The Department of the Treasury and the Internal Revenue Service have proposed regulations that would allow older workers with defined-benefit pension plans to cut back on their hours while beginning to receive part of their pension.
Today, workers typically can retire at age 65 and receive a full pension, or retire at 62 and receive a partial pension. Under the proposal, at age 59 1/2 employees could receive a pro-rated of their accrued benefits to the extent that they chose to reduce their hours through a phased-retirement program.
“We’re really testing the waters to see if this is something employers would like to do and employees would like to participate in,” said Bill Sweetnam, the Treasury Department’s benefits tax counsel, according to the Baltimore Sun.
In a statement, Greg Jenner, Treasury’s Acting Assistant Secretary for Tax Policy, said, “These regulations are an important step to removing an unnecessary barrier to the implementation of programs that allow employers to retain the services of older workers who want to phase down their work in preparation for full retirement. Phased retirement permits an employer to retain the services of an experienced employee, while also providing the employee with the opportunity to continue active employment at a level that also allows greater flexibility and time away from work.”
“Phased retirement permits an employer to retain the services of an experienced employee,” said Greg Jenner, the Treasury Department’s acting assistant secretary for tax policy, in a statement, “while also providing the employee with the opportunity to continue active employment at a level that also allows greater flexibility and time away from work.”
Jenner also noted the workers today are living longer, healthier lives, and that it’s important to reduce the risk that individuals may outlive their retirement savings. According to a notice on the agencies’ websites, even though the annuity-distribution options offered by defined-benefit plans preclude outliving benefits, early distribution of a portion of the employee’s benefit will reduce the benefits available after full retirement.
“On the other hand, phased retirement also can provide employees additional time to save for retirement because employees continue working while they are able to do so, and can accrue additional benefits and reduce or forgo early spending of their retirement savings,” the notice added.
The Treasury Department and the IRS are accepting public comments on the proposal through early February, according to the Houston Chronicle; final regulations might be issued next year.