[Federal Register Volume 81, Number 17 (Wednesday, January 27, 2016)]
[Proposed Rules]
[Pages 4599-4605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01639]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-147310-12]
RIN-1545-BM22
Applicability of Normal Retirement Age Regulations to
Governmental Pension Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This document contains proposed regulations under section
401(a) of the Internal Revenue Code (Code). These regulations would
provide rules relating to the determination of whether the normal
retirement age under a governmental plan (within the meaning of section
414(d) of the Code) that is a pension plan satisfies the requirements
of section 401(a) and whether the payment of definitely determinable
benefits that commence at the plan's normal retirement age satisfies
these requirements. These regulations would affect sponsors and
administrators of governmental pension plans, as well as participants
in such plans.
DATES: Comments and requests for a public hearing must be received by
April 26, 2016.
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-147310-12), Room 5205,
Internal Revenue Service, P.O. Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
147310-12), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue NW., Washington, DC 20224, or sent electronically via the
Federal eRulemaking Portal at www.regulations.gov (IRS REG-147310-12).
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Pamela Kinard at (202) 317-4148 or Robert Walsh at (202) 317-4102;
concerning the submission of comments or to request a public hearing,
Oluwafunmilayo (Funmi) Taylor, (202) 317-7180 or (202) 317-6901 (not
toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
I. Normal Retirement Age Generally
This document contains proposed regulations under section 401(a) of
the Internal Revenue Code (Code). Section 401(a) sets forth the
qualification requirements for a trust forming part of a stock bonus,
pension, or profit-sharing plan of an employer. Several of these
qualification requirements are based on a plan's normal retirement age,
including the regulatory interpretation of the requirement that the
plan provide for definitely determinable benefits (generally after
retirement). Final regulations defining normal retirement age for the
definitely determinable requirement were published in the Federal
Register as TD 9325 on May 22, 2007 (72 FR 28604) (2007 NRA
regulations).
Section 1.401(a)-1(b)(1) of the 2007 NRA regulations generally
requires that a pension plan be established and maintained primarily to
provide systematically for the payment of definitely determinable
benefits over a period of years, usually for life, after retirement.
The 2007 NRA regulations include two exceptions to the general rule
that payments commence after retirement: (1) Payments can commence
after attainment of normal retirement age; and (2) in accordance with
section 401(a)(36), payments can commence after an employee reaches age
62.
Section 1.401(a)-1(b)(2)(i) of the 2007 NRA regulations provides
that, as a general rule, a normal retirement age under a pension plan
must be an age that is not earlier than the earliest age that is
reasonably representative of the typical retirement age for the
industry in which the covered workforce is employed (reasonably
representative requirement). Section 1.401(a)-1(b)(2)(ii) of the 2007
NRA regulations provides that a normal retirement age of age 62 or
later is deemed to satisfy the reasonably representative requirement.
Under section 1.401(a)-1(b)(2)(iii) of the 2007 NRA regulations,
whether a normal retirement age that is not earlier than age 55 but is
below age 62 satisfies the reasonably representative
[[Page 4600]]
requirement is based on a facts and circumstances analysis. Section
1.401(a)-1(b)(2)(iv) of the 2007 NRA regulations provides that a normal
retirement age that is lower than age 55 is presumed not to satisfy the
reasonably representative requirement unless the Commissioner
determines otherwise on the basis of facts and circumstances. Under
Sec. 1.401(a)-1(b)(2)(v) of the 2007 NRA regulations, in the case of a
pension plan in which substantially all of the participants are
qualified public safety employees (within the meaning of section
72(t)(10)(B)), a normal retirement age of age 50 or later is deemed to
satisfy the reasonably representative requirement.
As previously explained, normal retirement age is used by a pension
plan in a variety of circumstances relating to plan qualification.
Generally, in the case of a pension plan that is not a governmental
plan under section 414(d) and is subject to the rules of section 411(a)
through (d), normal retirement age is used in applying the rules under
section 411(b) that are designed to preclude avoidance of the minimum
vesting standards through the backloading of benefits (such as a
benefit formula under which the rate of benefit accrual is increased
disproportionately for employees with longer service). Normal
retirement age is also relevant for such a plan for other purposes,
including the application of the rules relating to suspension of
benefits under section 411(a)(3)(B), plan offset rules under section
411(b)(1)(H)(iii), and the minimum benefit rules applicable to non-key
employee participants in the case of a top-heavy defined benefit plan
under section 416. In addition, for such a plan, section 411(a)(8)
defines the term normal retirement age as the earlier of (a) the time a
participant attains normal retirement age under the plan or (b) the
later of the time a plan participant attains age 65 or the 5th
anniversary of the time a plan participant commenced participation in
the plan.\1\
---------------------------------------------------------------------------
\1\ Section 411(f) provides a special normal retirement age rule
that applies only to certain defined benefit plans that are subject
to section 411(a) through (d). Section 411(f) was added to the Code
on December 16, 2014 by Section 2 of Division P of the Consolidated
and Further Continuing Appropriations Act, 2015, Public Law 113-235
(128 Stat. 2130 (2014)), which also made a corresponding change to
section 204 of the Employee Retirement Income Security Act of 1974,
Public Law 93-406 (88 Stat. 829 (1974)), as amended (ERISA). Under
section 101 of Reorganization Plan No. 4 of 1978 (92 Stat. 3790),
the Secretary of the Treasury has interpretive jurisdiction over the
subject matter addressed in section 411(f) for purposes of ERISA, as
well as the Code.
---------------------------------------------------------------------------
II. Normal Retirement Age Under a Governmental Plan
A. Application of Section 411 to Governmental Plans
Section 414(d) of the Code provides that the term governmental plan
generally means a plan established and maintained for its employees by
the Government of the United States, by the government of any State or
political subdivision thereof, or by any agency or instrumentality of
any of the foregoing.\2\ See sections 3(32) and 4021(b)(2) of ERISA for
definitions of the term governmental plan for purposes of title I and
title IV of ERISA, respectively.
---------------------------------------------------------------------------
\2\ The term governmental plan also includes a plan that is
established and maintained by an Indian tribal government (as
defined in section 7701(a)(40)), a subdivision of an Indian tribal
government (determined in accordance with section 7871(d)), or an
agency or instrumentality of either, and all the participants of
which are employees of such entity substantially all of whose
services as such an employee are in the performance of essential
governmental functions but not in the performance of commercial
activities (whether or not an essential government function). In
addition, the term governmental plan includes any plan to which the
Railroad Retirement Act of 1935 or 1937 (49 Stat. 967, as amended by
50 Stat. 307) applies and which is financed by contributions
required under that Act and any plan of an international
organization that is exempt from taxation by reason of the
International Organizations Immunities Act, Public Law 79-291 (59
Stat. 669).
---------------------------------------------------------------------------
Section 411(e)(1) of the Code provides that the provisions of
section 411, other than section 411(e)(2), do not apply to a
governmental plan. Under section 411(e)(2), a governmental plan is
treated as meeting the requirements of section 411, for purposes of
section 401(a), if the plan meets the vesting requirements resulting
from the application of sections 401(a)(4) and 401(a)(7) as in effect
on September 1, 1974 (pre-ERISA vesting rules). The only requirements
under section 411 that apply to a governmental plan are the pre-ERISA
vesting rules under section 411(e)(2). Thus, the definition of normal
retirement age under section 411(a)(8) does not apply to a governmental
plan. In addition, other rules of section 411, including section
411(a)(3)(B) (related to suspension of benefits), section 411(b)(1)
(related to backloading of benefits in a defined benefit plan), and
section 411(b)(1)(H)(iii) (related to offsets after normal retirement
age) do not apply to a governmental plan. Therefore, except for
specific circumstances in which in-service benefit payments are
permitted under Sec. 1.401(a)-1(b)(1), the definition of normal
retirement age need not be used by a governmental plan for the same
purposes that apply to a plan subject to section 411(a) through (d).\3\
---------------------------------------------------------------------------
\3\ Normal retirement age may also be relevant to participant
eligibility for certain favorable tax treatment, including section
402(l) (providing an income exclusion of up to $3,000 annually for
certain distributions for health insurance and long-term care
insurance premiums to eligible retired public safety officers who
separate from service by reason of disability or attainment of
normal retirement age) and the special catch-up provisions under
Sec. 1.457-4(c)(3)(v)(A).
---------------------------------------------------------------------------
B. Pre-ERISA Vesting Requirements for Governmental Plans
Under section 411(e)(2), a normal retirement age under a
governmental plan must satisfy the pre-ERISA vesting rules. The pre-
ERISA vesting rules applicable to governmental plans contain two basic
components: (a) Rules relating to vesting and (b) rules relating to the
right to commence benefits without reduction for early commencement.
Rev. Rul. 66-11, 1966-1 C.B. 71, and Rev. Rul. 68-302, 1968-1 C.B. 163,
illustrate the interplay between normal retirement age under the pre-
ERISA vesting rules and section 401(a). As described in these rulings,
to satisfy the requirements of section 401(a), a plan that is subject
to the pre-ERISA vesting rules must provide for full vesting of the
contributions made to or benefits payable under the plan for any
employee who has attained normal retirement age under the plan and
satisfied any reasonable and uniformly applicable requirements as to
length of service or participation described in the plan. For more
information about these rules, see Part 5(c) of Publication 778, Guides
for Qualification of Pension, Profit-Sharing, and Stock Bonus Plans
(Pub. 778).
Rev. Rul. 71-24, 1971-1 C.B. 114, illustrates the application of
the pre-ERISA vesting rules to benefits provided under a pension plan
for employees who continue employment after normal retirement age. Rev.
Rul. 71-24 includes an example under which benefits are permitted to
commence during employment after normal retirement age.
As described in Rev. Rul. 71-147,\4\ 1971-1 C.B. 116, the normal
retirement age in a pension or annuity plan under the pre-ERISA vesting
rules is generally the lowest age specified in the plan at which the
employee has the right to retire without the consent of the employer
and receive retirement benefits based on the amount of the employee's
service to the date of retirement at the full rate set forth in the
[[Page 4601]]
plan (that is, without actuarial or similar reduction because of
retirement before some later specified age). Rev. Rul. 71-147 does not
explicitly require a plan to include a provision defining normal
retirement age. Instead, a plan's normal retirement age may be deduced
from other plan provisions. As described in Rev. Rul. 71-147, although
normal retirement age under a pension or annuity plan is ordinarily age
65, a plan may specify a lower age at which the employee has the right
to retire without the consent of the employer and to receive retirement
benefits based on the amount of the employee's service at the full rate
set forth in the plan if this lower age would be an age at which
employees customarily retire in the particular company or industry, and
if the provision permitting receipt of unreduced benefits at this age
is not a device to accelerate funding. For more information about these
rules, see also Part 5(e) of Pub. 778.
---------------------------------------------------------------------------
\4\ Even though Rev. Rul. 71-147 was superseded by Rev. Rul. 80-
276, 1980-1 C.B. 131, for plans subject to section 411(a)(8), Rev.
Rul. 71-147 remains valid guidance for purposes of the pre-ERISA
vesting rules.
---------------------------------------------------------------------------
III. Application of the 2007 NRA Regulations to Governmental Plans
Notice 2007-69, 2007-2 C.B. 468, asked for comments ``on whether
and how a pension plan with a normal retirement age conditioned on the
completion of a stated number of years of service satisfies the
requirement in Sec. 1.401(a)-1(b)(1)(i) that a pension plan be
maintained primarily to provide for the payment of definitely
determinable benefits after retirement or attainment of normal
retirement age and how such a plan satisfies the pre-ERISA vesting
rules.'' Comments were received on a variety of issues, including
comments that guidance should be issued to (1) clarify that
governmental plans are not required to define normal retirement age,
(2) provide safe harbor rules that would permit a governmental plan to
define normal retirement age that includes a service component, and (3)
provide that the age-50 safe harbor rule in Sec. 1.401(a)-1(b)(2)(v)
for qualified public safety employees can apply to these employees even
if less than substantially all of a plan's participants are qualified
public safety employees.
The 2007 NRA regulations provided that, in the case of governmental
plans, the regulations would be effective for plan years beginning on
or after January 1, 2009. Notices 2008-98, 2008-44 I.R.B. 1080, and
2009-86, 2009-6 I.R.B. 629, provided that the Department of the
Treasury and the IRS intended to amend the 2007 NRA regulations to
change the effective date of the 2007 NRA regulations for governmental
plans to January 1, 2013.
Notice 2012-29, 2012-18 I.R.B. 872, announced that the Department
of the Treasury and the IRS intend to modify provisions of the 2007 NRA
regulations as applied to governmental plans in two ways. First, Notice
2012-29 announced the intent to modify the regulations to clarify that
a governmental plan that is not subject to section 411(a) through (d)
and does not provide for the payment of in-service distributions before
age 62 will not fail to satisfy the requirement that the plan provide
definitely determinable benefits to employees after retirement or
attainment of normal retirement age merely because the pension plan
does not have a definition of normal retirement age or does not have a
definition of normal retirement age that satisfies the requirements of
the 2007 NRA regulations.
Second, Notice 2012-29 announced the intent to modify the 2007 NRA
regulations to provide that the rule deeming age 50 or later to be a
normal retirement age that satisfies the 2007 NRA regulations will
apply to a group of employees substantially all of whom are qualified
public safety employees, whether or not the group of qualified public
safety employees are covered by a separate plan. Thus, under the
intended modification, a governmental plan would be permitted to
satisfy the reasonably representative requirement using a normal
retirement age as low as 50 for a group substantially all of whom are
qualified public safety employees and a later normal retirement age
that otherwise satisfies the 2007 NRA requirements for all other
participants.
Notice 2012-29 requested comments from governmental stakeholders on
the guidance under consideration. Specific comments were requested on
whether a new rule should be provided under which retirement after 20
to 30 years of service may be a normal retirement age that is
reasonably representative of the typical retirement age for the
industry in which qualified public safety employees are employed
because these employees tend to have career spans that commence at a
young age and continue over a limited number of years. Many commenters
wrote that such a rule would be helpful and appropriate. Several
commenters requested a rule that would permit a governmental plan to
use the completion of 20 or more years of service as a normal
retirement age for public safety employees.
Comments were also requested on whether there are other categories
of governmental employees who have career spans similar to qualified
public safety employees for whom a rule should be provided that is
similar to the safe harbor for qualified public safety employees. Many
commenters recommended a rule that would permit governmental plans to
use the completion of a number of years of service as a normal
retirement age for all employees, not just qualified public safety
employees.
Notice 2012-29 also requested information on the overall retirement
patterns of employees in government service to assist the Department of
the Treasury and the IRS in determining the earliest age that is
reasonably representative of the typical retirement ages for the
industry in which these employees are employed. One commenter provided
data on the retirement patterns and median normal retirement ages for
participants in a state retirement system.
Notice 2012-29 also provided that the Department of the Treasury
and the IRS intend to amend the 2007 NRA regulations to modify the
effective date of the 2007 NRA regulations for governmental plans to
annuity starting dates that occur in plan years beginning on or after
the later of (1) January 1, 2015 or (2) the close of the first regular
legislative session of the legislative body with the authority to amend
the plan that begins on or after the date that is 3 months after the
final regulations are published in the Federal Register.
Explanation of Provisions
I. Overview
These proposed regulations would provide guidance with respect to
the applicability of the 2007 NRA regulations to governmental plans.
These proposed regulations, when finalized, would provide guidance
relating to the determination of whether the normal retirement age
under a governmental plan satisfies the requirements of section 401(a)
by amending the 2007 NRA regulations to provide additional rules for
governmental plans. In addition, these proposed regulations would also
include a minor change to the 2007 NRA regulations to reflect the
addition of section 411(f), which provides a special rule for
determining a permissible normal retirement age that applies only to
certain defined benefit plans that are not governmental plans.
II. Use of Years of Service as a Component of the Pre-ERISA Vesting
Rules
In response to Notice 2012-29, the Department of the Treasury and
the IRS received a range of comments regarding the pre-ERISA vesting
rules that apply to a governmental plan's normal retirement age. In
particular, the Department of the Treasury and the IRS received many
comments requesting
[[Page 4602]]
rules that would permit governmental plans to define normal retirement
age by reference to a period of service. Comments also focused on
whether a governmental plan is required to include an explicit
definition of normal retirement age.
As previously stated, a normal retirement age under a governmental
plan must satisfy the pre-ERISA vesting rules. The Department of the
Treasury and the IRS generally agree with those commenters who
indicated that the pre-ERISA vesting rules applicable to normal
retirement age may be read to permit a governmental plan to use a
normal retirement age that reflects a period of service. Under pre-
ERISA vesting rules, use of a period of service to determine normal
retirement age under a governmental plan would be permissible if the
period of service used is reasonable and uniformly applicable and the
other pre-ERISA rules related to normal retirement age are satisfied.
One of the pre-ERISA rules permits a governmental plan to specify a
normal retirement age that is lower than age 65 if that age represents
the age at which employees customarily retire in the industry.
Under the pre-ERISA rules related to normal retirement age, the
terms of a governmental plan are not required to include an explicit
definition of the term normal retirement age in order to satisfy
section 401(a). However, in the absence of an explicit definition of
normal retirement age, the terms of the plan must specify the earliest
age at which a participant has the right to retire without the consent
of the employer and to receive retirement benefits based upon the
amount of the participant's service on the date of retirement at the
full rate set forth in the plan (that is, without actuarial or similar
reduction because of retirement before some later specified age). That
age (the earliest age described in the preceding sentence) will be
considered the plan's normal retirement age for purposes of any
statutory or regulatory requirements based on a normal retirement age.
Consistent with Notice 2012-29, the proposed regulations would
provide that a governmental plan that does not provide for the payment
of in-service distributions before age 62 would not fail to satisfy
Sec. 1.401(a)-1(b)(1) under these proposed regulations merely because
the pension plan has a normal retirement age that is earlier than
otherwise permitted under the requirements of Sec. 1.401(a)-1(b)(2) of
the 2007 NRA regulations (as proposed to be amended by these proposed
regulations). Instead, because section 411(a) through (d) does not
apply, the earlier normal retirement age under such a plan is treated
as the age as of which an unreduced early retirement benefit is payable
for purposes of these regulations.
III. Normal Retirement Age Must Satisfy the Reasonably Representative
Requirement
A. In General
These proposed regulations would apply the reasonably
representative requirement in the 2007 NRA regulations to governmental
plans. Thus, the normal retirement age under a governmental plan must
be an age that is not earlier than the earliest age that is reasonably
representative of the typical retirement age for the industry in which
the covered workforce is employed.
B. General Safe Harbor
These proposed regulations would apply to governmental plans the
safe harbor in the 2007 NRA regulations that a normal retirement age of
at least age 62 is deemed to satisfy the reasonably representative
requirement. Thus, a governmental plan satisfies this safe harbor if
the normal retirement age under the plan is age 62 or if the normal
retirement age is the later of age 62 or another specified date, such
as the fifth anniversary of plan participation.
C. Safe Harbors for Governmental Plans
To address comments regarding the need for additional safe harbors
for governmental plans, including safe harbors that reflect permissible
periods of service, these proposed regulations would provide several
additional alternative safe harbors that a governmental plan could
satisfy. The safe harbors included in these proposed regulations were
developed based upon feedback provided in comments received in response
to Notices 2007-69 and 2012-29.
1. Age 60 and 5 Years of Service
Under these proposed regulations, a normal retirement age under a
governmental plan that is the later of age 60 or the age at which the
participant has been credited with at least 5 years of service would be
deemed to satisfy the reasonably representative requirement.
2. Age 55 and 10 Years of Service
Similarly, a normal retirement age under a governmental plan that
is the later of 55 or the age at which the participant has been
credited with at least 10 years of service would be deemed to satisfy
the reasonably representative requirement. Thus, for example, a normal
retirement age under a governmental plan that is the later of age 55 or
the age at which the participant has been credited with 12 years of
service would satisfy this safe harbor.
3. Combined Age and Years of Service of 80 or More
A normal retirement age under a governmental plan that is the
participant's age if the sum of the participant's age plus the number
of years of service that have been credited to the participant under
the plan equals 80 or more would also be deemed to satisfy the
reasonably representative requirement. For example, a participant in a
governmental plan who is age 55 and who has been credited with 25 years
of service under the plan would satisfy this safe harbor.
4. Any Age With 25 years of Service (in Combination With a Safe Harbor
That Includes an Age)
A governmental plan would also be permitted to combine any of the
other safe harbors (except for the qualified public safety employee
safe harbors) provided under the proposed regulations with 25 years of
service, so that a participant's normal retirement age would be the
participant's age when the number of years of service that have been
credited to the participant under the plan equals 25 if that age is
earlier than what the participant's normal retirement age would be
under the other safe harbor(s). For example, a normal retirement age
under a governmental plan would satisfy the reasonably representative
requirement if the normal retirement age is the earlier of (1) the
participant's age when the participant has been credited with 25 years
of service under the plan and (2) the later of age 60 or the age when
the participant has been credited with 5 years of service under the
plan. Use of 25 years of service by a governmental plan for normal
retirement age generally would not satisfy the pre-ERISA vesting
requirement relating to normal retirement age, unless it is used in
conjunction with an alternative normal retirement age that includes an
age component and that otherwise satisfies the pre-ERISA rules. This is
because the pre-ERISA vesting requirements allow for a service
component only if that component does not unreasonably delay full
vesting. For example, applying a 25 years of service requirement
(without an alternative normal retirement age) to a newly-hired 63-
year-old employee would not be reasonable because it would result in a
normal retirement age of 88. See generally, Rev. Rul. 66-11.
[[Page 4603]]
D. Qualified Public Safety Employees
The proposed regulations include three safe harbors specifically
for qualified public safety employees. The safe harbors were developed
based upon feedback provided in comments received in response to
Notices 2007-69 and 2012-29. Consistent with Notice 2012-29 and in
response to comments, the proposed regulations would make clear that a
governmental plan is permitted to use one or more of the safe harbors
for qualified public safety employees to satisfy the reasonably
representative requirement for those employees even if a different
normal retirement age or ages is used under the plan for one or more
other categories of participants who are not qualified public safety
employees. The safe harbors for qualified public safety employees are
not permitted to be used for these other categories of participants; a
different normal retirement age (or ages) must be used for participants
in a plan who are not qualified public safety employees.
As under the 2007 NRA regulations, the term qualified public safety
employee would be defined by reference to section 72(t)(10)(B), under
which a qualified public safety employee means any employee of a State
or political subdivision of a State who provides police protection,
firefighting services, or emergency medical services for any area
within the jurisdiction of such State or political subdivision.\5\
Defining qualified public safety employee by reference to section
72(t)(10)(B) has been retained because it is closely aligned with the
categories of employees described in the Age Discrimination in
Employment Act that an employer may refrain from hiring after a certain
age.\6\ Because qualified public safety employees typically commence
plan participation at younger ages, the period of service required for
full vesting at normal retirement age under each of the safe harbors
for qualified public safety employees should be reasonable.
---------------------------------------------------------------------------
\5\ Section 72(t)(10)(B) was amended by section 2(a) of
Defending Public Safety Employees' Retirement Act, Public Law 114-26
(129 Stat. 319) (2015)) and section 308 of Protecting Americans From
Tax Hikes Act of 2015 (PATH Act), enacted as part of the
Consolidated Appropriations Act, 2016, Public Law 114-113 (129 Stat.
2422), to include federal public safety employees as qualified
public safety employees for purposes of the rules under section
72(t)(10). Thus, for distributions made after December 31, 2015, the
term qualified public safety employee means any employee of a State
or political subdivision of a State who provides police protection,
firefighting services, or emergency medical services for any area
within the jurisdiction of such State or political subdivision, or
any Federal law enforcement officer described in section 8331(20) or
8401(17) of title 5, United States Code, any Federal customs and
border protection officer described in section 8331(31) or 8401(36)
of such title, any Federal firefighter described in section 8331(21)
or 8401(14) of such title, or any air traffic controller described
in 8331(30) or 8401(35) of such title, any nuclear materials courier
described in section 8331(27) or 8401(33) of such title, any member
of the United States Capitol Police, any member of the Supreme Court
Police, and any diplomatic security special agent of the Department
of State.
\6\ See section 4(j) of the Age Discrimination in Employment
Act, 29 U.S.C. 623(j).
---------------------------------------------------------------------------
1. Age 50
The proposed regulations would modify the safe harbor for qualified
public safety employees that was provided in the 2007 NRA regulations
under which a normal retirement age of age 50 or later is deemed to
satisfy the reasonably representative requirement and would expand on
the guidance under consideration described in Notice 2012-29. The
proposed regulations would make clear that a governmental plan is
permitted to use the safe harbor (alone or together with one or both of
the other safe harbors for qualified public safety employees described
in this preamble) for one or more qualified public safety employees in
a governmental plan without regard to any ``substantially all''
requirement (that is, without regard to whether substantially all of
the participants in the plan or substantially all of the participants
within a group of participants are qualified public safety employees).
2. Combined Age and Years of Service of 70 or More
The proposed regulations would add a safe harbor under which a
normal retirement age for qualified public safety employees under a
governmental plan that is the participant's age when the sum of the
participant's age plus the number of years of service that have been
credited to the participant under the plan equals 70 or more would be
deemed to satisfy the reasonably representative requirement.
3. Any Age With 20 Years of Service
The proposed regulations would also add a safe harbor under which a
normal retirement age for qualified public safety employees under a
governmental plan that is the participant's age when the number of
years of service that have been credited to the participant under the
plan equals 20 or more would be deemed to satisfy the reasonably
representative requirement. For example, a normal retirement age for
qualified public safety employees under a plan that is 25 years of
service would satisfy this safe harbor. The Department of the Treasury
and the IRS agree with the comments received in response to Notice
2012-29 that indicated that a safe harbor based solely on a period of
service would be appropriate for qualified public safety employees
because these employees typically have career spans that commence at a
young age and continue over a limited period of years.
E. Multiple Normal Retirement Ages in a Governmental Plan
Commenters on Notice 2012-29 stated that it is a common practice
for governmental plans to have a normal retirement age that is a
combination of age and years of service. In light of these comments,
some of the safe harbors proposed in these regulations contemplate a
combination of age and years of service, such as, for example, the use
of a normal retirement age that is the earlier of (1) the participant's
age when the participant has been credited with 30 years of service
under the plan or (2) the later of age 60 or the age when the
participant has been credited with 5 years of service under the plan. A
normal retirement age under a governmental plan that is consistent with
the safe harbors in these proposed regulations would not fail to
satisfy the pre-ERISA requirements, including the requirement that any
period of service required for vesting at normal retirement age be
uniformly applicable to all employees in a plan, merely because the
plan uses such a normal retirement age.
Commenters to Notice 2012-29 also stated that governmental plans
typically provide multiple normal retirement ages, often based on
different benefit structures or classifications of employees in a
single plan. These comments expressed concern that certain language in
Notice 2012-29 \7\ could be read to indicate that a governmental plan
could only have two normal retirement ages if one of the normal
retirement ages covered qualified public safety employees and the other
normal retirement age covered all of the other participants in the
plan.
---------------------------------------------------------------------------
\7\ Notice 2012-29 provided that, under an anticipated amendment
to the 2007 NRA regulations, a governmental plan would be permitted
to satisfy the reasonably representative requirement using a normal
retirement age as low as 50 for a group substantially all of whom
are qualified public safety employees and a later normal retirement
age that otherwise satisfies the 2007 NRA requirements for all other
participants.
---------------------------------------------------------------------------
Use of one normal retirement age for one classification of
employees (such as qualified public safety employees) and one or more
other normal retirement ages for one or more different classifications
of employees would not
[[Page 4604]]
be inconsistent with these proposed regulations and generally would not
be inconsistent with the applicable pre-ERISA requirements, including
the requirement that any period of service required for full vesting at
normal retirement age be uniformly applicable. Similarly, the use of
one normal retirement age under a governmental plan for employees hired
before a certain date and another normal retirement age under the plan
for employees hired on or after that date generally would not fail to
satisfy the applicable pre-ERISA requirements.
F. Other Normal Retirement Ages
The proposed regulations would provide that in the case of a normal
retirement age under a governmental plan that fails to satisfy any of
the governmental plan safe harbors, whether the normal retirement age
satisfies the reasonably representative requirement would be based on
all of the relevant facts and circumstances. Similar to the treatment
of normal retirement ages between ages 55 and 62 under the 2007 NRA
regulations, it is generally expected that a good faith determination
of the typical retirement age for the industry in which the covered
workforce is employed that is made by the employer will be given
deference, assuming that the determination is reasonable under the
facts and circumstances and that the normal retirement age is otherwise
consistent with the pre-ERISA vesting requirements.
Proposed Effective Date
These regulations are proposed to be effective for employees hired
during plan years beginning on or after the later of (1) January 1,
2017 or (2) the close of the first regular legislative session of the
legislative body with the authority to amend the plan that begins on or
after the date that is 3 months after the final regulations are
published in the Federal Register. Governmental plan sponsors may rely
on these proposed regulations for periods preceding the effective date,
pending the issuance of final regulations. If and to the extent the
final regulations are more restrictive than the rules in these proposed
regulations, those provisions of the final regulations will be applied
without retroactive effect.
Statement of Availability for IRS Documents
For copies of recently issued Revenue Procedures, Revenue Rulings,
Notices, and other guidance published in the Internal Revenue Bulletin
or Cumulative Bulletin, please visit the IRS Web site at http://www.irs.gov or the Superintendent of Documents, U.S. Government
Publishing Office, Washington, DC 20402.
Special Analyses
Certain IRS regulations, including this one, are exempt from the
requirements of Executive Order 12866, as supplemented and reaffirmed
by Executive Order 13563. Therefore, a regulatory assessment is not
required. It has also been determined that 5 U.S.C. 533(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations. In addition, because no collection of information is
imposed on small entities, the provisions of the Regulatory Flexibility
Act (5 U.S.C. chapter 6) do not apply and a Regulatory Flexibility
Analysis is not required. Pursuant to section 7805(f) of the Internal
Revenue Code, these regulations have been submitted to the Office of
Chief Counsel for Advocacy of the Small Business Administration for
comments on its impact on small business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ADDRESSES heading.
All comments are available at www.regulations.gov or upon request. A
public hearing will be scheduled if requested in writing by any person
who timely submits written comments. If a public hearing is scheduled,
notice of the date, time, and place of the public hearing will be
published in the Federal Register.
Drafting Information
The principal authors of these regulations are Sarah R. Bolen and
Pamela R. Kinard, Office of Associate Chief Counsel (Tax Exempt and
Government Entities). However, other personnel from the Department of
the Treasury and the IRS participated in the development of these
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. Section 1.401(a)-1 is amended by:
0
1. Revising paragraph (b)(2)(v).
0
2. Adding paragraph (b)(2)(vi).
0
3. Revising the heading and the second sentence of paragraph (b)(4).
The revisions read as follows:
Sec. 1.401(a)-1 Post-ERISA qualified plans and qualified trusts; in
general.
* * * * *
(b) * * *
(2) * * *
(v) Rules of application for governmental plans--(A) In general. In
the case of a governmental plan (within the meaning of section 414(d))
that provides for distributions before retirement, the general rule
described in paragraph (b)(2)(i) of this section may be satisfied in
accordance with paragraph (b)(2)(ii) of this section or this paragraph
(b)(2)(v). In the case of a governmental plan that does not provide for
distributions before retirement, the plan's normal retirement age is
not required to comply with the general rule described in paragraph
(b)(2)(i) of this section or this paragraph (b)(2)(v).
(B) Age 60 and 5 years of service safe harbor. A normal retirement
age under a governmental plan that is the later of age 60 or the age at
which the participant has been credited with at least 5 years of
service under the plan is deemed to be not earlier than the earliest
age that is reasonably representative of the typical retirement age for
the industry in which the covered workforce is employed.
(C) Age 55 and 10 years of service safe harbor. A normal retirement
age under a governmental plan that is the later of age 55 or the age at
which the participant has been credited with at least 10 years of
service under the plan is deemed to be not earlier than the earliest
age that is reasonably representative of the typical retirement age for
the industry in which the covered workforce is employed.
(D) Sum of 80 safe harbor. A normal retirement age under a
governmental plan that is the participant's age at which the sum of the
participant's age plus the number of years of service that have been
credited to the participant under the plan equals 80 or more is deemed
to be not earlier than the earliest age that is reasonably
representative of the typical retirement age for the industry in which
the
[[Page 4605]]
covered workforce is employed. For example, a normal retirement age
under a governmental plan that is age 55 for a participant who has been
credited with 25 years of service would satisfy the rule described in
this paragraph.
(E) Service-based combination safe harbor. A normal retirement age
under a governmental plan that is the earlier of the participant's age
at which the participant has been credited with at least 25 years of
service under the plan and an age that satisfies any other safe harbor
provided under paragraphs (b)(2)(v)(B) through (D) of this section is
deemed to be not earlier than the earliest age that is reasonably
representative of the typical retirement age for the industry in which
the covered workforce is employed. For example, a normal retirement age
under a governmental plan that is the earlier of the participant's age
at which the participant has been credited with 25 years of service
under the plan and the later of age 60 or the age at which the
participant has been credited with 5 years of service under the plan
would satisfy this safe harbor.
(F) Age 50 safe harbor for qualified public safety employees. A
normal retirement age under a governmental plan that is age 50 or later
is deemed to be not earlier than the earliest age that is reasonably
representative of the typical retirement age for the industry in which
the covered workforce is employed if the participants to which this
normal retirement age applies are qualified public safety employees
(within the meaning of section 72(t)(10)(B)).
(G) Sum of 70 safe harbor for qualified public safety employees. A
normal retirement age under a governmental plan that is the
participant's age at which the sum of the participant's age plus the
number of years of service that have been credited to the participant
under the plan equals 70 or more, is deemed to be not earlier than the
earliest age that is reasonably representative of the typical
retirement age for the industry in which the covered workforce is
employed if the participants to which this normal retirement age
applies are qualified public safety employees (within the meaning of
section 72(t)(10)(B)).
(H) Service-based safe harbor for qualified public safety
employees. A normal retirement age under a governmental plan that is
the age at which the participant has been credited with at least 20
years of service under the plan is deemed to be not earlier than the
earliest age that is reasonably representative of the typical
retirement age for the industry in which the covered workforce is
employed if the participants to which this normal retirement age
applies are qualified public safety employees (within the meaning of
section 72(t)(10)(B)). For example, a normal retirement age that covers
only qualified public safety employees and that is an employee's age
when the employee has been credited with 25 years of service under a
governmental plan would satisfy this safe harbor.
(I) Reserved.
(J) Other normal retirement ages. In the case of a normal
retirement age under a governmental plan that fails to satisfy any safe
harbor described in paragraph (b)(2)(ii) of this section or this
paragraph (b)(2)(v), whether the age is not earlier than the earliest
age that is reasonably representative of the typical retirement age for
the industry in which the covered workforce is employed is based on all
of the relevant facts and circumstances.
(vi) Special normal retirement age rule for certain plans. See
section 411(f), which provides a special rule for determining a
permissible normal retirement age under certain defined benefit plans.
* * * * *
(4) Effective/applicability date. * * * In the case of a
governmental plan (as defined in section 414(d)), the rules in
paragraph (b)(2)(v) of this section are effective for employees hired
during plan years beginning on or after the later of: January 1, 2017;
or the close of the first regular legislative session of the
legislative body with the authority to amend the plan that begins on or
after the date that is 3 months after the final regulations are
published in the Federal Register. However, a governmental plan sponsor
may elect to apply the rules of paragraph (b)(2)(v) of this section to
earlier periods. * * *
John M. Dalrymple,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2016-01639 Filed 1-26-16; 8:45 am]
BILLING CODE 4830-01-P