Chapters

00:00 Introduction to PERS Retiree Return to Work Options

00:36 Reasons for Returning to Work

01:55 PERS Retiree Return to Work Options

02:55 Overview of Returning to Work as Employee for PERS Employer

03:58 Overview of Returning to Work as Contractor for PERS Employer

04:40 Overview of Returning to Work as Independent Contractor for PERS Employer

05:31 Overview of Returning to Work at PERS Third-Party

06:21 Overview of Returning to Work Outside PERS

07:06 Overview of Returning to Work by Starting Your Own Business

08:17 Action Items for PERS Retirees Returning to Work

09:06 Preview of Next Video and Calls to Action

10:19 Disclaimer

Transcript

Hi everyone, I'm Ryan Earley, vested PERS member, former public school finance officer, current financial planner, and host of the PERS Pro YouTube channel. Today, we are reviewing the options, rules, and limits for Mississippi PERS retirees who are considering re-entering the workforce. Whether you want to consult, start a business, or return to your old desk part-time, you need to know how these choices affect your PERS retirement. Let's get started.

There are several strategic and personal reasons why a PERS retiree might look to return to work. Health insurance. As we discussed in video number 50, health insurance is a big expense. Returning to work can provide access to employer-sponsored plans to bridge the gap until Medicare eligibility at age 65. Income generation. As we discussed in video 25 and 44, retirees can spend an extra 10 % the first two to five years post-retirement.  Generating extra income can help with this additional spending. Delaying Social Security. The longer you wait to draw Social Security, the larger your benefit will be. Returning to work post-PERS retirement can help you delay drawing Social Security until your full retirement age or even age 70. Starting a second career. Many retirees use this time to pursue a passion project or a field they've always been interested in but couldn't explore during their primary career.  Purpose and social connection. Work provides structure and social interaction, which both are vital for a healthy retirement.  Re-entering the PERS system. Sometimes you might realize retirement isn't for you yet. You can actually choose to stop your benefits, return to work full-time, and continue accruing service credit to increase your future retirement benefit.

Not all work is treated the same by PERS. Here are the primary return to work routes a PERS retiree can take. Working for a PERS employer as a W-2 employee. This is the most common route, but it is also the most regulated. Working for a PERS employer as a contractor. This is very similar to working as a W-2 employee above, but instead you are a 1099 employee. Working for a PERS employer as an independent contractor.  This requires a specific legal determination to ensure you aren't actually an employee or contractor in disguise. Working for a PERS third party. This is when you work for a private company that has a contract with a PERS employer, like a private employer providing student tutoring, instructional coaching, or special education services. Working for a non-PERS employer. This includes any private or public sector work outside of PERS. Starting your own business.  Becoming your own boss and operating a business that does not contract with a PERS employer.  

If you return to a PERS covered employer, you must follow strict limited reemployment rules. When returning as a W-2 employee for a PERS employer, you are generally admitted to part-time work, although there are full-time exceptions. You cannot work more than half the normal time or earn more than 25 % of your average compensation, You generally are not eligible to receive health insurance, although there are exceptions like working as a bus driver for some school districts.  You will not accrue service credit and your PERS pension will not be terminated. Regarding taxes, your wages will be subject to Social Security taxes and while your PERS pension is state tax exempt in Mississippi, these new earned wages are taxable at both the federal and state level. Also, be aware that if you are over age 65 and receiving Medicare, your income could subject you to IRMA premium surcharges.  Lastly, note that in order to return to work for a PERS employer as a W-2 employee, you must have a 90-day break in service and file Form 4B with your employer and PERS.

Some retirees return as contract workers or 1099 employees rather than standard W-2 employees. When returning as a contractor or 1099 employee for a PERS employer, you are generally subject to the same rules and limitations as a W-2 employee with two big differences. The first difference is there are no exceptions where you would be eligible for employer paid health insurance. And second, although your earnings would be covered by Social Security, you as the contractor would be required to pay both the employer and employee share of FICA and Medicare payroll taxes, which would total 15.3 % of your earnings.

If you return to a PERS covered employer as an independent contractor, you are subject to fewer re-employment rules and limitations. To qualify, however, you must submit the PERS independent contractor determination questionnaire.  To be a true independent contractor, you must pass a strict multi-factor test within that questionnaire. If approved by PERS, the hours and earnings limits do not apply because you aren't an employee. This unlocks additional income you can generate as a PERS retiree while performing work for a PERS employer without impacting your PERS pension. However, like a contractor, you'll be responsible for your own self-employment taxes and you won't be eligible for any employer paid health insurance benefits.  It's important to note that you must get PERS approval before you start work as an independent contractor and the 90 day break is still required.

If you work for a third party that happens to have a contract with a PERS agency, your relationship is with that third party. However, you may not circumvent the limitations on re-employment by contracting to perform services to a PERS employer through a third party, such as a placement or staffing agency. Working for a third party company that contracts with a PERS agency allows you to work full-time without pension limits and potentially be able to receive employer paid health insurance if the third party offers it.  These earnings would still be subject to Social Security taxes and would be fully taxable for both federal and state income tax purposes. These earnings would also be considered for IRMA surcharge purposes. If you decide to work for a third party, be sure to review section 110 of PERS regulation 34 for more information.

Working for a private company, a non-profit, federal government, or out-of-state agency has zero impact on your PERS pension. Going this route unlocks greater options and flexibility. You can work full-time, you may receive employer-paid health insurance if the non-PERS employer offers it, and there is no pre-approval needed from PERS. All non-PERS employment wages are taxable at the federal level and by the state of Mississippi. In addition, the wages will be subject to Social Security and FICA taxes, but you will only be responsible for the employee portion. There are no forms that need to be filed with your employer or PERS. Lastly, the best part may be that you can double dip into another pension, such as with the federal government or another state agency outside Mississippi. 

If you decide to hang your own shingle and start a business, you have the most flexibility as well as ability to optimize benefits and minimize taxes, provided you aren't just contracting back to a PERS employer.  As a business owner, you can decide when to work more to generate more income and when to work less when you approach higher tax brackets, IRMA surcharges, or Social Security covered earnings limits. Although someone else won't be paying your health insurance premiums, there are avenues for your business to do so in a tax-advantaged manner. You will face the same tax realities as any other entrepreneur. Your business profits will be subject to federal and state income taxes, either at the corporate or individual level if you have a pass-through entity.  Be prepared to pay the self-employment tax for FICA and Medicare as well. Lastly, running a business is not for everyone.  As a multi-business owner myself, I spend more time than I care on back office tasks, from running payroll to submitting tax payments and forms on a monthly, quarterly, and annual basis, to staying within state and federal compliance rules and regulations, to acting as an IT administrator. But with that said, for me and my spouse, the advantages of business ownership outweigh the disadvantages.

If you're thinking about returning to work as a PERS retiree, here are your action items for today. One, run the math on PERS part-time options. If going back to work part-time to a PERS agency, calculate 25 % of your average compensation and calculate what half the salary of the full-time equivalent position you're returning to work as. Compare the two amounts before making a selection on Form 4B and do this every year as the salary changes. Two, check social security limits.  If you are drawing Social Security before your full retirement age, be aware that Social Security has its own work and earnings limits that are separate from PERS. 3. Check Medicare income limits. If you are enrolling in Medicare, be aware of IRMA income limits that trigger monthly Medicare premium surcharges.

I hope this video helps you navigate the numerous options you have of returning to work as a PERS retiree. In our next video, we'll provide the Mississippi PERS Retiree Guide to Returning to Work where we'll go deeper for those going back to work for a PERS employer. Please make sure you subscribe so you don't miss this and other videos in our new retirement series. 

If you found this video helpful, you can thank me by hitting the thumbs up button and sharing it with other PERS members. If you have a follow up question about PERS or anything else related to personal finance, please visit our website at perspro.ms click YouTube, and submit your question or topic for a future episode. And finally, if you're looking for a financial planner that specializes in helping PERS members plan for retirement, including deciding what return to work option is best, please visit our website at perspro.ms to learn more about our firm and to schedule your initial consultation. 

Thank you for your valuable public service to the state of Mississippi. We'll see you next time.

Disclaimer, this video is for educational and informational purposes only. Neither the host nor this YouTube channel are officially affiliated with, endorsed by, or sponsored by the Public Employees Retirement System of Mississippi. Always consult a qualified professional for personal advice specific to your situation.