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Member, Beacon International Group, Ltd.
WASHINGTON—The Internal Revenue Service has given sponsors of state and local government pension plans a second extension to comply with an IRS rule that defines the “normal” retirement age for a pension plan.
In Notice 2009-86 published Wednesday, the IRS said public plan sponsors generally will have until Jan. 1, 2013, to comply with the rules. The IRS originally set a Jan. 1, 2009, effective date, but last year delayed the effective date to Jan. 1, 2011.
The IRS said the latest extension is intended to give the agency and the Treasury Department more time to consider comments made by public plan sponsors on the impact of the regulations.
Under those regulations, which generally went into effect in May 2007 for private plan sponsors, the normal retirement age can’t be earlier than what is typical for the employer’s industry. However, plans with a retirement age of 62 and older automatically pass muster under the 2007 regulations. The vast majority of U.S. employers specify age 65 as the normal retirement for their pension plans.
For plans that allow full retirement starting at age 55, the regulations require that it not be earlier than “the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.”
Employers are expected to make a “good-faith determination of the typical retirement age” of that industry.
If the employer has a retirement age younger than 55, it would be presumed to be earlier than the typical industry age unless the employer proves to the contrary.
The 2007 regulations, though, include a special exception for pension plans covering public safety employees, such as police officers, firefighters or medical emergency personnel. Employers sponsoring such plans can use a normal retirement age as low as 50 and automatically be considered reasonable by the IRS.