6.20 C. Election to Make Voluntary Additional Contributions

IMRF members have the option of making after-tax voluntary additional contributions to provide a supplemental retirement benefit in addition to the usual IMRF retirement 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.. At retirement, the voluntary additional contributions may be taken as a lump sum or as an additional monthly pension.

These after-tax voluntary additional contributions IMRF members have the option of making after-tax voluntary additional contributions to provide a supplemental retirement benefit in addition to the usual IMRF retirement pension. These after-tax voluntary additional contributions are limited to 10% of gross earnings and are not matched by the employer. The additional retirement benefit is based solely upon the accumulated voluntary contributions plus interest. The rate of interest paid is currently 7.25%. Interest is credited to each account at the end of the year. Interest is based upon the opening balance at the beginning of the year. are limited to 10% of IMRF reportable earnings, subject to the wage cap for Tier 2 members, and are not matched by the employer A unit of government that joins IMRF.. The additional retirement benefit is based solely upon the accumulated voluntary contributions plus interest.

Voluntary additional contributions are made after tax. They are not tax-deferred like usual IMRF member contributions. Some members may be better served by contributing a portion of their salary on a pre-tax (tax-deferred) basis to their employer’s deferred compensation plan, e.g., 457 or 403(b).

IMRF pays interest based on the current assumed rate of return, and this interest rate can change at any time in the future. The procedures for crediting interest are established by state law. Voluntary additional contributions interest is credited differently from a traditional savings account. A traditional savings account credits interest on the current amount in the account.

IMRF credits interest at the end of the year on the beginning of the year balance. Therefore, a member will not earn any interest the first year he or she begins making voluntary additional contributions. If a member began making voluntary additional contributions in June 2022, the interest is not credited until December 2023. Note that contributions in a member's account at the beginning of the year must remain on file in order to be credited with interest at the end of the year.

The following illustrates how interest is credited to voluntary additional contributions.

(This example is calculated with an interest rate of 7.25%, IMRF's current assumed rate of return.)

Members wishing to make voluntary contributions must file IMRF Form entitled, "Election to Make Voluntary Additional Contributions."

Members wishing to attain a refund of their contributions must file a IMRF Form entitled, "Request for Refund of Voluntary Additional Contributions."

Members wishing to change the amount withheld or stop making voluntary additional contributions would also complete IMRF Form entitled, "Election to make Voluntary Additional Contributions."  A participating member may stop making voluntary additional contributions at any time.

Deductions can begin immediately once the employer completes the application and submits it to IMRF.

To access these forms, members can visit the Member Access area on IMRF's website (www.imrf.org).

Voluntary additional contributions cannot be treated as a 414(h) Under Section 414(h) of the Internal Revenue Code, members make their contributions to IMRF on a tax-deferred basis. The member does not pay either federal or Illinois income tax on the money used to pay the contributions. A member’s contributions will be subject to federal income tax, but not to Illinois income tax, when he or she receives them as a refund or as a pension or when the member’s beneficiary(ies) receives them as a death benefit. This tax treatment is provided under the 414(h) tax deferral plan effective July 1, 1984, for all IMRF employers and adopted earlier by some employers. If a member made contributions before his or her employer adopted a 414(h) plan, those contributions were taxed at the time the member made them. They are not taxable when the member receives them as a refund or pension or when the member’s beneficiary(ies) receives them as a death benefit. tax deferral. The contributions must be included in the taxable income reported to federal and state tax authorities.

NOTE: Voluntary additional contributions are made with after-tax dollars. Therefore, the contributions are not subject to federal income tax when the member withdraws them. However, that portion of the refund attributable to the tax-deferred interest is subject to 20% withholding for federal income tax. If the member is under age 59-1/2, a penalty tax of 10% may also apply.

The withholding and penalty tax can be avoided if the tax-deferred interest is directly rolled over into a traditional IRA, Roth IRA A new type of IRA ( Individual Retirement Account), established in the Taxpayer Relief Act of 1997, which allows taxpayers, subject to certain income limits, to save for retirement while allowing the savings to grow tax-free. Taxes are paid on contributions, but withdrawals, subject to certain rules, are not taxed at all. or other qualified plan, or 457 or 403(b) plan.

Refunds of Voluntary Additional Contributions
IMRF’s Voluntary Additional Contribution plan is designed for long-term savings, i.e., additional retirement income or survivor benefit. Also, although members can apply for a refund of their voluntary additional contributions at anytime, IMRF discourages such refunds. If a member is seeking a short-term savings vehicle, voluntary additional contributions may not be the right choice. However, if a financial hardship exists, the member can apply for a refund of his or her Voluntary Additional Contributions by submitting a request in writing. Partial refunds are not allowed.

• If the member will continue working for his or her IMRF employer
  
  A member may take a refund of Voluntary Additional Contributions without interest while he or she is still working for an IMRF employer. The interest must stay on deposit until the member stops working for his or her IMRF employer.

• If the member stops working for his or her IMRF employer and applies for a refund of Voluntary Additional Contributions
  
  A member may take a refund of Voluntary Additional Contributions with interest if he or she is no longer for an IMRF employer.

If the member is less than age 59-1/2, the taxable portion of the refund (the interest earned) will be subject to income tax penalties. The member can avoid these income tax penalties by rolling over the taxable portion into an IRA or other qualified retirement plan. Unless the taxable portion is directly rolled over, federal law requires IMRF to make a 20% tax withholding.

• If the member stops working for his or her IMRF employer and applies for a refund of usual IMRF member contributions (a “separation refund")
  
  The Voluntary Additional Contributions with interest must be refunded at the same time.
  
  If the member is less than age 59-1/2 when he or she applies for a separation refund, the taxable portion of the refund (interest) will be subject to income tax penalties. The member can avoid these income tax penalties by rolling over the taxable portion into an IRA or other qualified retirement plan. Unless the taxable portion is directly rolled over, federal law requires IMRF to make a 20% tax withholding.

Upon termination of participation, if the usual IMRF contributions are left on deposit, the member has the option of leaving the voluntary additional contributions on deposit or withdrawing them.

Upon retirement, the voluntary additional contributions and interest may be applied to a monthly annuity payable for life, provided the member’s account balance is $4500 or more, OR withdrawn in a lump sum.

Upon death, the accumulated voluntary additional contributions with interest are payable to the member’s beneficiary(ies).

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