IRS Provides Guidance On Distributions From Qualified Defined Benefit

The IRS provided guidance in Notice 2016-39 on whether payments an employee receives from a qualified defined benefit plan during phased retirement are amounts received as an annuity under Section 72.

Phased retirement is an arrangement under which a participant in a qualified defined benefit plan receives a distribution of a portion of his or her retirement benefit while still working part-time for the employer sponsoring the plan. Depending on the qualified plan's terms, the plan's obligation to an employee receiving phased retirement payments might not be fixed within the meaning of Section 72 during the employee's continued part-time employment because, for example, the employee's date of full retirement might not be fixed. In addition, the employee might accrue additional benefits during the period of phased retirement that affect the amounts payable to the employee at full retirement. As a result, the plan may not be able to determine its total retirement