Early Retirement Option Sunset Refund
The TRS Early Retirement Option was allowed to automatically expire by the General Assembly on July 1 and as a result approximately 200,000 active and inactive TRS members are now eligible for a refund of the total contributions they paid between 2005 and 2016 to help fund the program.
Contribution decrease to 9 percent from 9.4 percent
Between July 1, 2005 and June 30, 2016, active TRS members paid 0.4 percent of their creditable earnings to help support the ERO program. As of July 1, 2016, the payroll contribution for all active TRS members was reduced from 9.4 percent of their salaries to 9 percent because the ERO program is no longer in existence.
Refunds available in late 2016
Eligible TRS members must apply for a refund of their ERO contributions. The refunds will not be automatically distributed without application. No deadline exists for applying for a refund, but ERO contributions left with the System will not accrue interest over time.
Please do not contact TRS now seeking an estimate of any ERO Sunset Refund or the confirmation of an unofficial estimate.
Members can calculate a “ballpark” estimate of their potential ERO Sunset Refunds by adding their annual TRS creditable earnings from each year between July 1, 2005 and June 30, 2016 and multiplying that total by 0.004. Creditable earnings can be found on a member’s Benefits Report, which is available in the secure Member Account Access area on the TRS website. Any creditable earnings originating from a TRS disability benefit will not be used in the official calculation of any ERO Sunset Refunds.
However, TRS calculates each eligible member’s official refund because other factors will influence the actual refund total, such as federal income tax and any unpaid state taxes or loan balances.
Retirement eligibility without ERO
The earliest a member can receive a retirement benefit is at age 55 with 20 years of service. The maximum benefit is 75 percent of the average salary with at least 34 years of service credit if the member is eligible for a nondiscounted annuity. If the member retires between the ages of 55 and 60 with at least 20 but fewer than 35 years of service, his/her retirement annuity is permanently reduced by 6 percent for every year he/she is under age 60.
Retired members not eligible
Retired TRS members are not eligible for the ERO Sunset Refund. Members who retired before June 30, 2016 and did not participate in the ERO program had ERO contributions refunded to them at retirement. Under state law, members who retired before June 30, 2016 and participated in the program are not eligible for the refund.
Eligible members have 3 options
Active and inactive TRS members eligible for a refund have three options:
- Apply for a cash refund that will be mailed to them.
- Apply for a withdrawal with the intention of “rolling over” the taxable portion of the refund into a qualified non–TRS retirement plan, such as a 401(k), 403(b) or an IRA.
- Do nothing and leave the ERO contributions with TRS. Members can apply for a refund at a later date, but no interest will accrue if the ERO contributions are left with TRS.
ERO Sunset Refund considerations
Federal Income Taxes, Early Withdrawal Penalties and Unpaid State Debts
Mandatory federal income taxes will be withheld from all cash refunds at a rate of 20 percent. Members also may be subject to a 10 percent early withdrawal penalty.
After a cash refund is issued, members will receive an Internal Revenue Service 1099-R form in the January following receipt of the refund.
Also, refunds that are not directly rolled over are subject to involuntary withholding as defined in the Illinois State Collection Act of 1986 (30 ILCS 210). The act covers unpaid debts that include delinquent child support, overpaid state unemployment benefits, delinquent state taxes, federal tax levies and delinquent student loans.
Money Owed to TRS
TRS cannot accept a direct rollover of ERO contributions to pay off a member’s unpaid account balance with the System, such as payments due for a 2.2 Upgrade or the purchase of optional service credit.
Administration of the Refund or Withdrawal
A member’s decision regarding his/ her ERO contribution refund is irrevocable. Once a refund or withdrawal is submitted to TRS, it will be processed.
Refund and withdrawal checks will be issued and mailed by the Illinois Comptroller’s Office. An electronic transfer of funds is not available for this transaction.
TRS does not provide financial advice concerning which decision is best for any member. Members are encouraged to contact a licensed financial advisor for advice.