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IRS Offers Assistance to Employers Rehiring Retirees Amid Labor Shortage

December 03, 2021

Wondering if rehiring retirees or retaining employees past retirement age will impact your pension plans? The IRS has recent guidance that will help clear that up. Read on.

Has your company rehired retirees or retained employees past retirement age? In this tight labor market, many employers are using this as a way to find qualified workers. However, many are worried about how this will impact their pension plans. Recently the IRS issued guidance that assists employers in this predicament. Here’s what you should know.

Ongoing COVID impact on workforce

Many employers, including governmental employers, are addressing the labor shortage by finding ways to keep experienced employees on the job, as well as encouraging retirees to return to the workforce. This has many employers worried that the pension plans they sponsor for their employees will be negatively impacted. Luckily the IRS has addressed this with recent guidance.

IRS guidance

The IRS has added two new frequently asked questions (FAQs) on this point. Employers who rehire retirees or allow distributions of retirement benefits to their current employees who are 59 ½ (or the plan’s normal retirement age) will not jeopardize the tax status of their pension plans by doing so.

The FAQs stipulate that an employer can choose to rehire former employees to address unforeseen hiring needs. It does not matter if these employees have already started receiving pension benefit payments.

If rehired, these employees can generally continue receiving pension benefits (if permitted under plan terms).

Additionally, employers can choose to make retirement distributions available to existing employees who are age 59 ½ (or the plan’s normal retirement age).

This is a welcome change for many employers, including public school districts, who are experiencing many retirements and resignations amid the COVID-19 pandemic.

Questions? Contact us.

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