To be clear, he retired in 1998 accepting a sweetheart deal the state was offering at the time. He was then hired back in 1999 for one year, as an independent contractor to run the defense.
From what I understand he retired at the end of the 1998 season, which extended into the calendar year 1999 because Penn State had a bowl game that year. I'm not aware of any 'contracting' agreement for 1999.
And he was under investigation for sexual abuse by the Penn State police and the local DA in 1998 after a complaint from a parent. Apparently the investigation did not bring any thing they could prosecute.
When Sandusky announced his 'retirement' he was only 54 years old. Kind of young for a football coach who was making a couple of hundred grand a year and agreed to a less then 200k severance package. I'm guessing that they just decided they didn't want the guy associated with the team any longer. It is no secret that Paterno and he never got along very well.