Reemployment After Retirement – IRS Requirements
The IRS requires a bona fide separation of service after retirement, which includes two components:
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a defined separation period where the retiree does not work for the employer immediately following retirement and
- no prearrangement of future employment prior to retirement.
MPERS staff met with MoDOT and Highway Patrol representatives to discuss procedural changes to ensure we are all meeting these requirements. It is important that this message be communicated to employees and supervisors.
MPERS will be proposing a rule before the Board within the next few months that will require all retirees to have a 30-day break in service before returning to ANY state employment covered under MPERS or the Missouri State Employees Retirement System (MOSERS). Employment includes, but is not limited to, part-time, full-time, seasonal, benefit-eligible, and non-benefit eligible positions. While MPERS will be communicating these rules to our membership, it is also important that all individuals at MoDOT and Highway Patrol who regularly discuss retirement matters also communicate this rule to avoid unnecessary consternation at retirement.
Employees will have to attest at the time of retirement that they do not have a prearranged plan to return to work with any state employer. In the event a member mentions a plan to return to work for the state we will not be able to allow them to attest that they do not have a prearranged plan, which could delay their retirement.
In the event there is not a bona fide separation of service and/or there is a predetermined arrangement to return to work and the IRS audits a taxpayer/retiree, the retiree may have to pay back the full amount of the retirement to MPERS and the retirement is “undone”, or possibly pay an in-service distribution penalty.
If the IRS believes the rules regarding separation are not being followed by the System, the employers, and/or the retirees, the consequences could be substantial for all parties involved. The risks to the Retirement System trickle down to the employer and taxpayer in the form of substantial tax liabilities. At present, the employer, the System, and the employee all enjoy preferential tax treatment because MPERS is a qualified public plan. In the event the IRS discovers an issue as described above, MPERS could lose its qualified tax status. If you have any questions about this please feel free to contact MPERS' Assistant Executive Director/General Counsel, Greta Bassett-Seymour by email at greta.bassett-seymour@mpers.org or by phone at 573-298-6021.
