MEMORANDUM

As the Board knows, the Internal Revenue service issued regulations in 2007 concerning in-service distributions after "normal retirement age." These regulations were originally scheduled to take effect on January I, 2009. but the effective date of the regulations for governmental plans was recently delayed until plan years beginning on or after January I, 2011 (July 2011 for the NYC PPF).

Preliminarily, it does not appear that the NYC Funds are in danger of losing their tax-exempt status as a result of these new regulations. The National Association of Police Organizations (NAPO), the New Jersey Department of the Treasury's Division of Pensions and Benefits, and the Board of the Public Employees Retirement Association of New Mexico (PERA) have all at least tentatively concluded that the regulations in question will not affect a public safety officer's ability to retire after the years of service required by state and/or city law and receive a full, unreduced pension, even if he or she has not reached the age of 50. so long as she or he severs all employment with the employer who maintains the plan.

It is important to recognize that the IRS regulations in question are for the purpose of regulating in-service distributions only.. This type of distribution, rare in public safety pension plans, allows for an employee to "retire" and start receiving his or her retirement benefits while continuing to work for the same employer under the same pension plan. The NYC PPF does not allow in-service distributions, and therefore, it appears that these regulations will not affect the ability of members to retire after completing the required years of service and receive a full, unreduced pension, even if he or she has not reached the age of 50. so long as she or he severs all employment with the NYPD. In fact, PERA notes that IRS Notice 2007-69 (August 27, 2007) expressly acknowledges that plans may continue to provide benefits that are based on completion of a stated number of years of service after severance from employment and retirement. In-service distributions are different than DROP (Deferred Retirement Option) plans because while DROP plans provide for employees to continue working and defer receiving certain payments, in-service distributions allow employees to retire, begin receiving benefits, and continue to work for the same employer under the same pension plan.