Employer News | August 2017

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AUGUST 2017 | VOLUME 144

Bona Fide Separation of Employment Required for Employees to Access Retirement Benefits

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.

IRS Compliance Self-Assessments


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.