5.20 B. Amount of IMRF Retirement Benefits

13. Retirement Refunds of

1. Surviving Spouse Contributions

Surviving spouse contributions All IMRF members are required, by law, to contribute toward a surviving spouse pension. If a member retires and he or she does not have an eligible spouse (married to the member for at least one year before he or she terminated IMRF participation), the member's surviving spouse contributions will be refunded, with interest. A member receiving a lump sum refund of surviving spouse contributions may choose to annuitize the refund, that is, receive the refund as an additional monthly pension. are refunded with interest when a member applies for a pension if:

1. The member is single, widowed, or divorced.

2. The member is married or in civil union, less than one year prior to the date IMRF or Illinois Reciprocal System participating employment ended.

2. SLEP Plan Contributions

SLEP plan contributions SLEP members contribute 7.5% of salary: 3.75% for a Regular IMRF pension, 0.75% percent for a surviving spouse pension, and 3% for the additional SLEP retirement benefit. Before June 1, 2006, SLEP members contributed an additional 2%, and before July 1, 1988, SLEP members contributed an additional 1%. (currently 3%, 2% before June 1, 2006, and 1% before July 1, 1988) are refunded with interest when a SLEP member does not qualify for a SLEP pension when he or she retires, but does qualify for a Regular plan pension.

3. Methods of payment

A member who was in active IMRF or reciprocal system service on or after August 14, 1998 can
receive a refund of his or her surviving spouse or SLEP contributions as a lump sum refund or as monthly annuity ("pension Also known as an annuity. An IMRF pension is paid as long as the member lives. It is increased by 3% of the original amount each year. A member must have at least eight years of service credit and be age 55 to apply for an IMRF pension under the Regular and ECO plans. A member must be age 50 and have at least 20 years of SLEP service credit to apply for a SLEP pension.") payments.

If the member chooses to receive a retirement refund as monthly annuity payments:

1. The amount of the monthly annuity will be based on the amount of the lump sum payable, the member's age, and interest, which is based on IMRF's current assumed rate of return.

2. The member must convert the entire amount of the refund. For example, if the refund is $5,527, the member cannot purchase an annuity with $5,000 and take $527 as a refund.

3. The lump sum cannot be converted unless the monthly annuity payment is at least $10 a month.

4. The additional annuity will be paid for the member's lifetime.

5. The original lump sum amount is the guaranteed minimum payout. There is no maximum payout.

6. If the member dies before receiving annuity payments that equal his or her contributions, the balance will be paid to the member's beneficiary(ies).

4. Federal Income Tax on monthly annuity payments

Refer to 5.20 G. Income Taxes on Retirement Pensions.

5. Federal Income Tax on Lump Sum Refund

Previously Taxed Surviving Spouse and/or SLEP Plan Contributions - All surviving spouse and SLEP plan contributions prior to 1982 were deducted from the member's earnings after the member was taxed on the amount.

After January 1, 1982, surviving spouse and SLEP contributions continued to be member paid previously taxed contributions unless the employer had adopted an Internal Revenue Code Section 414(h) tax deferral plan. (See 4.16 Section 414(h) Tax Deferral of IMRF Member Contributions.)

Refunds of previously taxed surviving spouse and SLEP contributions are not subject to federal income tax because they have already been taxed.

Effective July 1, 1984, all surviving spouse and SLEP contributions are considered to be under the 414(h) tax deferral plan and are not subject to federal income tax when withheld and reported to IMRF. The refund of these 414(h) plan surviving spouse and SLEP contributions is taxable in the year paid as ordinary income.

Interest on Surviving Spouse and/or SLEP Plan Contributions - Interest paid with refunded surviving spouse and SLEP plan contributions is subject to federal income tax whether or not the contributions are taxable.

6. Tax Withholding and Reporting

IMRF is required by federal tax law to withhold 20% of the taxable portion of the lump sum refund of surviving spouse and SLEP contributions. The member can avoid the 20% withholding by electing to have the taxable portion directly rolled over to a traditional IRA, Roth IRA, 457 or 403(b) plan A retirement plan that functions like a defined contribution plan and is similar to a 401(k) plan, but is offered by non-profit organizations, such as universities and some charitable organizations, rather than corporations. If you work for a school district or a public hospital, you may be familiar with an Internal Revenue Code Section 403(b) tax-deferred annuity., or other qualified retirement plan. (See Exhibit 5L, Form BW-60, Distribution/Rollover Certification.) A rollover to a Roth IRA will be taxable but not subject to any additional taxes.

IMRF issues Internal Revenue Service Form 1099-R reporting the taxable amount, the amount withheld, or the amount directly rolled over.

The member is mailed a copy in January of the year following the year of payment, and a copy is filed with the Internal Revenue Service.

7. Illinois Income Tax (Illinois Residents Only) on Lump Sum Refunds

The Illinois Income Tax Act exempts refunds of surviving spouse and SLEP contributions plus interest from Illinois income tax. Because the federally taxable portion is included in federal adjusted gross income, it will also be included as income on Illinois Income Tax Return IL-1040.

In order to claim the exemption, it is necessary to follow the specific instructions provided with the IL-1040 concerning subtractions to arrive at Illinois taxable income.

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