The Inner Income Service (IRS) recently updated its guidance for retiree distributions underneath an outlined profit plan. Particularly, the brand new IRS steering addresses rehires following a bona fide retirement due to COVID-19.
As a background, an outlined profit plan could make distributions to a retiree solely within the case of a “bona fide retirement,” which is a info and circumstances evaluation. In prior rulings, the IRS indicated that retiree distributions with no bona fide retirement may cause an outlined profit plan to lose its tax-qualified standing, the place each all contributions and earnings turn into instantly taxable.
In accordance to the IRS, a rehire due to COVID-19-related “unforeseen circumstances” typically wouldn’t disqualify a person’s prior retirement from being thought of a bona fide retirement underneath an outlined profit plan. Nonetheless, the IRS cautioned that such a rehire can’t embody any prearrangement to rehire the person prior to the person’s retirement. Such a prearrangement nonetheless yields a retirement that isn’t “bona fide.”
Lastly, though the IRS issued this steering in query and reply format primarily for outlined profit plans, plan sponsors ought to have the option to apply the identical rationale to distributions from outlined contribution plans. In brief, the brand new IRS steering supplies welcome reduction to plan sponsors and employers who’re trying to rehire retirees in a decent job market.