"Returning to Work after Retirement The effect returning to work may have on your IMRF pension Illinois Municipal Retirement Fund 1 800 ASK IMRF 1 80"
Returning to Work after Retirement The effect returning to work may have on your IMRF pension Illinois Municipal Retirement Fund 1-800-ASK-IMRF (1-800-275-4673) www.imrf.org July 2010 If you read nothing else—read this! It is imperative that you contact IMRF directly, in addition to your employer, regarding return-to-work rules. Some retirees considering a return-to-work will look to their new employer for guidance about whether the return to work will affect their IMRF pension. Regardless of what your potential new employer tells you, you must contact IMRF directly. Do not rely on an employer’s interpretation Do not rely on an employer’s knowledge of return-to-work rules in order to make your decision about returning to work. Many factors are involved in whether your pension will be affected upon your return to work, and an employer may not be aware of all of the circumstances that affect your individual situation. Serious financial consequences If you return to work and are not enrolled when you should be, your cost to pay back pension payments you should not have been receiving, plus IMRF member contributions you should have been making, can have serious financial consequences for you. YOU are responsible for repayment to IMRF Even if it was the employer’s mistake in misinterpreting the return-to-work rules, YOU are responsible for any financial repayments you are required to make to IMRF. Make sure you call an IMRF Member Services Representative at 1-800-ASK-IMRF (1-800-275-4673) before you return to work! Turn the page to read more about returning to work. This page left intentionally blank Thinking of going back to work? Before you accept a position of employment or compensated elected office with a unit of government that participates in IMRF, you must contact IMRF at 1-800-ASK-IMRF (1-800-275- 4673) to discuss the impact on your IMRF pension. As you read about the various laws and limitations regarding a return to work, you will understand why it is essential that you speak with an IMRF Member Services Representative about your specific situation before you accept a position with an IMRF employer. The following glossary may help you as you read this booklet. Early Retirement Incentive The Early Retirement Incentive is a specific, optional retirement (ERI) plan that is periodically offered by employers who have adopted a resolution providing for it. Some retirees refer to ERI as “5+5.” Hourly Standard The hourly standard (600 or 1,000 hours per year) determines whether a position qualifies for IMRF participation. See page 8 for details. Independent Contractor The Internal Revenue Service has specific criteria to help determine whether someone is an Independent Contractor or traditional employee. As a general rule, Independent Contractors set their own hours, provide their own equipment, and work with a predetermined end date or project completion date. You cannot simply say you are working as an Independent Contractor. If your employer controls when and how you work, you are an employee. See page 7 for details. Reciprocal Act Under the Reciprocal Act, service under IMRF and 12 other Illinois public pension funds may be considered together at the date of your retirement and used to determine your eligibility for benefits and the amount of your pension. Self-employment Someone who is self-employed works for himself/herself instead of working as an employee of an organization. In its simplest form, the individual and his business are one and the same. Note: If you are self-employed but perform work for and are paid by an IMRF employer, you are a self-employed Independent Contractor. 1 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). What happens if you work in a qualifying position after you have retired and are not enrolled in IMRF? There are several reasons why you might not be enrolled in IMRF after a return to work when you should be: • Your IMRF employer didn’t enroll you when they should have • You are incorrectly classified as an Independent Contractor (see page 7) • You began your return to work in a position that was not eligible for participation, but over time you increased your hours and the position now qualifies What happens if IMRF determines you returned to work in a qualifying position but were not immediately enrolled? If you return to work in a position that qualifies for IMRF and are not immediately enrolled, the following financial consequences occur: • Your pension is immediately suspended • You are responsible for paying back IMRF the entire amount of all pension payments you received for the entire time you worked in the qualifying position • You are responsible for paying the member contributions that should have been made to IMRF for the entire time you worked in the qualifying position (your new employer is responsible for paying its portion of IMRF contributions) • If you do not pay IMRF up front, once you retire again your pension payments will not resume until the amount you owe IMRF has been recovered by IMRF • If you retired under the Early Retirement Incentive (ERI), additional financial penalties apply (see next page) 2 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). If you retired under the Early Retirement Incentive (ERI), different return to work rules apply... The Early Retirement Incentive (ERI) does not simply refer to retirees who retired at an earlier age. ERI is a specific, optional retirement plan that is periodically offered by employers who have adopted a resolution providing for it. Some retirees refer to ERI as “5+5.” If you retired under an ERI, the return to work restrictions are more Exception: stringent and the consequences more severe. You can hold an If you are returning to work for any IMRF employer in any position elected position and for any length of time, even a position that does not require IMRF continue to receive participation, you will: your ERI pension if you choose not to • Lose the ERI enhancements participate in IMRF and and your pension • Be required to pay IMRF the difference between the ERI is not based on any enhanced pension and the pension you would have received without the ERI (less the amount you paid for the ERI). service earned in that position during Under ERI, returning to work includes any work you any term of office. perform for any IMRF employer as a self-employed independent contractor. In addition to the financial penalties listed above, if you would not have been entitled to a pension without an ERI (for example, you were less than age 55 at retirement) and return to work for any IMRF employer in any position: 1. You will be required to repay IMRF for all pension payments received less the amount you paid for the ERI. 2. When you retire again, your pension will be recalculated without the ERI enhancements. If you return to work for any employer that does not participate in IMRF, you will continue to receive your ERI pension without penalty, regardless of the hours worked or income received. (Exception: If you return to work for a reciprocal system that you have retirement service credit with, your pension may be suspended but you will not incur the additional ERI penalties described above.) 3 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). If you are receiving an IMRF pension and did not retire under an ERI, and... You accept a position with a non-IMRF employer If you return to work for any private sector employer, or any federal, state, or local governmental agency not covered by IMRF (and you didn’t retire under the Reciprocal Act), your IMRF pension will not be affected. You accept a position with a reciprocal system employer If you retired under the Reciprocal Act and you return to work with an employer that requires participation in any of the systems you retired under, IMRF must stop your pension. You are required to notify all of the systems you retired under of your return to work for any one of them. Each system will decide independently whether its portion of your pension will be suspended. If you did not retire with any reciprocal service credit, or if you accept a position with a reciprocal system that you have no pension credit with, your IMRF pension will not be affected. Example 1: Mary retired with 9 years of IMRF service credit and 12 years of reciprocal service credit with the State Employees’ Retirement System (SERS). She decides to return to work with an employer that participates in SERS. Even though she is not working for an IMRF employer and will not be participating in IMRF, her pension from IMRF will still be suspended, since part of her current pension is based on service credit from SERS. To find out if anything will happen to her SERS pension, Mary should contact that system. Example 2: Greg retired with 10 years of IMRF service credit and 10 years of reciprocal service credit with the State Teachers’ Retirement System (TRS). He decides to return to work with an employer that participates in the State Universities’ Retirement System (SURS). Even though he will be working for one of the 12 participating reciprocal systems, it is not a system that any part of his current pension is based on. He can continue to receive his IMRF pension. To find out if anything will happen to his TRS pension, Greg should contact that system. 4 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Receiving an IMRF pension and did NOT retire under an ERI, continued... You accept a position with an IMRF employer Whether working for an IMRF employer will affect your IMRF pension depends upon a number of factors. You must call IMRF before accepting any position with an IMRF employer so you can make an informed decision based on how this could affect you financially. When you work for an IMRF employer, you may or may not be required to participate in IMRF, depending upon the employer’s hourly standard and/or the position’s hourly requirement. (For a detailed explanation of the hourly standard, see page 8.) • If you accept a position that requires you to participate in IMRF: As a general rule, your IMRF pension will be suspended. The exception to this is if you hold a new position as an elected official. (See page 8.) To find out if your position qualifies, take a look at the explanation of the Hourly Standard (see page 8). If your position meets the requirements, your pension is suspended and you must again participate in (and contribute to) IMRF. Once you retire again, your pension payments resume. The benefit will increase due to your additional service credit. If you received a refund of your surviving spouse, Sheriff’s Law Enforcement Personnel plan, Elected County Official plan, and/or Voluntary Additional contributions and took the refund(s) as additional monthly annuity payments, those payments will not stop if you return to work in a position that requires IMRF participation. Example: Elizabeth retired with 22 years of service credit with IMRF. She decides to return to work with an IMRF employer in a position which has an expected hourly standard of 1,000 hours. Once she begins this employment, she is again required to participate in IMRF. Her current pension will be suspended for as long as she works in this position. When Elizabeth leaves this position and retires again from IMRF, her pension payments will resume with an increased benefit from the additional service credit she earned. 5 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Receiving an IMRF pension and did NOT retire under an ERI, continued... Have questions about • If you accept a position that does not require you to the hourly standard? participate in IMRF: Read the explanation In most cases, if you return to work for an IMRF employer on page 8 of this but accept a position that does not require you to participate in IMRF, your pension payments will continue. However, there booklet. is an exception to this rule depending upon the hourly standard you were under when you earned your pension. Don’t know what If you earned your entire pension under the 1,000-hour hourly standard you standard, and you return to work for an IMRF employer in a were under position that does not qualify for IMRF participation, your when you earned pension payments will continue after you return to work. your pension? However, if you earned any portion of your pension under Call IMRF. the 600-hour standard, different rules apply depending upon the hourly standard of the employer you return to work for. If you earned part or all of your pension under a 600-hour standard* Are you required New Employer’s New Position’s Will your pension to participate Hourly Standard Hourly Standard be suspended? in IMRF? 600 Hours 600 or more hours Yes Yes 1,000 Hours 600-999 hours No Yes 1,000 Hours 1,000 or more hours Yes Yes Example with part or all of pension earned under a 600-hour standard*: Jeff retired in 1994 after 15 years of service, all his new position, since it does not meet his new earned with an IMRF employer that had a 600- employer’s hourly standard of 1,000 hours. hour standard. His original participation date was However, since he earned his pension under a 600- in 1979. Jeff returns to work for a County that hour standard, his pension will be suspended, even participates in IMRF under a 1,000 hour standard. though he will not again be participating in IMRF. His new position requires approximately 700 hours When Jeff leaves this position and retires again of service per year. from IMRF, his original pension payments will Jeff is ineligible to participate in IMRF through resume. * An exception may exist if you return to work for an employer you earned your 600-hour pension under. Call IMRF to determine if this exception applies to you. 6 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Receiving an IMRF pension and did NOT retire under an ERI, continued... You are self-employed and perform Independent Contract work for an IMRF employer You may think your pension won’t be affected if you are self-employed The Internal and enter into a separate payment agreement with an IMRF employer as an Independent Contractor, since your compensation won’t be reported Revenue Service on a wage report to IMRF. However, if you are incorrectly classified as has identified an Independent Contractor, your pension could be affected. specific Although an IMRF employer may designate you as an Independent characteristics of Contractor, if you do not meet the legal requirements of an Independent Contractor your pension payments may be suspended. This is why it is an Independent important to call IMRF, and to file IRS Form SS-8 (see sidebar at left). Contractor. IMRF recommends Example 1: Tom retired from his job as an accountant with an IMRF before you accept employer. After retirement, he sets up his own business as a tax consultant. He has his own office and provides employment with his own equipment. an IMRF employer An IMRF employer has contracted Tom to as an Independent audit their records. Tom sets his own hours while Contractor, you contracting with this employer, and he determines how he will complete this job. He has a scheduled date to and/or your finish the work by, after which he will no longer work potential employer for this employer. Tom is appropriately classified as an file IRS Form Independent Contractor. SS-8 with the IRS. Example 2: Lois retired from her job as an accountant with an The IRS will then IMRF employer. After her retirement, her former IMRF make an official employer has not yet found anyone to fill her position. determination They ask Lois to work for them as an Independent regarding the Contractor. Lois goes to work every day with a scheduled position. start and end time set by her employer. She uses her old Contact the IRS office and all of the employer’s office equipment. Her at www.irs.gov or employer directs how she will complete her tasks, and 1-800-829-1040 her employment with them is indefinite. Although Lois may have a contract with this for more employer stating she is an Independent Contractor, she is information about incorrectly classified as an Independent Contractor and IRS Form SS-8. legally considered an employee. Different rules apply if you retired under an ERI, please see page 3 of this booklet. 7 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Exception for Elected Officials If you hold an elected office or are elected to a public office while receiving your IMRF pension, your pension is not automatically suspended, even if the elected position qualifies for IMRF participation Your pension will be suspended only if: • The pension you are receiving is based on any service credit earned while participating in IMRF in that same elected office. OR • You elect to participate in IMRF while holding that elected office. If you retired under ERI, you can keep your ERI pension and hold elected office so long as you do not elect to participate in IMRF. If you do, the ERI penalties apply. What is an Hourly Standard? You are required to participate in IMRF employer’s hourly standard you must if you work in an IMRF qualified participate in IMRF, regardless if the job position. An IMRF qualified position is designated as full- or part-time. is one that will equal or exceed your A position’s hourly requirement is employer’s annual hourly standard. This determined from the number of hours the standard is either 600 or 1,000 hours a position is expected to require in the 12 year. months following the start date of your All school and special education employment. districts are under an annual hourly The actual hours you work may be standard of 600 hours. more or less than the hours your position All other IMRF employers choose is expected to work. an annual hourly standard of either 600 An exception may exist if you earned or 1,000 hours a year. If your employer any of your pension under the 600-hour decides to change its hourly standard standard and you return to work for from 600 to 1,000 hours a year, only an employer that you earned this part employees hired after that time would be of your pension under. Call IMRF to under the 1,000-hour standard. determine if this exception applies to “Full time” and “part time” do not you. mean anything in relation to the hourly standard. If the hours the position requires in a year are expected to meet or exceed your 8 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Frequently Asked Questions Why can returning to work for an IMRF employer affect my pension? The Illinois Pension Code specifically prohibits you from collecting an IMRF pension while you are earning credit toward an IMRF pension. By law, you cannot receive an IMRF pension and earn an IMRF pension at the same time. Can I choose not to participate in IMRF? You may think participation in IMRF is optional since you have already retired, but this is not the case. If you return to work in a qualifying position, you must again participate in IMRF. (An exception exists for elected officials in some cases, see previous page.) What happens to my IMRF pension once I retire again? Once you retire again, your pension payments will resume. Depending upon the length of time you returned to work and the wages reported to IMRF, you will receive either a supplemental amount for your additional service credit or your pension will be recalculated with a new Final Rate of Earnings. Either way, your new pension amount will always be more than your original pension amount*. * Exception: If you earned all or part of your pension under a 600-hour standard, please see page 6. Is a position’s hourly requirement based upon a calendar year (January—December)? No. A position’s hourly requirement is determined from the number of hours the position is expected to require in the 12 months following the start date of your employment. It is not based upon a calendar year, a school year, or an employer’s fiscal year. 9 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Why can my IMRF pension be suspended but my Social Security benefits continue? No relationship exists between the Social Security retirement test on earnings and IMRF participation rules. The Social Security retirement test is based on dollar earnings, whereas the IMRF test is based solely on the hours a position requires. The fact that you could earn up to a certain dollar amount and continue to receive Social Security benefits does not mean that you can continue to receive your IMRF pension. If your new position requires IMRF participation (and in some cases when it doesn’t), your IMRF pension is suspended, even though Social Security may continue to pay its benefits. Are you under age 59-½ and continuing to work for your IMRF employer? Member contributions to IMRF are considered tax-deferred as retirement savings. Most tax-deferred retirement savings are subject to a 10% early withdrawal tax when taken out of the retirement plan before the recipient is age 59-½. However, there is an exception to this early withdrawal tax for IMRF pension payments that begin no earlier than age 55 (age 50 for public safety employees)—if you have totally separated from service with your last IMRF employer. If you do not separate from service with your last IMRF employer, and instead continue to work for this employer in a non-participating position while receiving your pension payments at the same time, you are not eligible for this exception. In this situation, you must pay the additional 10% early withdrawal tax on your monthly IMRF pension payments. You will be required to pay this additional tax until you reach age 59-½ or until you leave employment with your IMRF employer. Please note: The above situation assumes that you have already contacted IMRF and verified that you could continue to work after retirement without your pension being suspended. 10 Thinking of returning to work? Call 1-800-ASK-IMRF (1-800-275-4673). Returning to work? Be sure to read this booklet and learn how returning to work may impact your pension payments. A few minutes now... can avoid serious problems in the future. Call IMRF before you make your decision to return to work. Illinois Municipal Retirement Fund IMRF Member Service Representatives 1-800-ASK-IMRF (1-800-275-4673) Monday through Friday, 7:30 a.m. to 5:30 p.m. www.imrf.org 7/2010