The Defending Public Safety Employees Retirement Act, and what it means for you and your retirement

by Mark Mitchell, CFP®, CRC®, Regional Director
Retirement Plan Advisors


Typically the IRS, unless an exception applies, imposes a 10% early distribution tax on retirement plans. In many instances, taking money from your plan prior to age 59½ constitutes an early withdrawal. Under the Pension and Protection Act of 2006, qualified public safety employees need not pay this 10% penalty for lump-sum distributions made from governmental defined benefit (DB) plans, so long as the distribution is made after the employee severs employment in or after the year of their 50th birthday.

…And Now

In June 2015, President Obama signed into law the Defending Public Safety Employees’ Retirement Act. Its enactment dictates that effective January 1, 2016, qualified public safety employees may, within these same parameters, take penalty-free early distributions from governmental defined contribution (DC) plans as well. Further, the new law expands the definition of qualified public safety officials to include, for example, specified federal law enforcement officers, federal firefighters, customers, and border protection officers, and air traffic controllers.

Affected Plans & Rollovers

The Defending Public Safety Employees’ Retirement Act impacts governmental DC plans [401(a), grandfathered 401(k), 403(b)], governmental DB plans, and some rollover contributions from 457(b) plans.* A rollover, as it stands presently, will take on the characteristics of the plan it rolls into. If a plan participant takes an account distribution, it will be tax reported based on the type of plan rolled into, type of rollover, and employee status. Taxpayers should consult their tax advisor or the IRS regarding rollover considerations.

* The 10% early withdrawal penalty does not apply to governmental 457 deferred compensation plans.

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