IRS to Amend Public Sector Retirement Rules

Last week, the Internal Revenue Service published a notice of its intention to issue guidance on the applicability of “normal retirement age rules” to governmental retirement plans.

In 2007, the IRS issued regulations on this topic, but state and local government organizations feared that they would jeopardize the tax-exempt status of public retirement plans.  Provisions in the regulations appeared to require that such plans include a formally defined definition of retirement age, rather than years of service.  In addition, in many governmental plans, public safety employees are allowed to retire as early as 50.  As a result of these concerns, the IRS agreed in 2009 to delay implementation of the new rules until January 1, 2013, with the understanding that they would be altered before that date.

The new IRS regulations would include language that would clarify that governmental plans do not have to include a definition of normal retirement age and would allow a normal retirement age of 50 or over in instances where the group participating was made up “substantially” of public safety employees.

The IRS, which is inviting public comment on the proposed changes, also recommends extending the date in which the new rules would apply to January 1, 2015.


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