Board Resolution 2021-11-12(c)

Meeting room

Topic: Retirement Benefit
Subtopic: Separation of Service Requirements
Date: 11/19/2021
Status: Active

WHEREAS, Section 7-198 of the Illinois Pension Code authorizes the Board of Trustees of the Illinois Municipal Retirement Fund (IMRF) to establish rules necessary or desirable for the efficient administration of the Fund; and

WHEREAS, Section 7-141 of the Illinois Pension Code conditions the payment of a retirement annuity on an employee’s separation of service from all IMRF participating employers; and

WHEREAS, the Internal Revenue Service has ruled that individuals who retire with the explicit understanding with their employer that they will continue working are not separating from service with the employer are not legitimately retired; and

WHEREAS, in order to preserve IMRF’s qualified plan status under the Internal Revenue Code, IMRF may not pay a retirement annuity to an employee who has not legitimately separated from service with their IMRF employer; and

WHEREAS, the Internal Revenue Service has provided guidance that an individual under the age of 59 ½ who receives retirement payments without a bona fide separation of service has received an in-service distribution and may be subject to early distribution tax penalties under the Internal Revenue Codes; and

WHEREAS, it is necessary to adopt rules consistent with Internal Revenue Service rules and regulations.

THEREFORE BE IT RESOLVED that the following administrative rules be and are hereby adopted by the Board of Trustees:

  1. In order for a member to qualify to receive a retirement annuity, the member must separate from the service of all IMRF employers. Moving from a qualifying IMRF position to a temporary or part-time position at an IMRF employer, or becoming a leased employee or an independent contractor of an IMRF employer, is not sufficient to constitute a bona fide separation from service.
  2. A member may never prearrange continued employment as a common law employee, leased employee or independent contractor with an IMRF employer at the time of retirement from that employer. Such arrangement does not constitute a bona fide separation of service and such individuals would not be eligible to receive an IMRF pension.
  3. IMRF will retroactively deny the retirement annuity application of a member who returns to employment or service with an IMRF employer earlier than sixty (60) days from their annuity start date. This is true regardless of the number of hours worked, or whether the retiree is employed as an independent contractor.
  4. Retirees who have received one or more retirement annuity payments after returning to service in violation of this policy will be required to return such payment(s) to IMRF. In the case of hardship, staff is permitted to enter into a repayment plan with the effected retiree, for a term not to exceed eight years.
  5. Upon the conclusion of the employment or service arrangement, a retiree may become re-qualified to receive a pension. The pension may be effective the first of the month following the conclusion of service. The member must re-apply for the pension and their pension will be recalculated under the terms of the Pension Code.
  6. After sixty (60) days from the annuity start date, retirees may return to service with an IMRF employer, provided that there was no pre-arranged agreement to return to employment before retirement. In this case, the return to work rules established by the IMRF Board will apply.
  7. Elected officials and officials appointed to an elected office are not eligible to receive a retirement annuity while serving in that office if the individual has received IMRF service credit for service in that elected office. Any retiree, however, may be elected or appointed to an elected office and remain eligible for their retirement annuity as long as the retiree has never earned service credit for service in that elected office.
  8. A retiree may be appointed to a governing body position at an IMRF employer and remain eligible for their retirement annuity as long as the retiree has never earned service credit for service in that appointed office.

These rules will take effect as of January 1, 2021. This resolution will have prospective effect to individuals with termination dates on or after the date that these rules take effect.