What I expected to happen was...:
A powered piston facing upward should retract even if the extended arm is powered since it is not the piston body.

What actually happened was...:
The piston was unable to retract.

Steps to reproduce
1. Placing any piston facing upward.
2. Place a block on said piston.
3. Power the piston from below.
4. Power the newly placed block in the air while the piston is still powered from below.
Powering isn't needed if the block is a red stone block.
5. Unpower the piston from below.
6. Notice the piston is still extended.

Basically...
In these circumstances the arm can be powered and the piston still counts as powered.
Only when facing up.