For Plan Sponsors,Retirement Savings Plans,Retirement Savings Plans

New Safe Harbor Definitions for Normal Retirement Age

February 26, 2016

On Jan. 26, 2016, the IRS and Department of Treasury issued proposed regulations related to the normal retirement age (NRA) in governmental 401(a) money purchase plans. The proposed regulations include a series of safe harbor NRA definitions for governmental 401(a) money purchase plans that allow participants who are still employed to withdraw money from their accounts after they reach the plan's NRA. Plans that allow such withdrawals must establish an NRA that is representative of the typical retirement age for the industry in which the covered workforce is employed.

The proposed regulations include the following safe harbors for a plan's NRA:

  • Age 60 and five years of service
  • Age 55 with 10 years of service
  • Sum of age and years of service is 80
  • Earlier of age or years of service (e.g., earlier of age 62 or 25 years of service)

Three safe harbor definitions applicable to public safety employees were also included:

  • Age 50
  • Sum of age and years of service is 70
  • Service based - that is a period of service of at least 20 years

The new safe harbor definitions shown above expand upon the final regulations from 2007 (Treas. Reg. section 1.401(a)-1(b)), which can be summarized as follows:

  • Age 62 or later is fine
  • Ages 55-62 are generally fine, provided the employer makes a good faith determination that the selected age is typical for the industry in which the covered workforce is employed
  • Before age 55 is too early, unless the employer provides facts to the IRS that demonstrate otherwise
  • Age 50 or later is fine in cases where substantially all of the participants in the plan are qualified public safety employees

You may want to confirm the NRA for your plan is an age that is representative of the typical retirement age for the industry in which the covered workforce is employed. Please note, the proposed regulations have no impact on governmental 457(b) deferred compensation or 401(a) profit sharing plans.

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