The Treasury Department and IRS issued proposed regulations permitting private pension plans to begin pension payments to employees as part of a phased retirement program.

The regulations would allow employees who are age 59 1/2 to receive a pro rata portion of their pension annuity to the extent they choose to reduce their work as part of a bona fide phased retirement program.

"These regulations are an important step to removing an unnecessary barrier to the implementation of programs that allow employers to retain the services of older workers who want to phase down their work in preparation for full retirement," said Greg Jenner, Treasury's Acting Assistant Secretary for Tax Policy. "Phased retirement permits an employer to retain the services of an experienced employee, while also providing the employee with the opportunity to continue active employment at a level that also allows greater flexibility and time away from work.

People are living longer, healthier lives, so that we need to encourage programs which not only reduce the risk that individuals may outlive their retirement savings, but also retain this valuable and productive part of our workforce."

IRS Chief Counsel Don Korb also stated "I support this project both because it reflects forward-looking thinking about how our income tax rules can affect the workforce generally and also because it is sensitive to the public recommendations we received since we asked for comments in 2002 about specific phased retirement issues in Notice 2002-43."

The regulations would not go into effect until issued as final regulations.

You can view a copy of the proposed regulations.