IRS Offers Guidance for Employers Rehiring Retirees
To help address COVID-related labor shortages, the Internal Revenue Service has stated that employers generally will not jeopardize the tax status of their pension plans if they rehire retirees or permit distributions of retirement benefits to current employees who have reached the plan’s normal retirement age.
Many employers, including governmental employers (such as public school districts), are looking for ways to encourage retirees to return to the workforce and fill open positions caused by the pandemic. Employers are also looking for ways to encourage their experienced employees to stay on the job.
The IRS released two new FAQs (https://www.irs.gov/.../coronavirus-related-relief-for...) that are designed to offer technical guidance to public and private employers who sponsor pension plans for their employees. The FAQs highlight existing ways that employers can meet their employment objectives and still comply with the plan qualification rules.
Under the FAQs, an employer can generally choose to address unforeseen hiring needs by rehiring former employees, even if those employees have already retired and begun receiving pension benefit payments. Also, if permitted under plan terms, those employees may continue receiving the benefits after they are rehired. Moreover, an employer can generally choose to make retirement distributions available to existing employees who have reached age 59 ½ or the plan’s normal retirement age. This may assist in the retention of employees eligible for retirement.