Governmental public safety employee pension plan--early withdrawals

[Susan L.]

If the benefit is distributed as an annuity for life, can it begin any time, even if the employee is still employed, without the employee incurring a 10% early distribution excise tax under Code section 72(t)? 

[Bri]

72(t)(2)(A)(iv) probably answers the penalty issue, but whether the annuity can start at any time is more likely a plan document issue.

[Peter Gulia]

Susan L., your query does not mention whether the plan is a defined-benefit plan or an individual-account (defined-contribution) plan, nor whether the plan seeks to tax-qualify under Internal Revenue Code § 401(a), § 403(b), § 415(m), § 457(b), or something else.

One or more of those and other classifications might matter to discern whether a plan provides a distribution before a participant has severed from employment and before the participant attained a specified age.

[Susan L.]

Peter Gulia, I've been so immersed in governmental pension plans, I sort of forget about that other world of non-governmental non-pension plans. My question arises in the context of a traditional defined benefit, non-ERISA, governmental plan that is set forth in state statute and is intended to be qualified under IRC 401(a) et seq. Specifically, I can't seem to nail down whether the plan could pay out an annuity for life (or joint lives of spouse and member) starting at, say, age 54, when the member is still employed, so there's been no separation from service. Assume for this purpose that the plan's NRA is age 50 and we can show that that age is reasonably representative of the typical retirement age for this industry (firefighters). On these facts, would the member avoid having to pay the 10% excise tax for early distribution and, generally, is this permitted? I think so, but would love a second opinion. 

[truphao]

I believe life annuity payments are exempt under 72(t).  Furthermore, payment to safety public employees are explicítely exempt if over age 50.   https://www.irs.gov/retirement-plans/substantially-equal-periodic-payments