Employers often turn to recent retirees when there are specific employment needs that require quick onboarding and a skillset that may be difficult to find in the local market. As Mary Jo Larson previously reported in the Summer 2015 issue of the HR Focus newsletter, re-hiring former retirees can be problematic under an employer’s retirement plans. It is also important to consider the potential administrative complexities that rehiring retirees can have on health and welfare plans.
The Patient Protection and Affordable Care Act (Health Care Reform) has a number of stringent requirements, such as limits on lifetime or annual maximums, first dollar preventive care reimbursement, pre-existing condition limitations, plan claims and appeals, etc. However, none of those requirements apply to retiree-only plans. A “retiree-only” plan is any group health plan with fewer than two participants who are current employees. Employers should be extremely cautious when rehiring retirees to avoid running afoul of this extremely limited exception under the statute for retiree-only plans.
Many employers carve out independent contractors from eligibility under health and welfare plans. However, a rehired retiree often fails to be a true independent contractor under IRS rules, leaving the employer potentially vulnerable to a claim that they were wrongfully excluded from coverage. In a medical plan, that type of claim can result in an employer having to retroactively pay for any medical claims that arose during the time that the individual should have been eligible under the terms of the Plan. And those claims that an employer’s insurance company or stop-loss carrier will refuse to pay are left to the employer to pay.
We recommend that you take these five additional steps in determining whether to rehire retirees:
The attorneys in the Warner Employee Benefits/Executive Compensation Practice Group can help you properly handle the hiring of retirees.