Public Act 104-0634 Changes Separation of Service Requirements for Retirees and Terminated Members
August 31, 2026
New Public Act 104-0634 changes the separation of service requirements governing retirements and separation refunds. The IMRF Board passed Resolution 2026-08-08 to revise its administrative rules to align with the new statutory requirements. These rules will take effect on January 1, 2027.
Separation of Service is Required to Receive a Pension
In order to qualify for an IMRF pension, retirees must separate from the service of their last IMRF-participating employer. If an employee is concurrently participating with two employers, they must separate from both. A mere reduction in hours will not qualify an employee to receive an IMRF pension. Members who continue to work for their last IMRF employer in any capacity, including as an employee, an independent contractor, or a leased employee, have not truly separated from the service of that employer.
This is a change from the current rules, which require the employee to separate from the service of all IMRF participating employers. The current rules will remain in effect until December 31, 2026.
The member must be separated from service with their last IMRF employer for at least sixty days, beginning with their retirement effective date, to remain qualified for their pension. IMRF employers and members are never allowed to “prearrange” a return to work, even if the prearranged return to work date is more than 60 days after the member retires. Any member who has agreed, at the time of retirement or within 60 days after, to return to service with an IMRF employer has not truly separated from service. IMRF employers should never agree to rehire or contract with any IMRF employee who begins drawing an IMRF retirement benefit. Doing so places that member’s pension benefits at risk, and may cause financial harm to the member.
Financial Consequences for Retirees
Retirees who have not truly separated from service with their last IMRF employer will accrue an overpayment equal to the amount of all pension payments they should not have received. IMRF is required to collect this prepayment from the member. Additionally, retirees under the age of 59½ who have not truly separated from service while drawing a retirement annuity may also be subject to a 10% premature distribution tax penalty. I.R.C. § 72(t). A failure to separate from service may cause a substantial financial impact on a retiree.
Be Cautious When Hiring an IMRF Retiree
Employers should always confirm whether a hired employee is an IMRF retiree for return to work purposes. Employers must also confirm that a re-hired employee or contractor who is an IMRF retiree has retired from your employer at least 60 days prior to their return to work date. Retirees must also be aware of the 60-day separation period when returning to work for their IMRF employer.
Any retiree who returns to work for an IMRF employer is at risk of pension suspension, an accrued overpayment of benefits, and/or reenrollment in IMRF. Refer to the “Hiring IMRF Employees-Caution” page on imrf.org for more information on the additional return to work rules for employers.
Exception for Certain Elected Officials
The 60-day separation of service period and the prearrangement prohibition do not apply to elected positions under certain circumstances. Elected officials and officials appointed to an elected office are not eligible to receive a pension while serving in that office if the member has received IMRF service credit for service in that elected office. Any retiree, however, can be elected or appointed to an elected office and remain eligible for their pension as long as the retiree has never earned service credit for service in that elected office.
Separation Refunds
Public Act 104-0634 also changes the separation rules regarding refunds for terminated members. The current rule requires the member to be separated from the service of all IMRF employers in order to take a refund. This rule may require a member to terminate part-time employment with another IMRF employer in order to take a refund from their participating employer after termination. The new rules, effective January 1, 2027, will only require the member to separate from the service of their last IMRF employer in order to take a refund of their IMRF contributions.
Questions
If you have questions about the new separation of service rules or pension and refund eligibility, please contact IMRF at 1-800-728-7971.