REHIRED RETIREE EXPLANATION:

The whole issue of the legality of retirees returning to work for their former employer or another Participating Employer in the Co-op Retirement Plan is influenced by a single sentence in the federal pension regulations.  It says……

“A pension plan within the meaning of section 401(a) is a plan established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits to his employees over a period of years, usually for life, after retirement.”  26 C.F.R. § 1.401-1(b)(1)(i) (emphasis added).

The main phrase here is “after retirement.”  The government generally does not want a person to draw benefits from a section 401(a) pension plan while still employed, unless he or she has passed his or her Normal Retirement Date (discussed below).  The question then becomes, what is the definition of retirement?

Congress has never attempted to expand on this language by issuing explanatory regulations, so the interpretation and enforcement of this sentence is largely based on case law.  At the heart of the matter is the issue of intent.  If an employee retires with the intent to return to work for his or her employer, the retirement would not be genuine in the eyes of the Internal Revenue Service, the enforcing body.  But how does one determine intent, especially from an administrative office many hundreds of miles from the employer’s location?  The answer of course is, one can’t, and that’s why the Co-op Retirement Plan Committee has asked all retirees to sign a statement to the effect that they have no intention of returning to work for their employer or any other employer in the Plan.  The retiree’s employer also signs a similar statement, avowing that it has no knowledge of the employee’s intent to return to work.  Thus, the Retirement Committee has asked our participants and our participating employers to police themselves.  As long as the parties involved are able to sign the form with honest intent (under penalty of perjury) the legitimacy of the retirement will not be questioned unless the facts of the case indicate to the contrary.  For instance, if a person retires one day and returns to work on the following day, the retirement was probably a sham, and it is unlikely any amount of documentation would convince the Retirement Committee or the IRS otherwise.

The above discussion does not apply to a person who has reached his or her Normal Retirement Date (age 65 for most people), because the pension regulations contain special exemptions for these people, as explained below.

Can conditions change after retirement – conditions that might lead to a retiree being rehired?  Yes, and here are a few examples:

• A General Manager has need of extra help during a busy season, and a retiree is judged to be the best person (or the only person) for the job.
• A retiree finds himself in a situation where he needs extra money to make ends meet, and is forced to return to work.
• After being retired for a period the retiree realizes that he does not enjoy being idle and elects to put more purpose in his life by returning to work.
• A retiree’s spouse dies and he/she returns to work to ease the loneliness.

In all of these cases the employee retired with no intention of returning to work, but because of the change in circumstances he or she decided to do so.  In these cases the Retirement Committee asks the retiree and his or her employer to sign another set of forms that essentially states these facts.

Under no conditions should a retiree return to work before the commencement of his/her benefit payments from the previous period of service, such as in the case of a person who terminates employment on July 5th, applies for benefit payments beginning August 1st, but returns to work on July 28th.  If this happens, the Co-op Retirement Plan document clearly states that the retirement application will be voided until such time as the person legitimately retires.

There are three different categories of people who might return to work after retiring:

    1. Those retirees who are under 65 and who have not qualified for the Rule of 85.

    2. Those retirees who are under 65 and who have retired under the Rule of 85.

    3. Those retirees who retire upon reaching age 65, or who have retired previously and who are now 65 or older.

Let's take group number 1:  These people can come back to work and not have their current benefit payments affected if they had no intention of returning to work when they retired, or if they had no prior arrangement to return to work when they retired.  As explained above, they are required to sign a statement to that effect when they apply for their benefit, and another similar statement when they return to work.  Almost everyone in this situation will continue to draw their monthly retirement benefits and come back into the Plan under a second account.  The benefits they earn in the second account are based solely on their wages and their service after coming back to work.  Their monthly benefit from their first account is not affected by the amount of hours they work in their second account. 

Now let's look at group number 2, the Rule of 85 retirees:  Everything I described for group 1 applies to the Rule of 85 people EXCEPT THIS - A person could lose their Rule of 85 subsidy if they work more than 1,000 hours per year, or if they earn more than 50% of their Final Average Wage from their first account.  The Retirement Committee anticipated that some people might be tempted to take the Rule of 85 when they first became eligible, then return to work and "double-dip."  They installed the 1000 hours / 50% of Final Average Wage Base rule to prevent that.  Here's how it would work:  Let's say a 55-year old qualifies for the Rule of 85 and his benefit was $1,000 per month.  If that same person retired at age 55 without the Rule of 85 his benefit would be $720 per month.  Let's further say that this person returns to work legitimately and works more than 1,200 hours in six months.  The Plan would reduce his monthly benefit from $1,000 to $720 for a six-month period, after which it would once again revert to $1,000 per month.  This 1000 hours / 50% of Final Average Wage Base rule does not apply to someone who is 62 years old or over.  Once you've reached age 62, you can work as much or as little as you want, and still receive the Rule of 85 benefit.

Having made the above explanations, it is also worth noting that the Retirement Committee will give special scrutiny to any situation where the person retires and comes back to work after a very short period of time.  That's not to say it cannot be legitimate, but it certainly looks suspicious when that happens.  Obviously, if a person has been retired for a year or more before he or she comes back to work we wouldn't ordinarily presume that his retirement wasn't legitimate, but if he or she comes back to work a day, a week, or a month after retiring, the Plan Administrator will have to take a serious look at it.

Now, group 3, the over-age-65 folks:  Under a recent Plan amendment adopted by the Retirement Committee, a person who has reached his or her Normal Retirement Date (defined in our Plan as age 65 or the fifth anniversary of the date the Participant commenced participation in the Plan) can draw his retirement benefit and either (1) come back to work or (2) continue working.  In either situation, no questions will be asked, because this is permitted under federal pension law.  The law does not allow the same treatment for anyone who has not reached his or her Normal Retirement Date.