IRS Addresses Labor Shortages With FAQs About Rehiring Retirees

The agency has issued two FAQ documents addressing pension plan rules when rehiring retirees and says federal departments are holding webinars to address staff shortages in public school systems.

To help address COVID-19-related labor shortages, the IRS is reminding employers that they generally will not jeopardize the tax status of their defined benefit (DB) pension plans if they rehire retirees or permit distributions of retirement benefits to current employees who have reached age 59.5, or the plan’s normal retirement age.

In light of the COVID-19 pandemic, many employers, including governmental employers such as public school districts, are looking for ways to encourage retirees to return to the workforce to fill open positions. They’re also looking to incentivize experienced employees to stay on the job.

The IRS is providing help to these employers in two new frequently asked questions (FAQ) documents, which are designed to offer technical guidance to public and private employers that sponsor pension plans for their employees. The FAQs highlight existing ways employers can meet their employment objectives and still comply with the plan qualification rules.

The FAQs note that 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 those pension benefits after they are rehired. Moreover, an employer can generally choose to make retirement distributions available to existing employees who have reached age 59.5 or the plan’s normal retirement age. This may assist in the retention of employees eligible for retirement.

In addition, the Department of the Treasury and the Department of Education will be holding webinars next week for education leaders and other stakeholders to discuss approaches to addressing school staff labor shortages, including a discussion about the new FAQs.

The first webinar, addressing teacher and substitute teacher shortages, is scheduled for October 27, from 4:00 to 5:00 EDT. The second webinar, addressing shortages among other staff members, such as school bus drivers and food service workers, is set for October 28, from 4:00 to 5:00 EDT.

The registration link for the first webinar is here.