Discover how participants can receive pension benefits while still working for their employer or a related company.
Understanding Working Retirement
Working retirement is a situation where a participant begins receiving—or continues to receive—pension benefits while still employed by the plan sponsor or a related company. Traditionally, this wasn’t always possible. Before 2021, the Pension Benefit Guaranty Corporation (PBGC) generally did not allow early retirement benefits to be paid to participants who were still working for the sponsoring company or a related firm. This restriction often prevented employees from accessing the financial security of their pension until they fully retired.
However, rules have changed. As of June 1, 2021, PBGC rescinded its “working retirement” rule. Now, a participant who is entitled to a retirement benefit can receive that benefit even if they continue working for the plan sponsor or a related company. This shift has provided employees with more flexibility to manage income and retirement timing.
How Working Retirement Works
Working retirement applies primarily to defined benefit pension plans. In practice:
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Eligibility: The participant must meet the plan’s retirement eligibility criteria, such as age and years of service.
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Benefit Payments: Once eligible, the participant can begin receiving pension payments, even if they have not fully left their job.
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Coordination with Employment: While working, the employee continues to earn a salary. The pension benefit is in addition to regular wages, providing an extra source of income.
For example, imagine Jane, age 62, works for a company with a defined benefit plan. She has reached her plan’s retirement age and is entitled to a monthly pension. Under the new PBGC rules, Jane can start receiving her pension payments while still working part-time at the company, combining her salary with her pension income for added financial flexibility.
Benefits of Working Retirement
Working retirement offers several advantages:
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Increased Income: Receiving pension benefits while still earning a salary boosts overall cash flow.
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Flexible Retirement Planning: Employees can phase into retirement gradually, reducing the shock of a sudden income change.
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Financial Security: It ensures that participants have access to retirement funds as soon as they are entitled, rather than waiting until they stop working.
Important Considerations
While working retirement is beneficial, participants should consider:
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Tax Implications: Pension benefits are generally taxable, and combining them with a salary may affect income tax brackets.
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Plan Rules: Some plans may have specific provisions or limits on working retirement benefits. Always check the plan documents for details.
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Social Security Coordination: Receiving a pension while still working may impact Social Security benefits depending on age and earnings.
Working retirement represents a significant shift in retirement planning, giving employees more control over when and how they access their pension benefits. By allowing participants to receive pension payments while continuing to work, PBGC has created a more flexible approach to retirement income.
Whether you want to transition gradually into retirement or simply access your benefits earlier, understanding working retirement is key to making informed decisions about your financial future.
Participants can now enjoy the security of their earned pension benefits without having to fully retire, making working retirement a practical option for many U.S. workers seeking flexibility in their retirement planning.
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Working retirement lets participants receive pension benefits while still employed, offering more flexibility and income during the transition to full retirement.
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