The changes would amend Plan Section 31(1), which governs the ability of a retiree to become reemployed by the participating municipality or court from which he or she retired without a suspension of benefits.

Why is MERS considering changes?

As a tax-qualified plan under the Internal Revenue Service, MERS is required to follow the IRS expectation that, as a condition for paying benefits, there has been an actual “bona fide termination of employment in which the employer/employee relationship is completely severed.” In 2005, MERS Legal Department’s “Important Comment” was added to Section 31 specifically to emphasize this requirement. Arrangements where the employee and employer have agreed to a pre-arranged termination and reemployment are characterized by IRS as non-compliant “sham transactions.”  The proposed changes to Plan Section 31(1) are intended to more effectively enforce the federal rules.

(For more, see the November 6, 2009 Memorandum to the Board from the Legal Department.)

• Increasing to 180 days the separation from service period – from the current minimum of 30 days – that is required before a retiree may become reemployed without suspension of benefits.

• Suspending benefits for elected or appointed officials who retire and continue in office unless there is a minimum break of at least one year between the old and new term in office.

At its Nov. 13, 2009 meeting, the Board directed that Member Comments be invited for a 90-day period (through Feb. 23, 2010), for consideration by the Board at the March 2010 meeting.

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