Post Retirement Employment Restrictions

Post-Retirement Employment in Massachusetts public sector jobs are restricted to an aggregate of 960 hours in a calendar year and are restricted to aggregate earnings limited to the difference between your retirement allowance and the current salary of the position from which you retired.  A recent court case supports PERAC’s definition of  “earnings” as any compensation received from a public employer, including earnings as a consultant, independent contractor, and earnings for “details” which are paid through city/town payrolls regardless of whether the city or town ultimately bills a private entity for the work.  The public sector is broadly defined as the Commonwealth and its political subdivisions, including cities, town, authorities, districts and the like.

Retirees and Treasurers of employing units have primary responsibility for assuring compliance to statutory limitations.  Questions regarding compliance should be directed to the Hampshire County Retirement Board at (413) 584-9100.  

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Pension Protection Act of 2006

The provisions of the Pension Protection Act of 2006 (“PPA”) [§ 845] adds a new subsection to the Internal Revenue Code [26 USCA § 402(l)].  This provision allows eligible retired public safety officers to exclude from their gross income an amount up to $3,000 that is deducted from a taxable retirement allowance for health insurance premiums or long term care insurance contracts.

What is the definition of “public safety officer”?
The definition of “public safety officer” is not necessarily consistent with the provisions of G.L. c. 32 or any provision of the Massachusetts General Laws, but is specifically governed by the PPA.  The PPA definition of a “public safety officer” is an individual serving a public agency in an official capacity, with or without compensation, as a law enforcement officer, as a firefighter, as a chaplain, or as a member of a rescue squad or ambulance crew. 

Which retirees are eligible for this exclusion?
Public safety officers who retired for disability or who retired after having attained “normal retirement age”.   The term “normal retirement age” means the age that a member can retire with an unreduced benefit.  Normal retirement age for Group 4 retirees is age 55; while for Group 1 retirees, it is age 65.  

What premiums can be excluded from gross income?
Distributions withheld from the taxable portion of a retirement allowance that are withheld from an eligible retiree’s allowance and paid directly from a retirement system to a health insurance provider or to a long-term care insurance provider.  The method used for deducting health premiums from pension payments will not change – deductions will still be made on an after-tax basis.

How much can be excluded from taxable income?
The maximum exclusion is the lesser of the actual premiums paid by the Board or $3,000.  If the Board withholds premiums for more than one insurance carrier, the total aggregate amount excludable is $3,000.  Premiums that you have paid directly to an insurance carrier (i.e. not withheld from payroll) are not excludable.

How will retirees claim the exclusion?
The most recent information we have from the IRS indicates that the member will be required to report the exclusion on his or her IRS Form 1040, 1040A or 1040NR.  The excludable amount will not be reflected separately on the 1099R issued to the retiree, but is available on your December payroll check or deposit notice (listed as deductions labeled YTD Health).   The IRS has advised that there will be no special form for reporting the exclusion nor will there be a specific line on the 1040 for reporting the excludable amount.  Instead, the retiree should “reduce the taxable amount on 1040, line 16b (1040A, line 12b, or 1040NR, line 17b) by the amount of the exclusion and enter "PSO" next to that line where the taxable amount is reported”.  Please refer to  IRS 2007 Instructions Booklets for 1040, 1040A, or 1040NR or consult a tax professional for further information and/or questions.

Is a survivor of an eligible retiree eligible for the exclusion?
No. The exclusion is only available to eligible public safety retirees.

How do eligible public safety retirees obtain information regarding the amount withheld from their retirement allowance and paid directly to a health insurance provider?

The total amount that has been deducted from your retirement allowance and paid directly to a health insurance provider by the Retirement Board is provided on your December payroll check or deposit notice as YTD Health Deductions

What is the Retirement Board’s responsibility to its members regarding the exclusion?
Retirement Boards have no mandated role in the implementation of this section of the PPA.  Information is being provided only to assist those who may be eligible for the new exclusion. 

Disclaimer…. This information has been provided with the caveat that the Hampshire County Retirement Board and Staff are not qualified tax specialists.  If you have questions regarding your eligibility or how to report the exclusion, please refer to the IRS 2007 Instruction Booklets or consult a tax specialist.

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