IRS: Rehiring retirees won’t hurt pension plan tax status

The Internal Revenue Service has said that in order to help address COVID-related labor shortages, it’s reminding employers that they generally will not jeopardize their pension plan tax status if they rehire retirees or allow distributions of retirement benefits to employees who have reached age 59 ½ or the plan's normal retirement age.

The federal tax agency notes that amid the COVID-19 pandemic, many employers are looking for ways to encourage retirees to return to the workforce to fill open positions and to keep experienced employees on the job.

The IRS has released two new frequently asked questions (FAQs) that offer technical guidance to public and private employers who sponsor pension plans for their employees. The FAQs highlight ways employers can meet 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, the IRS says. If permitted under plan terms, those employees may continue receiving the benefits after they are rehired, the IRS says.