9.02: Obsolete - Bona Fide Termination and Retiree Earnings

OBSOLETE section – MPSERS retirees who return to work to a MPSERS reporting unit may have an impact on their pension and insurance premium subsidy. The retiree and the employing reporting unit have an important responsibility in this process.

  • The retiree is responsible for understanding the working after retirement rules and how they affect their pension and insurance premium subsidy. Resources for retirees are available on the ORS member information website for retirees that return to work.
  • The reporting unit is responsible for accurately reporting retirees to ensure the guidelines of the working after retirement rules are met.

For that reason, this section no longer applies.

 

Effective May 19, 2010, Public Act 75 amended the Michigan Public School Employees Retirement Act, MCL 28.1301 et seq., with regard to retirement allowances effective July 1, 2010. Section 61(7) of 2010 PA 75 states the following:

Notwithstanding any other provision of this Act to the contrary, for a retirant who retires on or after July 1, 2010, and following a bona fide termination, including not working in the month of the retirant’s retirement effective date, and who becomes employed by a reporting unit and the retirant’s amount of earnings in a calendar year exceeds 1/3 of the retirant’s final average compensation, the retirant shall forfeit his or her retirement allowance and the retirement system subsidy for health care benefits from the retirement system for as long as the retirant is employed at the reporting unit unless the retirant is employed under subsection (5), (9), or (10). A retirant who has forfeited the retirement system subsidy for health care benefits under this subsection and who wants to retain health care benefits shall pay the retirant's and retirement system's costs for the health care benefits. Upon termination of employment at the reporting unit, the retirement allowance and health care benefits shall resume without recalculation. 

The pension plan provided by MPSERS is a qualified governmental plan under the Internal Revenue Code 26 USC 401. Under MCL 38.1408(1) the Department of Technology Management and Budget (DTMB) is required to administer the pension plan to meet the IRS code. According to IRS Revenue Rulings, 56-693, 1956-2 CB 282, 74-254, 1974-1 CB 91, and IRS Information Letter 2000-0245 (September 6, 2000), a member must have a bona fide termination of employment before being reemployed by the entity from which he or she retires. That includes no promise of reemployment prior to retirement and a separation of employment for a significant time before reemployment, which is at least 30 days. A member’s resignation of employment on one date followed by the rehiring of the retired member by the same school in less than 30 days would adversely impact the pension fund’s tax qualified status under Internal Revenue Code.

Further, section 83(1) of the Michigan Public School Employees Retirement Act, Public Act 300 of 1980, MCL 38.1301 et seq, states the following:

Each retirement allowance shall date from the first of the month following the month in which the applicant satisfies the age and service requirements of this act and terminated reporting unit service…if the applicant satisfies the legal requirements for the retirement allowance at the time the application is filed. [MCL 38.1391(1)]

Employees eligible to terminate employment with a reporting unit on June 30, for example, would be eligible for a retirement allowance effective date of July 1 or after of that year. An execution date of reemployment within 30 days, or before August 1 of that year, establishes that the termination was not bona fide as required by MCL 38.1361(8) because there has not been any significant break in employment and there is a promise of reemployment.

Finally, MCL 38.1307(4) defines “retirant” as “a member who retires with a retirement allowance payable from reserves of the retirement system.” If a member resigns during one month, under MCL 38.1383(1), his or her retirement allowance effective date is the first day of the following month. Thus, under MCL 38.1307, the member becomes a retirant as of the first day of that following month, and MCL 38.1361(8) prohibits a retirant from working in the month of the retirant’s retirement effective date. For example, a member who chooses to resign by June 30 has a retirement effective date of July 1; as a retirant effective July 1, he or she cannot begin working in July of that year and receive a retirement allowance.

MCL 38.1361(7) states the following regarding a retirant who retires on or after July 1, 2010, has a bona fide termination of employment, and becomes employed by a reporting unit:

…and the retirant’s amount of earnings in a calendar year exceeds 1/3 of the retirant’s final average compensation, the retirant shall forfeit his or her retirement allowance and the retirement system subsidy for health care benefits from the retirement system for as long as the retirant is employed at the reporting unit unless the retirant is employed under subsection (5), (9), or (10). A retirant who has forfeited the retirement system subsidy for health care benefits under this subsection and who wants to retain health care benefits shall pay the retirant's and retirement system's costs for the health care benefits. Upon termination of employment at the reporting unit, the retirement allowance and health care benefits shall resume without recalculation.

With regard to earnings limitations, if an employee electing to resign has a bona fide termination, does not work the month of his or her retirement allowance but is rehired by a reporting unit, his or her earnings cannot total more than 1/3 of the retiree’s Final Average Compensation (FAC) without forfeiture of the pension and healthcare subsidy. If the earnings total more than 1/3 of the retiree’s FAC, he or she will forfeit their pension and health care subsidy until the retiree terminates employment.

“Earnings” include items to be reported on the retiree’s W-2 or 1099R form as earnings for services performed for the reporting unit, including but not limited to, amounts deferred or contributed to an annuities. Section 125,132 (f) (4), 401(k), 403(b) and 457 of the Internal Revenue Code, 26 USC. This includes cash in lieu of payments. Note: Living allowance stipends are not pay and are not considered compensation.

Last updated: 07/01/2018