NJASA

Federal Pension Law Requires New Look at Working After Retirement

Recently, several articles, citing federal regulations, have appeared in other employee newsletters relating to returning to work after retirement, which have created uncertainty in the minds of many retirees. This column will attempt to clarify one of the rules mentioned in these other publications, particularly addressing the issue of how soon a retirees may return to work for the employer for whom they worked immediately prior to retirement.

According to the Internal Revenue Code regulations governing qualified plans, a “‘bona fide severance from employment’ means a complete termination of the employee’s employment relationship with the employer for a period of at least 180 days.” The Division of Pensions and Benefits incorporated this reference into the New Jersey Administrative Code Section 17:1-17.14 adopting it on April 2, 2012. (New Jersey’s last fact sheet regarding employment after retirement (currently unavailable) defines “bona fide” retirement as “a good faith action to retire” and a complete severance of the employer/employee relationship. It further states that retirement does not become “due and payable” until there has been cessation of employment for 30 days after your retirement date.) 

The federal rule, however, is in direct conflict with the New Jersey law, 18A66-53.2(b), which allows a former certificated administrator to be re-employed in the district from which he/she retired after 120 days following retirement.

So, in this issue - when am I permitted to return to my former school district - what is the controlling factor? Is it the 180 day federal code regulation or the 120 day New Jersey statute?

Unfortunately, no direction has been forthcoming from the Division of Pensions and Benefits and no amount of inquiry has produced an answer. While the State has not said which rule - the State law of 120 days or the federal code of 180 days - it will enforce, it would be wise to wait 180 days, since the federal code calls for the pension provider (Division of Pensions and Benefits) to revoke the retirement and require a repayment of any pension already paid if the “bona fide” regulation is breached. If any information is received from the Division, it will be made available to the membership immediately.

The publication of the 180 day restriction in another newsletter created a second conflict in the minds of many retirees, those seeking re-employment in a different school district from which retirement took place. In this situation, the New Jersey regulation of not returning to any permitted position before 30 days (as spelled out above) following retirement is still in effect. A retiree may accept a position in another school district after the 30 day period.

As part of the adoption of the Internal Revenue Code regulations for qualification of the State’s pension plans, New Jersey adopted NJAC 17:1 -17.14, to codify what is and what is not permissible for retirees wanting to return to public employment. Section 17:1-17.14(a)2 states that a “Bona fide severance from employment” means a complete termination of the employee’s employment relationship with the employer. The following does not constitute a complete termination of the employee’s relationship with the employer:

ii. Employment or reemployment in a position that is not covered by the Defined Benefit Plan;

iii. A change in title;

iv. Employment or reemployment as a contract employee, a leased employee, or an independent contractor; or

v. Termination of employment with a pre-arranged agreement for reemployment.”

 In a nutshell, the rules for working in a public school are as follows:

# There must be a 30 day break in employment before accepting a position in a public school;

# To return to the same district from which the retiree retired, there must be a break of either 120 or 180 days, depending on which rule (State law or federal code) the retiree feels comfortable in using. 

# Arrangements made prior to the effective retirement date, whether the same district or another school district are prohibited.

(For a full understanding of what is permissible in New Jersey for those wanting to work after retirement, see May, 2013 Financial Corner.)