Must a qualified retirement plan REALLY provide a normal retirement age that is not less than 62, unless it is “reasonably representative of the typical age for the industry in which the covered workforce is employed”? IRS Regulation 1.401(a)-1(b)(2), effective May 22, 2007, says just that. As a result of this regulation, many small plans have changed their definition of normal retirement age from something less than 62 to 62, even though it may be the clear intention of the only plan participant to retire at the earlier age.
When the regulation was published, many of us in the industry thought this new regulation was another example of the IRS turning a blind eye to the real world. Now we have a court case that may provide some support for our feelings.
In McCorkle v. Bank of America (suit filed in 2004), the Fourth Circuit Court of Appeals ruled that a normal retirement age definition of “the earlier of age 65 or five years of vesting service” did not violate ERISA. The Court further pointed out that the regulation mentioned above was prospective only and as a result did not affect the case in point. In a footnote, the Court stated that it was not expressing an opinion as to whether the changes made by the regulation were “a permissible construction of ERISA or the IRC.”
Hmmmm. It is clear that this decision does not overturn the regulation or even directly address it (except to confirm that its effect is prospective). The 2007 regulation notwithstanding, the Court thought that the ERISA definition of normal retirement age could include ages well below either 62 or the “typical age”. If asked to do so, might the same Court find fault with the limitation imposed by the regulation? Is anyone out there interested in trying it out?