IRS offers help to employers who are rehiring retirees amid labor shortage

The Internal Revenue Service issued guidance Friday to assist employers who are rehiring retirees or retaining employees past retirement age as a way to find qualified workers in a tight labor market.

The guidance comes in the form of two new frequently asked questions that it added to its web page on coronavirus relief for retirement plans. The IRS pointed out that employers generally won’t jeopardize the tax status of their pension plans if they rehire retirees or allow distributions of retirement benefits to their current employees who have reached the age of 59 ½ or the plan’s normal retirement age. The new FAQ guidance describes some of the existing ways that employers can meet their goals for employing enough workers during the ongoing labor shortage while still complying with the complicated retirement plan qualification rules.

The COVID-19 pandemic has led to a variety of bewildering shortages, including in the labor market, where many employers find themselves without enough workers to fill jobs. The Bureau of Labor Statistics reported last week that there were 10.4 million jobs open at the end of August, but that was actually an improvement from the record 10.9 million job openings in July. To fill some of those open jobs, employers are rehiring some of their retired employees or asking workers who were planning to retire this year to stick around for longer.

Samuel Corum/Bloomberg

“Under the FAQs, 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,” said the IRS in a news release. “Also, if permitted under plan terms, those employees may continue receiving the benefits after they are rehired. Moreover, an employer can generally choose to make retirement distributions available to existing employees who have reached age 59 ½ or the plan’s normal retirement age. This may assist in the retention of employees eligible for retirement.”

Teacher retirements have been a particular problem as many teachers have been worried about returning to the classroom with COVID-19 still spreading. As schools have become battlegrounds over mask mandates and vaccine mandates, many educators have decided to retire or resign. Many school districts are also facing shortages of school bus drivers, food service workers and other essential employees. Next Wednesday and Thursday (Oct. 27 and 28) from 4:00 to 5:00 p.m. ET, the Treasury Department and the Department of Education will be co-hosting webinars for education leaders and other interested parties to talk about different approaches to dealing with school staff labor shortages, including a discussion about the IRS’s new FAQs. The links are below:

Webinar 1: Teacher and substitute teacher shortages                      

Time: Oct 27, 2021 04:00 PM Eastern Time. Participants should pre-register.

Webinar 2: Staff shortages, such as school bus drivers and food service workers

Time: Oct 28, 2021 04:00 PM Eastern Time. Participants should pre-register.