Chicago Police Pension Fund Retirement Decisions (2026)

Updated October 7, 2026. Quick answer: The Policemen’s Annuity and Benefit Fund of Chicago (PABF) pays a lifetime annuity, not a lump sum. A Tier 1 officer with 20 years gets 50% of final average salary plus 2.5% for each year beyond 20, capped at 75%; Tier 2 gets 2.5% a year, reduced 0.5% for each month under 55. The handbook says missing 20 years by one day can cost about $2,000 a month. Contributions are refundable only in limited cases, and the pages read describe no lump-sum retirement option or DROP.

What this page covers and what it does not

This page works from the Participant Handbook of the Policemen’s Annuity and Benefit Fund of Chicago (PABF), which says “This Participant Handbook is current as of January 2026”, and from four pages of the Fund’s website, read on October 7, 2026. It covers sworn Chicago Police Department officers in both membership groups, Tier 1 and Tier 2, and says which tier each figure belongs to. The handbook warns that “Its contents are subject to change at any time and may not reflect the most current policies, procedures, or statutory provisions”, so confirm anything consequential with the Fund. State tax questions are on Illinois retirement taxes and does Illinois tax pensions. The city’s other large fund is covered at Chicago Municipal Employees’ fund retirement decisions.

Which tier you are in

The handbook sorts officers by hire date: Tier 1 began employment before January 1, 2011, and Tier 2 on or after that date. The tier decides the annuity formula, the cost-of-living rule and the survivor percentage. Both tiers contribute 9% of salary, split 7% for the employee annuity, 1.5% for the widow annuity and 0.5% for the automatic annual increase.

The decision: no menu of payment options

In the documents read, the retirement decision is about timing and tier, not a choice among payment options. They describe one lifetime annuity computed by formula, one optional reduced annuity for a spouse (the reversionary annuity), and, in limited cases, a refund of contributions instead.

Tier 1: the 20 year line

For Tier 1 the handbook says: “A participant with at least 20 years of service shall receive an annuity equal to 50% of their final average salary, plus an additional 2.5% of the final average salary for each year of service”, capped at 75%, using the highest four consecutive years of salary within the last ten. Age is separate from service: “A participant may withdraw from service with 20 years of service regardless of age”, but “Annuity payments begin when the participant reaches age 50 and has withdrawn from service”. The line is sharp. The handbook says “You must have completed 20 years of service, after all lost time is taken into consideration, before becoming eligible for a Formula Annuity”, and that “an officer who retires after accruing 20 full years of service credit will receive a Formula Annuity of approximately $2,000 per month more than an officer who retires with only 19 years and 11 months and receives a Money Purchase Annuity”.

A computed example from assumed figures, not PABF figures: with an assumed final average salary of $100,000 and an assumed 25 years of service, the Tier 1 formula is 50% plus 2.5% for each of the 5 years beyond 20, a computed 62.5% of $100,000, or a computed $62,500 a year. A widow’s annuity at 50% of that is a computed $31,250 a year.

Tier 1: 10 to under 20 years

Without 20 years, an officer mandatorily retired at 65 may take 30% of final average salary for the first 10 years plus 2% for each additional completed year, to a maximum of 48%. Otherwise the handbook describes a money purchase annuity: “A participant who withdraws from service with at least 10 but fewer than 20 years of service may receive a money purchase annuity equal to the sum of accumulated employee age-and-service contributions (7% of pensionable salary) plus 10% of the City’s age-and-service contributions for each completed year of service beyond the first 10 years”. The alternative is a refund: “Alternatively, the participant may elect to receive a refund of contributions, including 1.5% simple interest”. The cost of landing here is spelled out: “the officer receiving a Money Purchase Annuity will NOT be eligible for future cost of living annual increases”, and instead “the officer will receive a refund of the amount contributed for that purpose calculated as ½% of his or her total pensionable earnings, without interest, contributed to the Fund while active”. The website says “A money purchase annuity only applies to Tier 1 members”, and that for Tier 2, “Tier 2 members: You must accrue at least 10 years of service credit”.

Tier 2: the Monthly Retirement Annuity

For Tier 2 the handbook says: “Tier 2 participants who have withdrawn from service, attained age 50 or older, and have 10 or more years of service are eligible to receive a Tier 2 Monthly Retirement Annuity”. The annuity is “calculated as 2.5% of the final average salary for each year of service, reduced by 0.5% for each month the participant’s age at retirement is under 55”, capped at 75%. Final average salary is the greater of the highest 48 consecutive months within the last 60 months or the highest 96 consecutive months within the last 120 months.

A computed example from assumed figures, not PABF figures: an assumed Tier 2 officer retires at an assumed age 50 with an assumed 20 years of service and an assumed final average salary of $100,000. 2.5% for each of 20 years is 50%, a computed $50,000 a year. The reduction is 0.5% for each of 60 months under 55, a computed 30%. Reading the reduction as a share of the annuity, the annuity becomes a computed $35,000 a year. The documents read do not spell out that reading, so confirm it with the Fund.

Timing and the application

The handbook says to “Approximately 30 days prior to your retirement date notify us know you plan to retire by sending an email to [email protected] or calling 312-744-3891”. Once the Fund has the documents it sends an application, and “Upon receipt of the application, you will need to sign it, have it notarized and return it to the Fund as soon as possible”. It asks officers to “Please contact the Fund to request a manual review of your lost time at least 90 days BEFORE you submit your PAR form through the CLEAR system to the CPD”, because “Once you submit your CLEAR form, you MAY not be able to rescind your retirement”. Estimates are limited: “Any estimates are not binding on the Fund and should not be conclusively relied upon”. On timing, the first payment comes about 6 weeks after a retirement before the 15th and 10 weeks after one on or after the 15th, and the Board approves applications once a month. Health coverage also depends on the retirement age, and the handbook describes City coverage by age band.

Lump sums: what the documents describe

In the documents read, lump sums appear only as a refund of contributions after leaving, the spousal contribution refund, and payments to survivors. The pages read do not describe a lump-sum retirement option, a partial lump sum or a deferred retirement option plan (DROP). The handbook adds that “The Illinois Pension Code does not permit participant loans or partial withdrawals”. The general framework is on pension lump sum versus monthly annuity break-even.

Leaving before retirement: refund or annuity

The refund rule: “A participant who withdraws before age 50, and any participant with fewer than 10 years of service who withdraws before age 57, is entitled to a refund of contributions, including 1.5% simple interest”, but “A participant who has attained age 50 and is eligible for a minimum formula annuity is not eligible for a refund of contributions”. Short service: “If you have less than 10 years of service credit with the Fund, you are not eligible for an annuity at retirement”, and “You will need to apply to the Fund to receive his or her contributions in a lump sum payment”. On who can be paid: “Only participants who are no longer employed by the City or the Board may be eligible to receive a distribution from the Fund”. To apply, “please contact the Fund and request a refund application”, and “you will be required to provide written confirmation from the CPD of your resignation or termination”. More on the choice is on pension refund versus leaving it.

Spouse and survivor rules

The survivor benefit is paid for through contributions: “The Illinois Pension Code requires contributions towards a widow’s annuity regardless of your marital status while you are a member”. After retirement a Tier 1 widow receives 50% of the member’s annuity, fixed; for Tier 2, “the Tier 2 surviving spouse’s annuity will be 66 2/3% of the police officer’s earned annuity at the date of death”, with annual increases. Eligibility needs a marriage of at least one year, except in a line-of-duty death. See survivor benefit with a government pension.

An unmarried officer gets the spousal contributions back: “A participant who is unmarried at the time of retirement is entitled to a refund of contributions for the spousal annuity, including 3% compounded interest”. A later widow’s annuity then has a condition: “The amount of the refund, including 3% compounded interest, is repaid within one year after the date of marriage”. If a spouse dies or the couple divorces after retirement, “the contributions made on the spouse’s behalf are not refundable to the participant”.

The reversionary annuity is the closest thing to a survivor election. “A police officer may elect to receive a reduced annuity in order to provide a reversionary annuity for a surviving spouse”. The limit: “The monthly reduction may not be more than $200 or less than $50”. A timing trap: “No reversionary annuity will be paid if the police officer dies before 730 days have elapsed from the date the written designation is filed with the Board”. The pages read do not print the factor table. See single-life versus joint-and-survivor pension.

If death comes before retirement

The ordinary death benefit is separate: “The benefit ranges from $6,000 to $12,000”. “If an active officer dies before reaching age 50, the benefit is $12,000”, but “the benefit is reduced by $400 for each year the officer remains in active service after age 50”. The minimum is $6,000.

Buying service credit

The handbook says “An active participant who has served with the Chicago Police Department for at least three years may be eligible to purchase service credit under state law”. For prior law enforcement service, “may apply for credit within two years of their hire date and must pay the statutorily required contributions within five years of the application date”. For military service before joining, “may be eligible to purchase up to two years of service credit, in one-month increments, for pension purposes”; the website says “Interest is charged to purchase these credits”. Funding is flexible: “Current federal law allows fund-to-fund transfer or rollover of 457 deferred compensation plan assets to this Fund to purchase service credits”. The pages read give no price schedule. See the pension buyback calculator.

Cost-of-living increases

For Tier 1 the handbook says “Tier 1 participants shall receive an automatic increase of 3% of their originally granted annuity”. Then “the annuity shall be increased by an additional 3% of the originally granted annuity each January 1, continuing for the participant’s lifetime”. For Tier 2 the website says “Each annual increase shall be calculated at 3% or one-half of the annual unadjusted percentage increase (but not less than zero) in the consumer price index-u for the 12-month period ending with the September preceding each November 1, whichever is less, of the originally granted retirement annuity”.

A computed example from an assumed $3,000 monthly annuity, not a PABF figure: 3% of the originally granted $3,000 is a computed $90 a month, so after three increases the annuity is a computed $3,270 a month. Because the increases use the original amount, they do not compound.

Tax on the pension itself

The handbook says “Retirement benefits are subject to federal income tax”. On Illinois, “Retired participants who are Illinois residents do not pay state income tax on retirement income”. See Illinois retirement taxes.

What the IRS adds on tax

A refund or lump sum from a public pension is a distribution, so the IRS rules apply on top of PABF’s own. On withholding, the IRS says that a taxable eligible rollover distribution paid to you “is subject to mandatory income tax withholding (generally at a rate of 20%), even if you intend to roll it over later”, and that if you roll it over yourself “you’ll have to add funds from other sources equal to the amount withheld”. The Fund’s pages read do not describe a rollover process for a refund, so confirm with the Fund how it handles a direct transfer. The withholding rule is explained on 20% withholding on a pension lump sum. The rollover clock, if the money is paid to you: “you have 60 days from the date you receive it to roll it over to another eligible retirement plan”.

On early distributions the IRS says “the law imposes a 10% additional tax on certain early distributions from certain retirement plans”. Its list of exceptions includes “Distributions made to you after you separated from service with your employer after attainment of age 55” and “Distributions made to a qualified public safety employee from a governmental plan”. Whether an exception fits a particular refund depends on your own plan and facts, so confirm it with a tax preparer before you take one.

Where the sources disagree

On the Tier 1 increase, the handbook describes a 2025 change “eliminating the previous birthdate restrictions on automatic annual increases to retirement annuities for Tier 1 participants”. The members page instead says “Tier 1 participants retiring with at least 20 years of service will receive an increase of 3% based on their originally granted annuity”, and refers to the date as “or on 1/1/2023 with the signing of Public Act 103-0582”. On the Tier 2 salary cap, the handbook says the amount rises by the lesser of 3% or the full CPI-U change, while the members page says “the lesser of 3% including all previous adjustments or 1⁄2 of the annual unadjusted percentage increase (but not less than zero) in the Consumer Price Index-All Urban Customers (CPI-U)”. Confirm the current rule with the Fund.

What this page could not settle

• The pages read do not describe a lump-sum retirement option, a partial lump sum or a DROP.
• The pages read do not print the factor table for the reversionary annuity or the age factor for a money purchase annuity.
• The pages read do not state whether a Tier 2 officer who leaves early with 10 or more years may leave contributions on deposit.
• The pages read do not describe a rollover process for a refund, or a price schedule for service purchases.
• The handbook and website disagree on the Tier 1 increase date and Tier 2 salary cap indexing, as listed above.
• Disability benefits, health insurance by rank and child and parent annuities were not worked through.

Common mistakes

• Treating a few days short of 20 years as close enough; the handbook says the shortfall can cost about $2,000 a month and the Formula Annuity requires 20 completed years after lost time.
• Submitting the retirement form before the Fund reviews lost time; the handbook says the retirement may not be rescindable once the form is in.
• Assuming a Tier 2 officer faces the same rules as Tier 1; the formula, increases and survivor percentage all differ by tier.
• Expecting a lump sum at retirement; the pages read describe a lifetime annuity, with a refund only in limited cases.
• Electing the reversionary annuity and then dying within the first 730 days, when no reversionary annuity is paid.
• Expecting spousal contributions back after a spouse dies or a divorce; the handbook says they are not refundable to the participant.

Related on this site: Illinois retirement taxes, does Illinois tax pensions, Chicago Municipal Employees’ fund retirement decisions, pension refund versus leaving it, single-life versus joint-and-survivor pension, pension buyback calculator, 20% withholding on a pension lump sum, pension lump sum versus monthly annuity break-even, survivor benefit with a government pension and public pension retirement decisions by system.

Sources

• Policemen’s Annuity and Benefit Fund of Chicago, Participant Handbook (current as of January 2026): https://chipabf.org/wp-content/uploads/2026/08/PARTICIPANT-HANDBOOK-2026.pdf
• Policemen’s Annuity and Benefit Fund of Chicago, Frequently Asked Questions (web page, read October 7, 2026): https://chipabf.org/faqs/
• Policemen’s Annuity and Benefit Fund of Chicago, Planning for Retirement (web page, read October 7, 2026): https://chipabf.org/planning-retirement/
• Policemen’s Annuity and Benefit Fund of Chicago, Members: Tier 1, Tier 2, Refunds, CFOS, Dependents and Retired (web page, read October 7, 2026): https://chipabf.org/members/
• Policemen’s Annuity and Benefit Fund of Chicago, Death Benefit Directive (form): https://chipabf.org/pdfs/forms/death_benefit.pdf
• IRS, Topic no. 413, Rollovers from retirement plans (irs.gov): https://www.irs.gov/taxtopics/tc413
• IRS, Topic no. 558, Additional tax on early distributions from retirement plans other than IRAs (irs.gov): https://www.irs.gov/taxtopics/tc558

Sources: the primary documents linked above, read on October 7, 2026. General information from each system’s own published materials, not legal, tax or financial advice. Your own member statement and the system’s current rules decide your benefit, and a pension counsellor at the system or a fee-only adviser is the right place to confirm anything consequential.