On 10/22/2021, the IRS added two new FAQs to help address COVID-related labor shortages and the impact on qualified retirement plans such as 401(k) plans. The First FAQ clarifies that an employer may rehire someone who was recently terminated, and the rehired person will still be treated as having had a bona fide retirement eligible for benefit distribution(s) as long as: (1) the plan terms do not prevent the rehire and (2) the rehire was due to unforeseen circumstances that do not reflect any prearrangement to rehire.
The second FAQ clarifies that individuals who are still working at retirement age may receive in-service distributions so long as the plan document permits, and the individual is at least age 59½ (or the plan's normal retirement age). However, there may be a 10% early distribution tax if these distributions start when a person is not yet 59½.
In either case, employers could consider amending their plan if needed.