or his delegate to preclude the discrimination prohibited by paragraph (4), may not be used for designated employees in the event of early termination of the plan.

As you can see, this does not include the vesting rule on normal retirement age. And ADEA merely requires that older people be treated as well as younger people, not that they be treated better, so a vesting schedule which applied to workers of all ages (even those who had passed normal retirement date) would be acceptable. Thus, as you suspected, state and local law would govern this issue.