After careful consideration and member feedback, the MERS Retirement Board set the exemption requirements regarding the rehiring of retirees at its Nov. 10 meeting. (Click here to read the Board’s formal actions.)

Here are a few key points about the requirements:

• Retirees rehired by the same employer on or after Jan. 1, 2011, must follow the MERS Retire-Rehire rules
• Retirees rehired and re-employed by the same employer before Jan. 1, 2011 are exempt from the rules, provided they:
  • Have submitted a signed retirement application by Nov. 30, 2010
  • Have an effective retirement date no later than Dec. 1, 2010
  • Retiree must be re-employed and have worked as a re-employed retiree before January 1, 2011.
• Retirees becoming a newly elected or appointed official at their same employer are exempt from the rules*

*Retirees who retired as elected or appointed officials (or served in such official positions within 1 year before the date of retirement) are subject to the Retire-Rehire rules, Section 31(1)(a) of the Plan Document.

Here are a few key points about the rules:

1. Retiring members must not have pre-arranged or discussed returning to work at their municipality. This violates IRS rules.
2. Retirees must have a bona fide or true retirement under IRS rules, and must have at least 30 days before rehiring with their same employer.
3. If a non-exempt retiree works more than 720 hours within a calendar year, their pension payments will be suspended.
4. Employers are required to report employment data for all rehired retirees (including those exempted), regardless of re-employment date. More information about the reporting process will be coming soon.

Why are these rules important?
As a tax-qualified plan under the Internal Revenue Service, MERS is required to follow IRS conditions for paying benefits. We want to be proactive in protecting our tax-qualified status, and these changes are intended to more effectively enforce the federal rules. MERS is also dedicated to helping our member municipalities’ financial health through fiscal responsibility, and the rehiring of retirees carries with it many long-term implications. MERS actuary, Gabriel, Roeder, Smith & Company, outlined some of these implications in a recent report (Section III of the Board Actions), including:

• Studies show allowing the rehiring of retirees causes more employees to retire earlier, creating increased pension liabilities and long-term costs for employers
• If employers don’t make pension contributions for rehired retirees, their long-term unfunded obligations will typically increase
• The pension contributions for employers with closed divisions (new hires in a different plan) will increase even more than those with open divisions

Please check the MERS website for future information and news regarding the MERS Retire-Rehire rules. To read more about the rules, please read Plan Section 31(1).