Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Retirement Planning > Retirement Investing

IRS Proposes Phased Retirement Regs

Your article was successfully shared with the contacts you provided.


The Internal Revenue Service is moving ahead with efforts to adapt to the new “phased retirement” movement.

Advocates of the movement, including many retirement benefits consultants, argue that many baby boomers will want to shift to part-time schedules as they age rather than retiring outright.

The IRS is supporting the movement by coming up with regulations that will ensure that workers can enter phased retirement programs a few years before the normal retirement age without falling behind colleagues who simply stop working early.

The IRS has published the proposed regulations and a discussion in the Federal Register.

The authors of the proposed regulations have several major goals, IRS officials say.

One goal is to make sure that workers in phased retirement programs can collect some of their pension benefits once they move to part-time work.

A second goal is to make sure that the workers can continue to accrue additional pension benefits while they are working part time, and a third goal is to ensure the workers end up with pension benefits based on the income they were earning when they were working full time rather than their lower phased retirement income, the officials say.

The proposed regulations would try to meet the first 2 goals by basing pension benefit payments and additional pension benefit accruals on the number of hours that a phased retiree works.

A phased retiree who shifted to a 20-hour work week from a 40-hour work week could collect half of the normal benefit check and earn half of the normal pension benefit accruals, even if the workers plan did not normally provide pension benefits for part-time workers, IRS officials write.

The proposed regulations also would confirm that employers should base pension benefit calculations on pre-retirement income rather than phased retirement income.

The proposed regulations apply mainly to defined benefit pension plans and money purchase plans, not to 401(k) plans and other types of retirement plans, the IRS officials emphasize.

“Other types of plans may be subject to less restrictive rules regarding in-service distributions,” the officials write.

Public comments on the proposed regulation are due Feb. 8, 2005.

Reproduced from National Underwriter Edition, November 11, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.