Early retiree returning to work

[Guest p&bsteve]

We have just been informed that a participant who reched early retirement under one of our plans and requested a distribution will be returning to work with the plan sponsor on a part time basis.

Our initial investigation leads us to believe there is a problem here since NRD has not yet been attained.

In light of current projections that part time work will be a part of retirement for many, has anyone had experience with the current Govv't thinking on this type of arrangement? What sort of problems may the client encounter if this goes through?

[Everett Moreland]

I assume your early retiree is receiving an annuity and returned to work after a bona fide termination of employment. My understanding is that an early retiree who returns to work for the same employer before normal retirement age while receiving an annuity may continue to receive the annuity if allowed by the plan.

[SoCalActuary]

You have two issues: timing and document provisions.

If a participant has terminated employment and applied for early retirement annuity payments, the plan would normally process it timely. However, if the participant then returns to work, the separation from service has not occurred. This is the timing problem. If the participant stayed away until the payment started, then the retirement would not be an inservice distribution.

Rehired retirees are usually addressed in the plan document. Many large plans use a suspension of benefits provision, where 60 hours work per month would stop the benefit payment. Thereafter the skipped payment with interest would be used to recalculate the actuarial equivalent of the original benefit. Other large plans don't stop payment once you return to work, so check your existing document language.

In either event, you must also consider the possibility that the rehire will also start accruing additional benefits.