Yes, pursuant to new rules set forth in the Pension Protection Act of 2006. The rules apply to distributions in plan years beginning after December 31, 2006.

Background. Under the Employee Retirement Income Security Act of 1974 (ERISA), a pension plan is any plan, fund or program established or maintained by an employer or employee organization (or both) to the extent it provides retirement income to employees or results in a deferral of income by employees for periods extending to the termination of covered employment or beyond, regardless of the method of calculating plan contributions or distributions.

In general, a pension plan may not provide for distributions before the attainment of normal retirement age (usually age 65) to participants who have not separated from employment.

New rules. For purposes of the ERISA definition of a pension plan, a distribution from a plan, fund or program will not be treated as made in a form other than retirement income or as a distribution prior to termination of covered employment solely because the distribution is made to an employee who has attained age 62 and who is not separated from employment at the time of the distribution, but instead is in a phased retirement program.

In addition, under the IRS Code, a pension plan does not fail to be a qualified retirement plan solely because the plan provides that a distribution may be made to an employee who has attained age 62 and who is not separated from employment at the time of the distribution.

Source: ERISA Sec. 3(2)(A), as amended by P.L. 109-280 (Pension Protection Act of 2006), Act Sec. 905(a).