Plan Sponsors
Employer Bulletin

August  2015

Washington Perspective: President Signs Defending Public Safety Employees' Retirement Act

President Obama signed into law the "Defending Public Safety Employees' Retirement Act," on June 29, 2015. While the act focuses on certain federal public safety and related employees, it benefits state and local public safety employees in certain instances.

Under current law, there is a 10 percent penalty for early withdrawals from most retirement plans, generally prior to age 59½. Governmental 457 plans are exempt from the penalty unless the withdrawal comes from a rollover from a non-457 plan. There are a number of other exemptions, including withdrawals made by employees who have separated from service and have attained age 55.

There is also an exemption for withdrawals made after separation for qualified public safety employees from a defined benefit plan, for distributions after age 50 (rather than 55). The Internal Revenue Service's position has been that this exemption is not available when assets withdrawn from a defined benefit plan are rolled over into a defined contribution plan and subsequently withdrawn.

The act extends the age 50 exception to withdrawals for public safety (e.g., police, fire, and emergency medical services) employees from both defined benefit and defined contribution plans. Therefore, assets rolled over from a defined benefit plan to a defined contribution plan, including 457s, are eligible for the exemption.  

The act applies to distributions after Dec. 31, 2015, so that public safety employees contemplating a 2015 withdrawal who would otherwise be impacted by the 10 percent tax may find it beneficial to defer such withdrawals to 2016.

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