Updated: June 1, 2017
Issue: The TRS Early Retirement Option automatically expired on July 1, 2016 because the General Assembly did not vote to extend the program.
Discussion: The sunset of the ERO program affects active and inactive TRS members. They are eligible for a one-time refund of the total contributions they paid between 2005 and 2016 to help fund the program. In addition, the TRS payroll contribution for all active members was reduced from 9.4 percent to 9.0 percent.
The TRS active member contribution decreased 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.
ERO Sunset Refunds are available
Eligible TRS members can 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.
Eligible members have 3 options in seeking a refund
Active and inactive TRS members eligible for a refund will have three options this year:
- 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.
Retirement eligibility without ERO
The sunset of ERO does not change the eligibility requirements for any TRS member’s retirement. The earliest a member can receive a retirement benefit is at age 55 with 20 years of service. 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 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.
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 early withdrawal penalties.
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 or 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.