403(b) RBD (required beginning date)/defin. of “retires”/”still working exception”

Sorry if this post is a little long. Any tips are greatly appreciated and I’ve read some good posts on this such as from alan-oniras:

http://www.irahelp.com/forum/viewtopic.php?f=1&t=7270

I got a handle on the Age 75 rule and have the 12-31-1986 account statements. My issue concerns a school district employee who formally retired but still works for the district from which she retired but not as a full-time classroom teacher, the position from which she made all of her contributions to the 403(b) plan pre-retirement. In this instance, she still works 5 days per week (at hourly pay) but not full days. Contributions to the 403b plan are not allowed (I think). She also substitute teaches. Facing the age 70 ½ deadline, it would be advantageous to know if she is not required to take an RMD.

I have seen reference to the RBD “still working exception” but the actual language is “retires” (not necessarily the same thing as merely not working):

§1.401(a)(9)-2. Distributions commencing during an employee’s lifetime. Q&A 2

Q-2. For purposes of section 401(a)(9)(C), what does the term required beginning date mean?
A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph (c) of this A-2, the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 701/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan.
(b) In the case of an employee who is a 5-percent owner, the term required beginning date means April 1 of the calendar year following the calendar year in which the employee attains age 701/2.

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A person who “retires from employment with the employer maintaining the plan” but continues to work for the district arguably could not postpone their required beginning date (RBD)–because they officially retired, regardless of whether the person continues to work for the same employer. It hinges on whether “retires” means a formal withdrawal from employment such as the completion of the application which begins state pension benefits (and thus subsequent work for that employer is irrelevant from an RBD standpoint) OR simply not working in any capacity for the “employer maintaining the plan” for any full calendar year even after formal withdrawal/beginning the state pension benefit.

Considering the penalty for being wrong is 50% of the postponed RMD amount, the stakes are too high to take a chance without solid authority, e.g., a revenue ruling on similar facts. The most common scenario would seem to be substitute teaching in order to delay one’s RBD. One reason I’m skeptical is if this were a safe loophole, you would think it would get a fair amount of publicity. On the other hand, if it were proven not to be a loophole, that should get publicized too. This person sounds authoritative and very sure it is not a loophole but it doesn’t say who they are or what they are basing their opinion on:

http://www.extension.org/pages/42864/ive-read-about-the-still-working-ex…

Does anyone know of something solid enough to overcome the risk of the severe penalty? I have not found any clarification in Notice 96-67, 1996-2 C.B. 235; Announcement 97-24, 1997-11 I.R.B. 24;
Announcement 97-70, 1997-29 I.R.B. 14; Notice 97-75, 1997-2 C.B. 337; Announcement 98-63,
1998-2 C.B. 58

Those were cited in this primer:

http://www.steptoe.com/assets/attachments/341.pdf

A sub-issue is whether continuing participation in the plan through post-formal retirement contributions into the 403b (if allowed) makes a difference? I don’t think it is possible to contribute to the state pension system without formally “un-retiring” which begs the question of whether “un-retiring” lets you postpone the RBD or the first retirement irrevocably = “retires” for the purposes of the RBD rule. That is not applicable to my case but interesting nonetheless.

I understand that the entire issue is contingent on the plan even allowing the “still working exception” and that this exception was allowed until repealed by the Tax Reform Act of 1986. Conceivably then, there might be an applicable authority from before that reform act went into effect.