Defending Public Safety Employees’ Retirement Act
L1: Defending Public Safety Employees’ Retirement ActThe President signed the Defending Public Safety Employees’ Retirement Act in to law on June 29. It amend IRS Code of 1986 to allow Federal law enforcement officers, firefighters, and air traffic controllers to make penalty free withdrawals from governmental plans after age 50, and for other purposes. It is effective Jan 1, 2016.
So as one covered under this law, and with a 1-year old SEPP, what now?
2015-07-03 19:32, By: FLEO, IP: [184.108.40.206]
L2: Defending Public Safety Employees’ Retirement ActFirst, be sure you meet the expanded definition of eligible PSO employees and of course recognize that the expanded penalty waiver at 50 only applies if you separate after reaching the year you turn 50 or 2016 whichever is later.
Then, check to be sure the distribution options are flexible enough from the plan you are in tomake itworthwhile to bustthe SEPP plan. The TSP has some distribution restrictions, so if you are in the TSP be sure you understand your distribution options.
Of course, you can continue your SEPP if you wish, but if you are going to bust it to avoid it’s limitations, the sooner the better. You mightpostpone your 2015 SEPP distributions now until you figure it out, in order to avoid the penalty on additional 2015 distributions. Note that the new law does not provide any relief from busting a SEPP if you choose that path.
2015-07-03 23:27, By: Alan S, IP: [220.127.116.11]
L3: Defending Public Safety Employees’ Retirement ActTrying to understand the SEPP provision of this new law. Can a PSO individual, 46 years old and retired at age 45, doing a SEPP from a governmental plan change/modify the payment plan once he/she reaches age 50 without incurring the normal 10% penalty/interest? Can a PSO individual stop their SEPP after reaching age 50 without incurring penalty/interest?
In other words, is a PSO individual able to retire at say 45 years old, commence a SEPP, and then change/alter/stop once age 50 is reached?2015-07-15 15:12, By: mctoe, IP: [18.104.22.168]
L4: Defending Public Safety Employees’ Retirement ActNo. Once a SEPP is initiated it must be completed. All the new provision does is to add DC and other govt plans to the DB plan age 50 exception that was already in place. The new provision acts just like the age 55 separation for non PSO staff except that the age is 50, presumably the year in which the staffer reaches 50. The person cannot separate before that year, wait for the year to arrive and then take penalty free non SEPP distributions from the plan.2015-07-15 16:09, By: Alan S, IP: [22.214.171.124]
L5: Defending Public Safety Employees’ Retirement ActOk, thank you Alan S. Would this work then: a PSO individual retired at age 51 and commenced SEPP from a governmental plan. This new law now gives him the ability to change the SEPP payment amount without incurring penalty/interest?
This is the part of the text I am having trouble understanding:
Distributions not treated as modification of substantially equal payments
Section 72(t)(4)(A)(ii) of such Code is amended by insertingor a distribution to which paragraph (10) appliesafterother than by reason of death or disability.
2015-07-15 17:09, By: mctoe, IP: [126.96.36.199]
L6: Defending Public Safety Employees’ Retirement ActThanks for the update. Yes, his SEPP from the plan would end.
I was not aware of theadditional provision regarding SEPPs. Clearly, distributions from a govt plan such as the TSP using a valid SEPP calculation can be changed without busting the SEPP plan. Effectively, the SEPP just terminates as if the employee was totally disabled. One of the TSP member advocacy sites also thinks this is the case but has no idea what the TSP will do about it on their 1099R coding. Code 2 should be applied in such cases.
The difficult portion to interpret is how adding the paragraph 10 to death and disability as a general modificationexception would affect IRA SEPPs started by PSOs.I think that IRASEPP planswere not intended to be affectedby thischange to 72t, but the way the quoted wording is constructed suggests that it may be a matter of time beforesomeone takes a paragraph 10 distribution from some govt plan and attempts to void his now irrelevant IRA SEPP as a result.2015-07-15 19:57, By: Alan S, IP: [188.8.131.52]
L7: Defending Public Safety Employees’ Retirement ActThanks again Alan.2015-07-15 22:11, By: mctoe, IP: [184.108.40.206]
L8: Defending Public Safety Employees’ Retirement ActAlan,
Regarding IRAs: is it possible for an IRA to be a governmental defined contribution plan? New York City offers its employees/retirees both an IRA and Roth IRA among other retirement plans. Would this type of IRA be considered a governmental plan?
2015-07-21 16:06, By: mctoe, IP: [220.127.116.11]
L9: Defending Public Safety Employees’ Retirement ActSec 72(t)(10) refers to another code section that defines a govt plan as one established and maintained by the respective govt unit. This needs to be clarified by the city after consulting with the IRS. I doubt that Congress expected that any of these govt units would be offering IRAs. Another question is whethera separation from service at 50 done prior to 2016 will qualify if no distributions are taken before 2016. The effective date in the law just states that distributions must be after 2015.2015-07-22 03:29, By: Alan S, IP: [18.104.22.168]