Leaving your IMRF employer

The information on this page applies to participants of all IMRF plans.

You may plan to stay at your current job for years, or maybe you’ve already got an eye on the exit. Either way, it’s never too early to think about what you’d do with your IMRF retirement savings if you did move on.

Note that you must terminate employment with your IMRF employer, not just change positions, to receive a refund or rollover of member contributions.

What are your options when you leave your IMRF employer?

With some exceptions, when you leave your job you can:

• Take a refund of your IMRF contributions.

• Leave your assets with IMRF. This option can make sense if you are vested, or if you think you might ever work for another IMRF employer or participate in an Illinois reciprocal system.

• Transfer the money to a traditional individual retirement account (IRA) or other qualified retirement plan at a bank, brokerage, fund company, or other institution of your choice. This is called a “rollover.”

Learn your options and then decide

Each of the options has details and variables that may save or cost you money, so let us tell you more about each option. Note: there is no charge or penalty for leaving contributions on deposit with IMRF, and there is no amount of time in which you have to make a decision about contributions before age 70-1/2. However, it is important to understand that you will not receive interest when you apply for a separation refund, no matter how long the funds are on deposit with IMRF.

Option 1: Take a refund of your contributions

When you take a refund of your IMRF contributions, you give up your right to a future IMRF benefit. Consider this decision carefully.

• IMRF will withhold 20% from your contributions for the IRS.
• Taking a refund will subject you to income tax on the whole amount (unless your contributions were previously taxed).
• If you take a refund (rather than a rollover), you also lose the opportunity to keep your money growing in a tax-deferred account.
• In addition, if you are younger than age 55, you would have to pay a 10 percent early-withdrawal penalty to the IRS.

IMRF does not refund you the interest earned on your contributions.

Is a refund the choice for you?

• Consider the likelihood that you will go back to work for another IMRF employer or an Illinois Reciprocal System. If you do, you can continue to earn credit toward a future IMRF pension.
  
• Would you be better served to roll the money over into another type of tax-deferred plan to continue saving for retirement?

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Option 2: Leave your contributions on deposit with IMRF

You can leave your contributions on deposit with IMRF after you leave your employer.

If you are vested, (have enough service credit to qualify for a monthly pension), you are eligible to receive a pension that will be paid for the rest of your life.

In fact, if you of retirement age and eligible to receive a monthly pension of $30 or more, you cannot take a refund of your contributions (unless you are going to roll your contributions into another defined benefit retirement plan to purchase qualifying service credit).

If you participate in an Illinois Reciprocal System, your service credit and contributions can be combined to meet the vesting requirements for both systems. Please note you must have at least 12 months of service credit with any single system in order for the service to be combined. So, if you are leaving your employer and have less than 12 months of service credit with IMRF, you may find that a refund or rollover is the right choice for you when you leave your employer.

Is keeping your contributions on deposit the choice for you?

• Leaving your money with IMRF can give you time to contemplate what to do with it. This is important if you don’t know your job plans and might end up working for another IMRF employer (or return to a former employer) or participate in an Illinois reciprocal system. If you work for another IMRF employer or Illinois reciprocal system, your service credit and contributions will be combined toward an IMRF pension.
  
  As proof that you might some day return to work for an IMRF employer, more than 2,500 IMRF members (or reciprocal plan members) applied to buy back refunded service in 2009-2010.

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Option 3: Roll it over

This brings us to the most prudent choice for most members who are not vested.

When you leave your IMRF employer, you can roll your IMRF member contributions into a traditional IRA or another eligible retirement plan. In these plans, your refunded contributions will remain sheltered from taxes until withdrawn. An IRA offers a great way to consolidate assets because you can combine your retirement savings from different jobs into one place—and you are usually able to move these IRA assets into a new workplace account later on. (Note that a Roth IRA is not tax sheltered.)

Keep in mind, if you think you might ever want to return to work for an IMRF employer or a Reciprocal system, your contributions will be available to use to repurchase your refunded contributions.

You can view and print IMRF Form 5.10, "Application for Separation Refund" which details the steps and qualifications to roll your contributions into a qualified plan. It is important to remember that regardless of whether you rollover or take a refund of your contributions, you forfeit—give up—all IMRF benefits and are no longer eligible for any retirement or disability benefit, and your beneficiaries will not be entitled to any death benefit.

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