We provide here a written summary of answers provided by the Department of Revenue to the committee at periodic question and answer sessions. These documents are classified as Revenue information issued for informational purposes only for the convenience of PICPA members. Pursuant to 61 Pa. Code Section 3.4, these documents should not be relied upon for any purpose or used in tax appeals. Taxpayers requiring a binding opinion on a specific fact situation may request a written letter ruling under 61 Pa. Code Section 3.3.
Q&A with the Pennsylvania Department of Revenue
How do you define and explain the "Eligible Retirement Plan"?
Per Pennsylvania PIT Guide, retirement plans are considered eligible Pennsylvania retirement plans only if the plan meets all of the tests under Eligible Pennsylvania Retirement Plan. How do you explain the “Eligible Pennsylvania Retirement Plan”?
There is no “definition” for what constitutes an eligible retirement plan. The statute doesn’t define it and the Department has never established a firm policy. The only consistent guidance that has ever been issued is that a retirement plan has to meet the following criteria (See DOR on-line Q&A Answer ID 433):
A. The plan is reduced to writing and has been communicated to the participants.
B. The plan establishes eligibility requirements for separation of service or a combination of old age or infirmity, and long-continued service.
C. The plan provides for payments to be made at regularly recurring intervals after their separation from service by retirement which continues at least until death. An option for a lump sum payments or payments does not disqualify the retirement nature of the plan as long as the other provisions are provided.
D. The plan does not permit the distribution of program benefits to any employee until termination of employment except for incidental disability benefits or the return of the employee’s previously taxed contributions and income or gains if the employee is required to contribute to the pension plan.
The department verifies that these four criteria are present in IRS qualified plans, SERPs, other nonqualified retirement plans and qualified and non-qualified deferred compensation plans whenever a Summary Plan Description (copy of the plan) is requested to be provided.
Not all federally qualified and federally non-qualified deferred compensation plans constitute Pennsylvania eligible retirement plans. All federally qualified deferred compensation plans meet the four criteria set forth above. However, certain federally qualified deferred compensation plans constitute taxable “severance pay” pursuant to department regulations (for example, ESOPs), and therefore are not Pennsylvania eligible retirement plans. 61 Pa. Code §§ 101.1 and 101.6.
Additionally, not all federally non-qualified deferred compensation plans meet the four criteria set forth above. Therefore, taxpayers are required to provide the department with complete plan documents to allow the department to verify that such criteria are met.
Finally, amounts attributable to an elective deferral of income to an IRC §409A plan or the income on any elective deferral of income to an IRC §409A plan never constitute excludable “old age or retirement benefits.”
Without a complete copy of the plan documents, the department cannot verify the type of plan nor can it determine if all the criteria are present.