Rule of 80 & Age 55

One of my coworkers informed me that state employees who are retirement eligible per the rule of 80 will be penalized if they are under the age of 55. I am not aware of any such penalty but wanted to ask. 

No. There is no penalty or reduction to your MOSERS pension benefit if you meet both the age and service requirements for normal retirement eligibility before the age of 55. To be eligible to retire under the Rule of 80 in the MSEP and MSEP 2000, you must be at least age 48 and your age and years of service must equal 80 or more.

Taxes &/or penalties related to other distributions:

•        There may be a 10% IRS tax penalty if you are younger than age 59 ½ at the time of payment*, elect BackDROP**, and take a lump-sum cash payment. Additionally, MOSERS is required to withhold 20% of a BackDROP cash payment for federal taxes. More details are available in the Special Tax Notice brochure on our website. In such a situation, you can avoid the IRS tax penalty by rolling over the BackDROP payment to a qualified retirement account such as with MO Deferred Comp and not withdrawing it until you meet all IRS regulations (generally speaking, that is after you attain age 59 1/2 but there are exceptions, see page 4 of the Special Tax Notice, including one for public safety employees).
•        If you have made pre-tax contributions to the MO Deferred Comp plan (an internal revenue code section 457(b) plan), distributions from that plan following retirement or termination of service at any age are subject to ordinary income tax only.
•        Employer “match” contributions made on behalf of an employee to a 401(a) plan are subject to an additional 10% penalty if withdrawn prior to age 59 1/2.

Be sure to check with your financial institution or a tax advisor for information about your tax liability when you begin withdrawing your funds.

* If you terminate in or after the year you reach age 55, this penalty will not apply.

**BackDROP is available only to general state employees who are members of MSEP & MSEP 2000 and who work at least two years beyond normal retirement eligibility.