| Topic: | Retirement Benefit |
| Subtopic: | Special Needs Trusts and Pooled Special Needs Trusts |
| Date: | 8/24/2018 |
| Status: | Active |
WHEREAS, Section 1-106 of the Illinois Pension Code allows the Board of Trustees discretion to pay an annuity, solely as an accommodation to an annuitant, to a bank, savings and loan association or trust company for deposit in a trust established by the annuitant for his or her benefit; and
WHEREAS, Special Needs Trusts (SNTs) and Pooled Special Needs Trusts (PSNTs) are administered for the benefit of a disabled person and provide for the needs of the beneficiary that are not fully funded by government programs. Upon the beneficiary’s death, money paid out by Medicaid is reimbursed by the trust up to the amount remaining in the trust; and
WHEREAS, Under both Illinois law and Federal law, properly established SNTs and PSNTs are excluded from the standard treatment of trusts when assessing income and resources for purposes of Medicaid eligibility; and
WHEREAS, Section 7-217 of the Illinois Pension Code provides that the right of a person to receive an annuity is not assignable which generally precludes the transfer of title and legal ownership of retirement benefits; and
WHEREAS, IMRF tax counsel has advised that the general prohibition against assignment and alienation contained in Section 7-217 of the Pension Code should be construed as not including certain SNTs/PSNTs as such trusts are treated as the equivalent of the member and failing to allow for direction to certain SNTs requires the member to use pension benefits to pay for services otherwise covered by Medicaid and other programs which is contrary to both State and Federal law; and
WHEREAS, IMRF has requested and received an opinion from its tax counsel which states that allowing payment of retirement benefits to properly established SNTs and PSNTs is a taxable distribution that does not violate the IRC §401(a) exclusive benefit rule, the anti-alienation provisions of Section 7-217 of the Pension Code, and that the IMRF Board has statutorily granted discretion under Section 1-106 to allow members to direct payment to a properly established SNT or PSNT; and
NOW THEREFORE BE IT RESOLVED by the Board of Trustees of the Illinois Municipal Retirement Fund:
That IMRF will allow payment of retirement annuities to properly established SNTs and PSNTs and this payment is a specific exception to the prohibition regarding assignment or alienation of benefits found in Section 7-217 of the Illinois Pension Code.
That payment of retirement annuities to SNTs and PSNTs is only permissible when the SNT or PSNT is established with an EIN that is the same as the member’s SSN and when the SNT or PSNT meets the criteria set forth by the Social Security Program Operations Manual System for Medicaid Trust exceptions.
That payment of retirement benefits to SNTs/PSNTs is only permissible when the SNT/PSNT contains the following language:
“Trustee agrees to immediately notify IMRF of the beneficiary’s death. Payments not properly payable to an IMRF member are likewise not properly payable to this trust and therefore are not subject to any Medicaid payback provisions contained herein or contained in law. Trustee agrees that these benefits will be immediately returned to IMRF by the Trustee in full upon notification by IMRF.”
That payment of retirement benefits to SNTs/PSNTs shall be reported to the Internal Revenue Service (IRS) in the same manner as if the payments were made directly to the member, including reporting payments on IRS form 1099-R using the member’s SSN.
That payment of retirement benefits by IMRF to SNTs and PSNTs is only permissible upon review and approval of the applicable trust documentation by IMRF.