The IRS just offered employers a helping hand. How? By removing barriers to hire retirees and possibly even encourage employees who reach retirement age to continue working.

As a business, you know how hard it is to keep a full staff at this point in time. Hoping to make it easier on employers, the IRS published two new frequently asked questions (FAQs) on the topic. The technical guidance is for public and private employers who sponsor pension plans and provide ways they can meet their employment objectives while complying with plan qualification rules.

Rehires after bona fide retirement

So, here’s the first question. If you rehire an employee who’s retired and drawing from their retirement benefits, will it threaten their tax status?

The IRS’s answer is: “Generally, no.”

If due to the pandemic you rehire a bona fide retiree because of an unforeseen need, it won’t affect the person’s prior retirement status. And they can keep collecting their retirement benefits after they’re rehired. That is, as long as the original retirement was bona fide and the rehire wasn’t prearranged at that time.

The IRS suggests that before you do any rehiring, check, and make sure there’s nothing in your plan that would deter you from doing it. And if there is, make an amendment relating to the rehires. For example, does your plan not allow you to rehire someone within a specified period, who retired and started benefit distributions? Or does your plan say you have to suspend distributions if you rehire someone? If so that needs to be amended before any rehiring goes on.

Benefits distribution to current employees

The second question is: Can plans allow employees to collect retirement benefits if the employee has reached age 59½ – or the plan’s retirement age – and are still working?  

The IRS’s answer: Yes. A qualified pension plan may allow employees to start collecting benefits if they’re 59½ – or the plan’s retirement age. However, again, you need to check your plan to see if there’s anything in it that would not permit this. And, if there is, amend it.

In a time when it’s hard to find employees, this would be an incentive for employees who could retire to keep working.