Under ERISA, a participant’s right to his account balance must be nonforfeitable (“fully vested”) upon attaining normal retirement age. In most retirement plans, “normal retirement age” is defined in the plan. However, that term has little meaning in 403(b) plans since benefits are not distributed based on normal retirement age. The final 403(b) regulations do not define the term, nor do they refer to retirement age for any purpose in 403(b) plans.
Additionally. the term normal retirement age is not found in the Listing of Required Modifications (LRMs) for the pre-approved 403(b) plans, so it is not required to be included in any 403(b) plan document. However, in other retirement plan guidance, the IRS has generally taken the position that the retirement age cannot be greater than age 65. Since there has been pension legislation (for funding purposes) that redefines normal retirement age as the Social Security retirement age, it is possible that a later age may be acceptable, but currently there is no guidance available that clarifies this issue.
Accordingly, if a “normal retirement age” above age 65 is desired under an ERISA 403(b) plan, the opinion of competent counsel should be obtained before it is incorporated into the plan document.
Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.
- Log in to post comments