Rev. Rul. 78-120

Advice has been requested whether a defined benefit pension plan that provides for a normal retirement age of less than 65 may qualify under section 401(a) of the Internal Revenue Code of 1954, as amended by the Employee Retirement Income Security Act of 1974 (ERISA) [1974-3 C.B. 1].

The pension plan provides that, upon attaining a certain specified age (less than 65), the employee has the right to (1) retire without the consent of the employer, and (2) receive benefits based on service to date of retirement at the full rate provided in the plan (i.e., without actuarial or similar reduction because of retirement before some later specified age). The plan otherwise meets the requirements for qualification under section 401(a) of the Code.

Section 411(a)(8) of the Code, as added by ERISA, defines "normal retirement age" as the earlier of (1) the time a plan participant attains normal retirement age under the plan, or (2) the later of (a) the time a plan participant attains age 65, or (b) the 10th anniversary of the time a plan participant commenced participation in the plan.

Rev. Rul. 71-147, 1971-1 C.B. 116, provides that the normal retirement age in a pension or annuity plan is the lowest age specified in the plan at which the employee has the right to retire without the consent of the employer and receive retirement benefits based on service to date of retirement at the full rate set forth in the plan. Ordinarily, the normal retirement age under pension and annuity plans is age 65. Rev. Rul. 71-147 also states that a different age may be specified, provided that if it is lower than 65 it represents the age at which employees customarily retire in the particular company or industry and is not a device to accelerate funding.

In view of the definition of normal retirement age found in section 411(a)(8) of the Code, and in the absence of any statutory prohibition or limitation, a plan may specify any age that is less than 65 as the normal retirement age. However, if the normal retirement age specified in a plan is less than 55, and the retirement benefit under the plan begins before age 55, then for purposes of determining whether the benefit exceeds the maximum amount payable under section 415(b)(1)(A), the limit under section 415(b)(1)(A) would be adjusted in accordance with section 415(b)(2)(C).

Accordingly, a pension or annuity plan will not fail to qualify under section 401(a) of the Code merely because it provides for a normal retirement age of less than 65. However, retirement benefits commencing prior to age 55 may not exceed the maximum amount payable under section 415(b)(1)(A) after such benefits are adjusted pursuant to section 415(b)(2)(C).

Rev. Rul. 71-147 is modified.