On October 22, 2021, the IRS added two new FAQs to its existing COVID FAQs webpage.

Rehiring retirees

The first FAQ provides that whether a retirement is bona fide retirement (and not an in-service distribution) is based on the facts and circumstances of the employee’s retirement. A later rehire of the retired employee does not affect whether the retirement was bona fide if the rehire is due to unforeseen circumstances that do not reflect any prearrangement to rehire the individual. This analysis applies equally to a bona fide retirement pursuant to the special COVID-19 distribution requirements. See our discussion of earlier IRS FAQs on COVID-19 distributions.

The key qualifier is that the original retirement was bona fide. If it had not been, the original distribution would have violated the prohibition on in-service distributions regardless of whether the retiree was rehired.

The IRS also makes clear that the plan’s provisions (such as suspension of benefits) apply to rehires unless changed by plan amendment.

In-service distributions

In the second FAQ, the IRS notes that a distributee who receives a distribution before age 59½ (whether or not permissible) is still subject to the 10 percent premature distribution tax unless the distribution falls under one of the exceptions to the tax. One of those exceptions is for coronavirus distributions (which are distributions made between January 1, 2020 and December 30, 2020 on account of COVID-19).