Department of Employee Trust Funds
April 11, 2012
Update on IRS Rule on Normal
Retirement Age for Governmental Plans
The Department of Employee Trust Funds (ETF), which administers
the Wisconsin Retirement System (WRS), continues to track an Internal
Revenue Service (IRS) regulation regarding the definition of “normal
retirement age” (the age at which one can retire with an unreduced
benefit) for governmental plans. The regulation is effective January
1, 2013. There has been widespread concern that this rule would
raise the normal retirement age for police officers, firefighters,
and other protective-class employees in the WRS. Currently, the
normal retirement age requirements for these protective-class employees
are 54 years with less than 25 years of service, or 53 with 25 years
or more of service.
Based upon additional research and a recent analysis conducted
by ETF’s tax counsel, ETF’s position is that the current
regulation DOES NOT affect the normal retirement age levels for
any WRS participants. Although the regulation would benefit from
clarification, analysis of the regulation, the underlying federal
law and informal information from IRS representatives indicates
that in regard to normal retirement age, the current rule only applies
to governmental plans that make in-service pension distributions
(payment of pension amounts while the person is still employed).
The WRS does not permit in-service distributions, so the rule would
not apply in regard to WRS normal retirement age levels.
ETF contacted Senator Kohl’s office expressing concern about
the IRS rule in early 2011. Senator Kohl sent a letter to the U.S.
Treasury asking that the matter be addressed. The Treasury’s
reply indicated that they would be clarifying the matter in the
near future, but they have not issued any guidance on the rule so
far. On March 28, 2012, Senator Kohl and Representative Baldwin
sent a joint letter to the Treasury strongly urging the IRS to take
prompt action on this matter. In addition, on April 6, 2012, Governor
Walker, Senator Johnson, and Representatives Sensenbrenner, Petri,
Ryan, Duffy, and Ribble sent a joint letter to the Treasury strongly
urging the IRS to promptly address this concern. We are hopeful
that the IRS will clarify the regulation soon.
We will provide additional updates when they are available. To
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