August 27, 2014
Re: Post Retirement Restrictions for PERS and PFRS Employees
The Division of Pension and Benefits recently issued a notice on bona fide severance of employment-post retirement employment restrictions for individuals covered by any New Jersey State administered retirement system. The Division has issued this guidance and is implementing a new procedure to preserve the qualified Internal Revenue Service (IRS) status of PERS, TPAF, PFRS, SPRS and JRS plans and to protect retirees from a 10% excise tax penalty on their monthly retirement payments.
N.J.A.C. 17:1-17.14.2(a) defines a “bona fide severance from employment” as “the complete termination of the employee’s employment relationship with the employer for a period of at least 180 days. The following does not constitute a complete termination of the employee’s relationship with the employer:
i. Employment or re-employment in a part-time positon;
ii. Employment or re-employment in a position that is not covered by the Defined Benefit Plan;
iii. A change in title;
iv. Employment or re-employment as a contract employee, a leased employee or an independent
v. Termination of employment with a pre-arranged agreement for re-employment.”
It is important to note that the term “lease employee” includes services provided to all employers who are party to a shared service agreement with the employee’s former employer. In addition, the 180 day requirement does not apply to individuals who were required to retire under the mandatory retirement provisions of PFRS, SPRS or JRS.
The Division will be using IRS factors as guidance in determining whether an employment relationship exists. A mandatory retirement will be treated as a “bona fide severance from employment”.
Re-employment by a different unit of the same public entity, whether the position is covered by the same retirement system or a different retirement system, is considered to be employment by the same employer. Further if an employee holds more than one position with the employer they must separate from all employment in order to retire, even if the positions are covered by different retirement systems, or the second position is not subject to pension contributions.
Finally, the IRS does not consider a pre-arranged return to public employment to be a bona fide severance from employment no matter how long the break in employment. If the employer and employee make an arrangement prior to employee’s retirement to return to the same employer in any capacity, including as a volunteer – at any future time, regardless whether the position is covered by the former retirement system – the employer/employee relationship is not completely severed and the retirement will be invalid.
If an individual returns to public employment with the former employer prior to satisfying the requirements of a bona fide severance from employment, the employee will be required to repay all retirement benefits received from the date of retirement and may be required to re-enroll in the same or different retirement system.
The Division of Pensions is now requiring employers who retain the services of any individual retired from a state administered retirement system to complete the Notification of Employment After Retirement form and submit it to the Division within 15 calendar days of the date of hire. The form will be reviewed by the Division to determine if the retiring retiree can continue to receive retirement benefits when re-employed or if the retirement must be canceled and the employee enrolled in the same or another retirement system.
For more details and to direct your questions see the full notice at www.state.nj.us/treasury/pensions/pdf/coltrs/coltr0814-employment-after-retirement.pdf
Very truly yours,
William G. Dressel, Jr.