TwoDot,
It sounds to me like the IFF call was correct. The call is based on the umpire's judgement (assuming the proper conditions, which were certainly in place in the sitch you describe) of whether or not the fly ball can be caught with ordinary effort by an infielder - whether or not any infielder actually makes an effort to catch it is irrelevant.
However, calling the runner out for failing to retouch is absolutely wrong if the ball is not legally caught - it's doubly wrong if the defense made no appeal.
The only thing the IFF call does is remove the force on the existing runners because as soon as the BR is declared out, all "forces" are removed. In all other respects, it's just like any other fair batted fly ball. If a fielder catches it, runners must retouch their TOP bases. If it's not caught, they don't.
If the fly ball is caught, the umpire only calls out a runner who has failed to retouch upon a proper appeal by the defense.
JM
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