IRS Proposes Regulations on Phased Retirement Under a Pension Plan

Originally published November 19, 2004

On November 10, 2004, the Internal Revenue Service published proposed regulations for phased retirement. The proposed regulations would permit certain distributions to be made from a defined benefit or money purchase pension plan to an eligible employee who is at least age 59½ if the employee chooses to reduce his work schedule as part of a bona fide phased retirement program. The proposed rules, if they become final, would be a significant change from current regulations, under which a participant cannot receive a distribution from a pension plan unless the participant has completely retired.

Under the proposed rule, a full-time employee eligible for retirement may have the option of reducing his work hours and participating in a phased retirement program, instead of fully retiring. If an employee elects to participate in a phased retirement program, the employee will be treated as having the dual status of being partially retired and