3.96 A. Earnings Definition

Earnings do not include any compensation in excess of $345,000.00 (in 2024). Note: Limit does not apply to members who began participation before 1996.

For members participating in Regular Tier 2 and SLEP Tier 2, earnings do not include compensation in excess of $125,773.73 (in 2024). That amount will be increased annually by the lesser of 3% OR one-half of the increase in the Consumer Price Index (urban) (CPI-U) for the preceding 12 months as of September. If the CPI-U decreases or is zero, no increase is paid.

In addition, for members participating in SLEP Tier 2, compensation for overtime is not included in reportable wages.

The basic rule is that most forms of compensation for personal services paid during the employment relationship and through the first calendar month after termination of employment are included as IMRF earnings. Exceptions exist and they are noted on the following pages.

For example, if an employee terminates on June 15, but is paid for sick, vacation or personal time in July, those earnings are reportable to IMRF. However, if the member’s earnings are paid in August (or later), those earnings are not reportable to IMRF.

Another example: If a member retires on June 30 but receives compensation in July and in August, the July payment is reported to IMRF, but the August payment is not. Also, the member will still receive his or her July pension payment even though earnings are reported for July.

Compensation for IMRF earnings purposes includes, but is not limited to, the following:

• Cash payments for personal services

• Overtime pay (overtime pay is not reportable for SLEP Tier 2)

• Salary paid to employees on vacation

• Salary paid to employees on sick leave

• Longevity pay

• Back salary awards received during the employment relationship

• Contract settlement payments (retroactive pay) received during the employment relationship

• Bonuses and awards

• Retirement incentives

• Value of employer provided housing and meals (cash value to be determined by employer)

• Value of personal use of employer-provided vehicle (cash value to be determined by employer)

• Pay for personal leave and other paid leaves of absence during the employment relationship

• Supplements paid directly by the employer in addition to workers’ compensation

• Workers’ compensation benefits, only when those benefits are supplemented by the employer

• Compensation deferred under Internal Revenue Code sections 401(k), 403(b), and 457 (including contributions made in lieu of health insurance)

• Compensation deferred under Internal Revenue Code section 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.

• Employer payment of member contributions to IMRF (except employer payment of member ERI The IMRF Early Retirement Incentive. At the employer's option, a member can purchase up to five years of service credit. For each period of service credit purchased, the member's age is increased accordingly. The member must be at least age 50 and have at least 20 years of service credit (can include Reciprocal service). cost, see Section 6.)

• Payments made to public safety employees under any salary continuation mandated by law

• Salary paid to an elected official during the entire period the official holds office, whether or not the official is able to perform the duties of the office

• Lump sums paid on account of the death of a member (paid no later than the first calendar month after the month of death)