Unretirement

Unretirement is a return to paid work by someone who had retired. The word is not an agency's term. The Bureau of Labor Statistics writes about "reentry" and "labor force reentry," and where its own Monthly Labor Review uses "unretirement" it does so in quotation marks and attributes the measure to the research literature. It is a description rather than a legal category, and nothing on this page turns on whether the label fits.

What does turn on the underlying facts is a set of rules that key on going back to work rather than on calling it anything. Whether the pension keeps paying, whether the employer's health plan or Medicare pays first, whether a health savings account can be funded again, whether required withdrawals restart, and what happens to a Social Security claim already made are all separate questions with separate answers.

It is worth separating unretirement from its neighbors, because the four arrangements get used interchangeably and are not the same. Semi-retirement is working less rather than stopping. Phased retirement is an employer-sanctioned reduction in hours. An encore career is a change in the kind of work. Only unretirement involves a stop followed by a restart, which is why it is the one that triggers suspension and re-enrollment rules.

How common it is, with the definition attached. Estimates differ mainly because the definitions do. In a June 2011 Monthly Labor Review article, Cahill, Giandrea and Quinn reported that using the Health and Retirement Study, "about 15 percent of older career workers who left the labor force subsequently returned to work," and were explicit that their requirement of being observed out of the labor force during at least two survey waves means "the 15 percent estimated here should be viewed as a lower bound." They noted in the same passage that a differently defined "unretirement" rate identified by Maestas "exceeded 20 percent," and that the gap "is due in part" to that definitional difference. The figures are dated and definition-dependent; the durable point is that this is a common path rather than an unusual one.

A pension can be switched off, and the trigger is hours. ERISA section 203(a)(3)(B) lets a plan suspend benefits during certain re-employment without that being a forfeiture, and 29 CFR 2530.203-3 sets out when. For a single-employer plan, a month counts against the retiree if they complete "40 or more hours of service" in that month for an employer maintaining the plan, or are paid for hours worked "on each of 8 or more days (or separate work shifts)" in the month. Four points follow that catch people out. The plan may withhold permanently for those months rather than deferring them. If the plan has already paid for a month it can offset the overpayment against future benefits, but not by more than "25 percent of that month's total benefit payment" apart from the initial payment on resumption, which may be offset without limit. Payments must resume "no later than the first day of the third calendar month" after the retiree stops the disqualifying work, provided they told the plan. And the plan has to notify the retiree in the first month it withholds, and must offer a procedure under which a retiree can ask in advance whether specific contemplated work would count.

The multiemployer version reaches further than the employer you left. For a multiemployer plan the same hours tests apply, but the disqualifying work is defined by industry, trade or craft, and geographic area rather than by employer. The regulation's own example makes it concrete: a retired electrician who returns as a foreman of electricians remains within the trade or craft, "because a 'trade or craft' includes related supervisory activities." A union retiree taking similar work for a completely different company inside the plan's area can therefore have benefits suspended, and this is the version most likely to be a surprise.

Medicare and the new employer's plan have to be coordinated, and the mistakes are asymmetric. Whether the employer's plan pays before Medicare depends on employer size: under 42 U.S.C. 1395y(b)(1)(A)(ii), the working-aged Medicare-secondary rule applies only where the plan is of, or contributed to by, an employer "that has 20 or more employees for each working day in each of 20 or more calendar weeks in the current calendar year or the preceding calendar year." Below that line Medicare remains primary, and dropping Part B on the strength of a new job would leave the retiree substantially uninsured. Above it, a returning worker may drop Part B and rely on the employer plan, and the statute protects the way back: 42 U.S.C. 1395p(i)(2) gives a special enrollment period to someone who has "not terminated enrollment under this section at any time at which the individual is not enrolled in such a group health plan by reason of the individual's ... current employment status." The special enrollment period itself runs, under (i)(3)(A), through "the last day of the eighth consecutive month" in which the person is no longer covered by the employment-based plan. Dropping Part B while covered by employment-based coverage preserves the route back; dropping it at any other time does not.

Medicare closes the health savings account, and returning to work does not reopen it. 26 U.S.C. 223(b)(7) provides that the contribution limitation "for any month with respect to an individual shall be zero for the first month such individual is entitled to benefits under title XVIII of the Social Security Act and for each month thereafter." A retiree who enrolled in Medicare at 65 and then returns to a job offering a high-deductible plan may use the plan, and may spend an existing health savings account balance, but may not contribute to one. This has nothing to do with the new employer and cannot be fixed by it.

Required withdrawals may be postponed, but only in one plan. Under 26 U.S.C. 401(a)(9)(C)(i), the required beginning date is April 1 of the calendar year following the later of the year the employee attains the applicable age or "the calendar year in which the employee retires." Clause (ii) removes that second prong for a 5 percent owner and, expressly, "for purposes of section 408(a)(6) or (b)(3)," which are the individual retirement account provisions. The regulation supplies the limb the statute leaves implicit: 26 CFR 1.401(a)(9)-2(b)(1)(ii) fixes the date by reference to "the calendar year in which the employee retires from employment with the employer maintaining the plan." So the postponement is a feature of the plan of the employer you are currently working for. It does not reach an IRA at all, and a balance left behind in a former employer's plan is not covered by continuing to work somewhere else. The regulation adds one refinement for a plan maintained by more than one employer: an employee who leaves one participating employer but keeps working for another that maintains the same plan is not treated as having retired.

A Social Security claim already made is a separate question with its own answers. Someone who claimed early and goes back to work before full retirement age meets the retirement earnings test, which withholds benefits above a threshold and credits them back later; that is covered on its own page. Two further routes exist for undoing or pausing a claim: withdrawing an application within a limited window and repaying what was received, and voluntarily suspending benefits at or after full retirement age to earn delayed credits. Both are their own subjects with their own conditions, and neither is taught here.

Before restarting, five things are worth settling in writing, and the plan administrator can answer the first one in advance.

Ask the pension plan for a status determination. 29 CFR 2530.203-3(b)(6) requires a plan that suspends benefits to adopt a procedure under which a retiree may ask, and the administrator must answer within a reasonable time, whether specific contemplated employment will count as disqualifying service. Use it before accepting the job, not after.

Check the employer's size for Medicare purposes, because the 20-employee line decides whether the employer plan or Medicare pays first.

Decide about Part B deliberately. Dropping it while covered by an employment-based plan preserves the special enrollment period; dropping it at any other time does not.

Assume the health savings account stays closed to new contributions if you are enrolled in Medicare, whatever the new employer offers.

Check whether the new plan lets you postpone required withdrawals, and remember that any IRA and any old employer's plan continue on their own schedule.

A hypothetical shows the offset arithmetic, which is the part that surprises people. Suppose Ray draws a pension of $2,400 a month and returns to the employer that maintains the plan in March, working more than 40 hours in each month from March onward. The plan learns of it in May, after paying the March and April benefits, so it has overpaid 2 × $2,400 = $4,800. It suspends future payments for each month of disqualifying service, and when payments eventually resume it may recover the overpayment by offset, limited to 25 percent of a month's benefit: 0.25 × $2,400 = $600 a month, so recovering $4,800 takes $4,800 ÷ $600 = 8 months. The initial payment on resumption is outside that cap and may be offset without limitation. All figures are hypothetical; the 25 percent limit and the resumption timing are the regulation's.

Pros

• Earnings reduce or stop portfolio withdrawals in the years when a portfolio is most vulnerable to a bad sequence of returns.
• Returning to an employer with 20 or more employees can put a group health plan in front of Medicare, which for some households is materially better coverage.
• Working past the applicable age can postpone required withdrawals from the current employer's plan, which keeps taxable income down in the meantime.
• New employment usually restores retirement-plan eligibility and any employer contribution that comes with it.
• The federal rules are specific and mostly checkable in advance, including a right to ask the pension plan whether a particular job would suspend benefits.

Cons

• A pension can be suspended on an hours test, and in a multiemployer plan the trigger can be work for an unrelated employer in the same trade and area.
• Medicare enrollment permanently ends health savings account contributions, and a new high-deductible plan does not undo it.
• Dropping Part B at the wrong moment forfeits the special enrollment period and exposes the retiree to a late-enrollment penalty.
• The still-working postponement of required withdrawals never reaches an IRA, and never reaches a 5 percent owner.
• Returning to work before full retirement age with benefits already claimed runs into the earnings test, which is a separate set of rules to work through.