Defending Public Safety Employees’ Retirement Act (P.L. 114-26)

Submitted by [email protected] on Fri, 2015-08-14 15:57

Hello Everyone,

Can anyone provide background on this bill (H.R.2146 or P.L.114-26) and answer these few questions:

1. Is the bill/the ability to draw from a defined benefit or defined contribution plan still depend:
a. On the year you SEPARATED FROM WORK…Not Attaned the age of 50?
b. Leaving the assets in an EMPLOYER plan….i.e.this does not apply to these assets rolled to an IRA

This last paragraph of an article leaves doubt.

Substantially Equal Periodic Payments

Another exception to the 10 percent tax permits payments over a participant’s life expectancy or over the joint life expectancies of the participant and the participant’s spouse. A change in the amount of those payments can trigger the 10 percent tax.

Neither state nor federal employees has ever been granted any special rules about taking substantially equal periodic payments from governmental retirement plans that qualify for avoiding the 10 percent tax on early distributions. Now they have. Beginning in 2016, both federal and state public employees who are taking such payments from governmental retirement plans will be able to alter the pattern of payments after reaching age 50 without incurring the 10 percent tax.

a. Are they speaking about taking SEPP’s from a work plan or an IRA?
b. Does this mean a person can modify payments after age 50 if they left at 48?
1. Does it apply to work plans or IRA’s?
2. If IRA, can someone who already has a 72(t) going from IRA’s modify at age 50 after Jan1, 2016?



Submitted by Alan - IRA critic on Fri, 2015-08-14 19:45

  • The Act extends both the definition of a PSO and adds DC plans (such as the TSP) to the penalty exception. However, the employee must still separate in the year they attain 50 or later. If separation occurs before that year, the exception does not apply. The text indicates that the new provisions apply to distributions after 2015 but it does not make clear if the new provisions will apply to those who separated at 50 prior to 2015 and wait to begin distributions until 2016.
  • The exception only applies to distributions directly from the govt plans, not from an IRA.
  • The refererence to SEPP payments applies to those who had started SEPP payments from a govt plan. This provision effectively allows the employee who qualifies to end the SEPP plan and take whatever is needed from the govt plan without busting the SEPP. Unfortuneately, since the entire provision applies to govt plan distributions, someone who has rolled the govt plan to an IRA and initiated a SEPP plan from the IRA must continue to execute that SEPP plan.
  • Re your last questions –  a) Just from a govt plan   b) No   1) Just govt plan   2) No, IRA Sepp must continue

Submitted by David Mertz on Fri, 2015-08-14 20:39

The wording in H.R. 2146 seems to imply that a *distribution* to which the age-50 exception is applied is disregarded in determining if a modification has taken place.  I’m not sure that the wording would allow one to *stop* making distributions since with no distributions there would be no distribution to which the age-50 exception would apply.  The wording also may not allow reducing the SEPP distributions prior to age 59½ or 5 years (other than by a one-time change to the RMD method) without busting the plan.  The other reasons that allow modification of the SEPP, death and disability, are characteristics of the individual rather than characteristics of a distribution that might otherwise be considered a modification.

Submitted by Alan - IRA critic on Sat, 2015-08-15 04:27

Good point about the distribution characteristic. The SEPP certainly cannot stop without a qualified govt plan distribution from the account from which the SEPP is operated, but what about the following year?  The participant might have to take at least a minimum distribution each year to generate the assumed 1099R coding exception yet to be announced. I think the intent of this provision is to put the employee in the same position as new age 50 retirees who will not have to even start a SEPP. But it won’t help the employee who started an IRA based SEPP because they rolled over the TSP or other plan.

Submitted by [email protected] on Sun, 2015-08-16 11:37

Hello Everyone, Thanks for the replies.However, I can’t seem to find it “in writing” that the new law applies to anyone other than FEDERAL EMPLOYEES. Some articles/summaries lump STATE employees in but I cannot find proof that is the case. Any ideas??

Submitted by David Mertz on Sun, 2015-08-16 12:48

§ 72(t)(10)(B) already defined a qualified public safety employee to whom paragraph (10) applies as “any employee of a State or political subdivision of a State who provides police protection, firefighting services, or emergency medical services for any area within the jurisdiction of such State or political subdivision.”  In addition to the other changes to the Code, H.R. 2146 expands that definition to include certain Federal public safety employees.  https://www.law.cornell.edu/uscode/text/26/72#t_10_b

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