Starting January 1, 2013, SDCERS will implement an IRS policy that impacts a retiree's ability to return to employment for the same plan sponsor after retirement. This will impact Members and retirees who perform work after January 1, 2013 from all three plan sponsors - the City of San Diego, the San Diego County Regional Airport Authority (Airport) and the Unified Port of San Diego (Port).
Generally speaking, the IRS policy states that if a retired employee (younger than 59 1/2) returns to work for the same plan sponsor without a "bona fide termination," that retiree is subject to a 10% early distribution penalty against retirement benefits - which could include DROP monies - received in any month while he or she continues to work for the plan sponsor. According to the IRS, a "bona fide termination" occurs when there is a 1-year break in service. A bona fide termination does not occur when there is a "pre-arranged agreement" that the employee will return to work after retirement. SDCERS must report on the retiree’s annual 1099-R that benefits received are subject to the 10% penalty if the retiree has returned to work without a bona fide termination. SDCERS believes that a six month break in service would also qualify as a bona fide termination and will limit its 1099-R reporting to only those retirees who return to work for the same plan sponsor less than six months after retirement.
For information about this policy and how it might impact you, see the FAQ provided
here. If you have additional questions, you can contact the SDCERS Call Center at (619) 525-3600.