Monday, November 29, 2004
Tweet[IWS] Mercer: IRS PHASED RETIREMENT Proposed Regulations [19 November 2004
IWS Documented News Service
_______________________________
Institute for Workplace Studies Professor Samuel B. Bacharach
School of Industrial & Labor Relations Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor Stuart Basefsky
New York, NY 10016 Director, IWS News Bureau
________________________________________________________________________
Novermber 19, 2004
IRS Takes a Position on Phased Retirement
http://wrg.wmmercer.com/content.asp?article_id=20046915&blurb_id=48820&t=&p=&ar=1
[An earlier story appeared at - http://wrg.mercerhr.com/content.asp?article_id=20040331X&blurb_id=48508&t=&p=&ar=-1 with the full-text of the proposed regulation at-
http://wrg.mercerhr.com/content_print.asp?article_id=20046885&ext=.PDF
Many organizations today are losing talent as large numbers of skilled employees reach retirement. This leaves some companies and employees looking for alternatives to traditional retirement - one attractive alternative may be phased retirement, under which employees continue to work, but at a reduced schedule, and begin to draw their pension to supplement their now reduced income. One stumbling block to such flexible arrangements has been the federal tax rule that generally bars participants from tapping into their pension until they have reached 65 or retired fully.
In recognition of the changing retirement landscape, the IRS has proposed regulations that would allow defined benefit and money purchase pension plans to make in-service distributions under a voluntary phased retirement program for employees at least 59-1/2 years old. While the proposed regulations may not be relied upon until they are issued in final form, plan sponsors should consider whether creating some type of phased retirement program, or formalizing "informal" programs already in place, would help meet business and HR objectives.
We welcome this important first step toward facilitating phased retirement programs. However, it is only a first step: many companies may find that the proposed regulations impose too many restrictions and administrative burdens to be useful.
Phased retirement program requirements
As companies start to consider what a phased retirement program might look like for their organization, pension plan sponsors should keep in mind some of the requirements imposed by the IRS in its proposed regulations:
* The program must be voluntary
* Employees must be at least age 59-1/2, although plans may impose additional eligibility conditions
* Employees must have been working full-time prior to entering the program and must reduce their hours by at least 20%
* Employees cannot receive more than a pro-rata portion of their pension that corresponds to their pro-rata reduction in hours
* Lump sum payments would not be allowed
* Employees must be currently eligible to begin retirement benefits immediately
The proposed regulations address the calculation of the phased retirement benefit and also include detailed rules on the pro rata reduction, the reflection of early retirement subsidies, the form of payment, the determination of pay and credited service for ongoing plan accruals, and the computation of the ultimate benefit upon full retirement.
Effective date and comment period
The proposed regulations would take effect only for plan years beginning on or after final regulations are published. Plan sponsors may not rely on them in the meantime. The IRS is seeking input from plan sponsors on specific areas of the proposed regulations. Businesses with an established track record with respect to flexible work schedules (e.g., health care organizations) may be able to offer some unique insights to make these rules more workable. If you are interested in commenting on the proposed regulations, your Mercer consultant can work with you to submit your remarks. Comments are due to the IRS by February 8, 2005.
_____________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky *
Director, IWS News Bureau *
Institute for Workplace Studies *
Cornell/ILR School *
16 E. 34th Street, 4th Floor *
New York, NY 10016 *
*
Telephone: (607) 255-2703 *
Fax: (607) 255-9641 *
E-mail: smb6@cornell.edu *
****************************************
_______________________________
Institute for Workplace Studies
School of Industrial & Labor Relations
Cornell University
16 East 34th Street, 4th floor
New York, NY 10016
________________________________________________________________________
Novermber 19, 2004
IRS Takes a Position on Phased Retirement
http://wrg.wmmercer.com/content.asp?article_id=20046915&blurb_id=48820&t=&p=&ar=1
[An earlier story appeared at - http://wrg.mercerhr.com/content.asp?article_id=20040331X&blurb_id=48508&t=&p=&ar=-1 with the full-text of the proposed regulation at-
http://wrg.mercerhr.com/content_print.asp?article_id=20046885&ext=.PDF
Many organizations today are losing talent as large numbers of skilled employees reach retirement. This leaves some companies and employees looking for alternatives to traditional retirement - one attractive alternative may be phased retirement, under which employees continue to work, but at a reduced schedule, and begin to draw their pension to supplement their now reduced income. One stumbling block to such flexible arrangements has been the federal tax rule that generally bars participants from tapping into their pension until they have reached 65 or retired fully.
In recognition of the changing retirement landscape, the IRS has proposed regulations that would allow defined benefit and money purchase pension plans to make in-service distributions under a voluntary phased retirement program for employees at least 59-1/2 years old. While the proposed regulations may not be relied upon until they are issued in final form, plan sponsors should consider whether creating some type of phased retirement program, or formalizing "informal" programs already in place, would help meet business and HR objectives.
We welcome this important first step toward facilitating phased retirement programs. However, it is only a first step: many companies may find that the proposed regulations impose too many restrictions and administrative burdens to be useful.
Phased retirement program requirements
As companies start to consider what a phased retirement program might look like for their organization, pension plan sponsors should keep in mind some of the requirements imposed by the IRS in its proposed regulations:
* The program must be voluntary
* Employees must be at least age 59-1/2, although plans may impose additional eligibility conditions
* Employees must have been working full-time prior to entering the program and must reduce their hours by at least 20%
* Employees cannot receive more than a pro-rata portion of their pension that corresponds to their pro-rata reduction in hours
* Lump sum payments would not be allowed
* Employees must be currently eligible to begin retirement benefits immediately
The proposed regulations address the calculation of the phased retirement benefit and also include detailed rules on the pro rata reduction, the reflection of early retirement subsidies, the form of payment, the determination of pay and credited service for ongoing plan accruals, and the computation of the ultimate benefit upon full retirement.
Effective date and comment period
The proposed regulations would take effect only for plan years beginning on or after final regulations are published. Plan sponsors may not rely on them in the meantime. The IRS is seeking input from plan sponsors on specific areas of the proposed regulations. Businesses with an established track record with respect to flexible work schedules (e.g., health care organizations) may be able to offer some unique insights to make these rules more workable. If you are interested in commenting on the proposed regulations, your Mercer consultant can work with you to submit your remarks. Comments are due to the IRS by February 8, 2005.
_____________________________
This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.
Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
****************************************
# posted by SBasefsky : 3:35 PM
