Justice Scalia, on 60 Minutes this last Sunday, mentioned that his original plan when he was appointed to the Supreme Court had been to retire from the Court at age 65 because justices can retire from the Court at age 65 at 100% of annual compensation. Instead, he decided to stay on the Court and has continued to work past age 65. His comments reminded me of Section 905 of the Pension Protection Act.
Section 905 is about distributions during working retirement. It is one of my favorite parts of the Pension Protection Act because it was part of Congress re-conceptualizing what retirement age and retirement date should mean to a participant who does not want penalized for continuing to work past normal retirement age. Section 905(b) added Code section 401(a)(36), which states:
- (36) Distributions During Working Retirement. A trust forming part of a pension plan shall not be treated as failing to constitute a qualified trust under this section solely because the plan provides that a distribution may be made from such trust to an employee who has attained age 62 and who is not separated from employment at the time of such distribution.
Section 905 applies to distributions in plan years beginning after December 31, 2006.
On May 22, 2007, the IRS released Final Regulations on Distributions from a Pension Plan Upon Attainment of Normal Retirement Age. Within these 4 short pages of regulations, the IRS added Treas. Reg. 1.401(a)-1(b)(3), which states:
- (3) Benefit distribution prior to retirement. For purposes of paragraph (b)(1)(i) of this section, retirement does not include a mere reduction in the number of hours that an employee works. Accordingly, benefits may not be distributed prior to normal retirement age solely due to a reduction in the number of hours than an employee works.
Paragraph (b)(1)(i), otherwise known as Treas. Reg. 1.401(a)-1(b)(1)(i), states:
- (i) In order for a pension plan to be a qualified plan under section 401(a), the plan must be established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to its employees over a period of years, usually for life, after retirement or attainment of normal retirement age (subject to paragraph (b)(2) of this section). A plan does not fail to satisfy this paragraph (b)(1)(i) merely because the plan provides, in accordance with section 401(a)(36), that a distribution may be made from the plan to an employee who has attained age 62 and who is not separated from employment at the time of such distribution.
The IRS then released Notice 2007-69 to provide guidance these final regulations.
[tags]Pension Protection Act, ppa, scalia, 401(a)(36), 1.401-1(b)(1), Notice 2007-69, working retirement, phased retirement, ERISA[/tags]