 AUGUST 2017 | VOLUME 144
The PERS and TRS plan statutes require complete separation
of employment prior to an employee accessing retirement benefits. The statutes also
require cessation of benefits if a retiree returns to a position that
participates in the pension plans. Now federal laws that govern the plans’
eligibility for preferred tax treatment restricts re-employment into positions
which are not covered by the retirement systems, such as temporary,
nonpermanent positions, project or independent contractor work, and substitute
teaching, with the same employer. Federal Treasury regulations require
employers and employees to be able to prove the retiree terminated employment
before returning to work for the same employer in any capacity. Employers and
retirees must show there was no pre-arrangement to return to work prior to the
employee’s retirement and that a period of separation from employment in any
capacity was observed by the retiree. Employees can no longer separate from a
position in one retirement system, draw benefits but move into another
retirement system provided by the employer without separating employment with
the employer. For example, a teacher for a school district will not be able to
stop teaching and move into a PERS-covered position with the district and still
draw their TRS benefit. Even if the teacher meets TRS eligibility requirements, this action is prohibited because there is no severance of employment with the
same employer.
Failure to follow the requirements under Code Section
401(a)(36) and proposed Treasury regulations regarding in-service distributions
raises qualification issues for the plans and potential early distribution tax penalties
for the individual. In addition, if a pre-arrangement for employment exists,
the individual may be deemed to not have a bona fide separation of employment,
making them ineligible for retirement benefits.
The Commissioner of Administration, who is the Plan
Administrator, has adopted a policy outlining the requirement for a Bona Fide Separation of Employment. The policy is posted on the Employer
Services website along with a series of frequently asked questions (FAQs). If you have additional questions, contact Kathy Lea,
Chief Pension Officer at the Division’s Juneau office, (907) 465-4460. The FAQs will be
updated as additional questions arise.
The Division will be adopting regulations to administer
these provisions. All employers will be sent the draft regulations when they are published for public notice. There will be a 30-day comment
period as well as additional time to analyze the comments. The earliest the
regulations will be effective is October 1, 2017.
This notice is to provide employers additional time to
examine their succession planning methods for replacing key workers eligible
for retirement before the effective date of the regulations. The regulations
will be administered on a prospective basis and will affect retirees who retire
as of October 1, 2017.
 Public employers have unique legal requirements for
compliance with federal tax and social security laws.
The IRS Form 14581 series consists of seven topical
tax compliance self-assessment tools for voluntary use by government entities
to conduct self-assessments of their compliance with these requirements.
For use by Federal, State and Local
Government Entities
- Form 14581-A Fringe Benefits Compliance
Self-Assessment
- Form 14581-B International Issues
Compliance Self-Assessment
- Form 14581-D Other Tax Issues Compliance
Self-Assessment
- Form 14581-G Worker Status Compliance
Self-Assessment
For
use by State and Local Government Entities Only
- Form 14581-C Medicare Coverage
Compliance Self-Assessment
- Form 14581-E Retirement Plan Coverage
Compliance Self-Assessment
- Form 14581-F Social Security Coverage
Compliance Self-Assessment
These
self-assessment tools are designed to help public employers identify areas that
indicate potential compliance issues. Forms can be easily located on the IRS
website at irs.gov/forms-pubs by selecting the Forms and Pubs tab and entering the form number in the
search box.
As
you work through these forms, please don’t hesitate to contact the office of
the State Social Security Administrator at melanie.helmick@alaska.gov
or at (907) 465-5707 with any questions you may have.
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