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Northwest OH Legal Blog

Wednesday, May 18, 2016

Internal Revenue Service Issues Guidelines Allowing Multiemployer Collectively Bargained Pension Plans to Have Normal Retirement Age Earlier Than Age 62

On February 23, 2016, the Internal Revenue Service (“IRS”) posted interim internal guidelines for IRS employees assigned to its Employee Plans Determinations and Examinations Division in reviewing determination letter submissions by multiemployer collectively bargained pension plans that provide for a normal retirement age (“NRA”) that is—  

  • earlier than age 62, but
  • ·not earlier than age 55.

The guidance has been warmly received by the sponsors of multiemployer pension plans whose determination letter submissions are still under review during the IRS’s determination letter cycle for multiemployer pension plans.

Background.  Pursuant to Treasury Regulation Section 1.401(a)-1(b)(2), a pension plan that has an “over 55-under 62” NRA must provide a demonstration that the NRA is reasonably representative of the typical retirement age for employees who work in the industry in which the covered workforce is employed.  Generally, studies supporting the use of an over 55-under 62 NRA are nonexistent.  From a practical perspective, the use of such an NRA seems to be self-evidently reasonable for multiemployer plan participants in the construction industry.  The physically demanding work performed by construction workers takes a toll on the human body, making retirement ages in the over 55-under 62 range reasonable in light of the facts and circumstances relating to the covered workforce’s job duties.

New IRS Guidance.  The new IRS internal guidance provides guidelines for IRS reviewers of multiemployer collectively bargained plans (and not just construction industry plans) that have an NRA in the over 55-under 62 range.  Pursuant to the guidelines, IRS agents are to use the following three-step analysis in reviewing the plan’s NRA for compliance with the requirements of Treasury Regulation Section 1.401(a)-1(b)(2): 

  1. determine whether the plan is maintained pursuant to at least one collective bargaining agreement; 
  2. determine whether the plan is a multiemployer plan; and 
  3. if both 1. and 2 are satisfied, the NRA is considered to be reasonably representative of the typical retirement age for the industry in which the covered workforce is employed. 

Takeaways.  Although for internal use only, the guidance is an insight into the IRS’ self-proclaimed standards for reviewing the NRA in multiemployer pension plan determination letter submissions and reflects what the IRS reviewer’s position on the issue of NRA in multiemployer plans with NRAs between 55 and 62. The IRS guidance updates its Internal Revenue Manual (IRM) which contains guidance on various topics including reviewing multiemployer plan determination letters and the IRS examination guidelines for multiemployer plans. The IRS posts updates to the IRM at: https://www.irs.gov/uac/Part-7-Rulings-and-Agreements.


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