Updated October 7, 2026. Quick answer: A Firemen’s Annuity and Benefit Fund of Chicago (FABF) member does not choose among payment options in the pages read: they describe one retirement annuity set by tier. Tier 1 (hired before 2011) pays 50% of final average salary at age 50 with 20 years, plus 2.5% per year beyond 20, capped at 75%. Tier 2 (hired from 2011) pays 2.5% per year, cut by 1/2 of 1% for each month under 55. Before age 50 a member can take a refund of contributions instead.
What this page covers and what it does not
This page works from documents published by the Firemen’s Annuity and Benefit Fund of Chicago (FABF): six pages of its member website, a Tier 1 and Tier 2 benefit summary dated August 20, 2025, and its Summary of Benefits booklet, all read on October 7, 2026. It covers both membership groups and says which applies to each figure. The Fund defines them this way: “Tier 1 benefits are for participants who first become a fireman or paramedic under this Article before January 1, 2011.” “Tier 2 benefits are for participants who first become a fireman or paramedic under this Article on or after January 1, 2011.”
Any figure here is the Fund’s, or is labeled as a computed example from assumed inputs. State tax questions are on Illinois retirement taxes and does Illinois tax pensions. Chicago’s municipal employees belong to a different fund, covered at Chicago municipal employees’ MEABF retirement decisions.
The decision in one view: no option menu, a tier-driven annuity
Many public pensions ask the retiring member to pick a payment option. The FABF pages read describe no such menu. What they describe is a retirement annuity computed by tier, a spouse’s annuity funded by a separate payroll contribution, and a refund path for those who leave early. The real decisions are therefore when to leave, whether to wait for a later date to avoid a reduction, whether to buy service credit, and, before age 50, whether to take a refund.
| Item | Tier 1 (hired before January 1, 2011) | Tier 2 (hired on or after January 1, 2011) |
|---|---|---|
| Eligible for the full formula | Age 50 with 20 years of service | Age 55 with 10 years of service (unreduced) |
| Retirement formula | 50% of final average salary, plus 2.5% for each year beyond 20 | 2.5% of final average salary for each year of service |
| Maximum annuity | 75% of final average salary | 75% of final average salary |
| Earlier retirement | Earned (money purchase) annuity from age 50 with 10 years of service | Age 50 with 10 years, reduced 1/2 of 1% for each month under 55 |
| Final average salary | Highest 48 consecutive months of the last 10 years | Greater of the highest 96 consecutive months within the last 120, or the highest 48 within the last 60 |
| Annual increase | 3% simple, from the later of age 55 or 1 year after retirement | Lesser of 3% or 1/2 of the CPI-U increase, not compounded, from the later of age 60 or the first anniversary |
| Widow’s annuity after retirement | 50% of the participant’s annuity | 66 2/3% of the participant’s annuity |
An estimate is available but is not final: “Participants may request a written estimate of benefits prior to retirement.” “All benefits must be actually granted by the Retirement Board in accordance with the provisions of the Act.”
Tier 1: the minimum formula, the 53 and 23 annuity and the earned annuity
The Fund’s page says “Minimum Formula Annuities are payable to participants that have attained age 50 and have at least 20 years of accumulated service credit”. The formula is “50% of the average salary for the highest 48 consecutive months of the last 10 years of service, plus an additional 2.5% of such average salary for each year of service or fraction thereof beyond 20 years of service”, with a ceiling of 75% of final average salary.
A second route exists for longer careers: “Tier 1 participants are eligible to receive Alternative Minimum Formula Annuities for participants that have attained age 53 and have at least 23 years of accumulated service credit”. Its formula is 50% of average salary, plus 2% for each year or fraction after attaining age 53 with 23 years.
A computed example from assumed figures, not an FABF figure: for an assumed final average salary of $6,000 a month and an assumed 24 years of service, the minimum formula gives 50% plus 2.5% for each of the 4 years beyond 20, a computed 60% of $6,000, or a computed $3,600 a month. The Fund’s estimate decides the real number.
Tier 1 with 10 to 20 years: the earned annuity and compulsory retirement
Below 20 years the Tier 1 pension is built from money, not a percentage of salary. “Basic vesting in the plan occurs after 10 years of creditable service.” “Earned or Money Purchase annuities are payable to a participant who has attained age 50 with at least 10 years of service.” For someone with 10 years who leaves before 50, “If a fireman has 10 years of service and has not yet attained age 50, his earned annuity shall be fixed as of and be computed as if he were exactly 50”.
At the age limit, “the Chicago Fire Department’s compulsory retirement age is 63 for firefighters”. A participant forced out then with 10 to 20 years gets a separate formula: “30% of average salary for the first 10 years of service plus 2% of average salary for each completed year of service or fraction thereof in excess of 10 years”, capped at 50% of average salary.
Tier 2: 2.5% a year and the reduction under 55
The Participant Annuities page states the Tier 2 entitlement as a monthly annuity “computed by multiplying 2.5% for each year of service by his or her final average salary”. The reduction for retiring young is stated as “shall be reduced by ½ of 1% for each month that the participant is under 55”. “The annuity benefit at age 55 with 10 years of service is unreduced.” “The Maximum retirement annuity shall be 75% of final average salary.”
Timing is where the Fund points members to a choice: it says that “Members with at least 10 years of service may resign from the Fire Department prior to age 55 and wait to make an application for retirement”, to “reduce or eliminate any annuity reduction”. Final average salary is the greater of two tests: “the highest average monthly salary of 96 consecutive months within the last 120 months of service” or “the highest monthly salary of 48 consecutive months within the last 60 months of service”.
A computed example from assumed figures, not an FABF figure: for an assumed final average salary of $6,000 a month and an assumed 20 years, 2.5% for each year is 50% of $6,000, a computed $3,000 a month. If the member retired at an assumed age 52, that is an assumed 36 months under 55, and 1/2 of 1% for each of those months is a computed 18%. Applied as a percentage of the annuity, the reduced figure is a computed $2,460 a month. The pages read do not show whether the reduction is taken from the annuity or from the percentage of salary, so the Fund’s estimate decides.
Applying, timing and what the pages do not say about changing the choice
The pages read describe retirement as an application the Board approves, not a menu of options, so the usual irrevocable-option warning has no direct equivalent here. After an estimate, the Fund tells members to contact the Fire Department personnel division “to make an appointment to complete all necessary paperwork, including a formal resignation from the Chicago Fire Department”. “Normally, a participant receives their first annuity check at the end of the month immediately succeeding the month the participant actually left employment with the Chicago Fire Department.” “Retirement Benefits are always paid on the last business day of each month.”
The pages read do not state whether a retirement application can be withdrawn after the Board approves it, so that is a question for the Fund before signing. The refund path has its own limit, covered below.
Lump sums and DROP: what the documents describe
The pages read describe no lump-sum retirement option, partial lump sum, deferred retirement option plan (DROP) or cash-out of the pension. Lump-sum amounts appear in narrow places: a refund of contributions to someone who leaves early, unpaid balances paid to an estate after death, and a fixed death benefit. The general framework for comparing a pension with cash is at pension lump sum versus monthly annuity break-even, but it has no FABF input to work with. The Fund also says that “State statutes that govern the benefit provisions of the plan do not permit participant loans or partial withdrawals”.
Leaving before retirement: the refund
The refund rule has two thresholds. “A participant who resigns or is discharged from service before age 50, or a fireman with less than 10 years of service who withdraws before age 57, is eligible for a refund of their contributions for annuity and spouse’s annuity plus interest and the increment increase.” “The 1/8 of 1% contributions for ordinary disability benefits is non-refundable.”
The refund is bounded by what the member paid in. The Fund’s FAQ says “Only the amount participants contribute while active and statutory 3% interest on the retirement and spousal annuity portion are refundable to the participant”. “During years of active service, participant contributions are improved with 3% interest.”
The right does not last: “Any participant shall be entitled to such refund until he re-enters service or until his annuity is fixed.” A participant who takes a refund and later returns can restore the service: the Fund says the member “may restore prior service credit by repaying the refunded amount, plus interest at the actuarially assumed rate compounded annually, within two years after date of re-entry into service”. “If repayment is not completed within this two-year period, the Fund will recognize the re-entry date as the entrance date for all applicable purposes under the Code.” For the general question of cash now versus a pension later, see pension refund versus leaving it.
The spouse’s annuity contributions and what happens to them
Part of every paycheck funds a spouse’s annuity, and the pages read present the spouse benefit as part of the plan rather than a choice at retirement. “A participant who is unmarried at the time of retirement is entitled to a refund of contributions for spouse’s annuity purposes.” “If the spouse pre-deceases a participant or should the participant and spouse divorce after retirement, the contributions made on the spouse’s behalf are not refundable to the participant.”
If a refund of the spouse portion was taken at retirement, the Fund says the widow “is not eligible for widows’ benefits unless the refund is repaid to the Fund, with interest at a rate of 4% per year compounded annually”. For the joint-and-survivor election used elsewhere, see single-life versus joint-and-survivor pension.
What a surviving spouse receives
Eligibility is tied to marriage at death. “Eligibility for surviving spouse annuities require that the spouse be married to the Active/Retired participant at the date of his/her death.”
Tier 1 after retirement: “An eligible widow of a Tier 1 participant that dies after retirement is entitled to receive 50% of the participant’s annuity at the time of his death or the minimum widow’s annuity allowed by the Statute, whichever is greater.” Tier 2 after retirement: “A widow of a Tier 2 participant that was receiving an earned pension at the date of his death is entitled to receive 66 2/3% of the participant’s annuity at the time of his death or the minimum widow’s annuity allowed by the Statute, whichever is greater.” Since January 1, 2023, “the minimum widow’s annuity payable to any person who is entitled to receive a widow’s annuity under this Article is 150% of the Federal Poverty Level”, and the benefit summary gives “The current 2025/26 (February 1 to January 31) applicable minimum survivor pension is $1,956.25 monthly”.
A computed example from an assumed $3,000 monthly annuity, not an FABF figure: a Tier 1 widow would receive 50% of $3,000, a computed $1,500 a month, and a Tier 2 widow 66 2/3% of $3,000, a computed $2,000 a month, unless the statutory minimum is higher. See also survivor benefit with a government pension.
The ordinary death benefit
The Fund also pays an ordinary death benefit. For “active participants in receipt of salary at the time of their death age 49 and under”, “the death benefit amounts to $12,000.00 and is reduced by $400.00 for each year over age 49 to a minimum of $6,000.00”.
A computed example from an assumed death at age 55, not an FABF figure: $12,000.00 less $400.00 for each of the 6 years over 49 is a computed $9,600. The booklet decides which amount applies. On unreturned contributions: “the balance of accumulated contributions that were not paid out, in either the form of an annuity for a participant, spouse or children, are refunded to the participant’s estate”
Annual increases after retirement
Tier 1: “Tier 1 participants retiring with at least twenty years of service will receive a 3% increase based on their original granted annuity”.
Tier 2 works differently: “The monthly annuity of a participant shall be increased on January 1st after the attainment of age 60 or the 1st anniversary of the annuity start date, whichever is later.” The amount is “Lesser of 3% or 1/2 of the annual increase in CPI-U, not compounded”, and “then the annuity shall not be increased” when the September CPI-U change is zero or falls.
A computed example from an assumed $3,000 originally granted monthly annuity, not an FABF figure: the 3% cap is a computed $90 a month. If the CPI-U rose by an assumed 2 percent, half of that is 1 percent, a computed $30 a month on the same annuity. The increase is on the original annuity, not compounded.
Buying service credit
Some gaps can be bought. The Fund lists, among eligible service, “military service, the 23 days in 1980 which reflects strike time, periods of employment as a sworn Chicago Police Officer” and “periods of suspension from duty not to exceed a total of one year”.
For prior military service: the Fund says active participants “may purchase up to 2 years of service credits in 1 month increments for pension purposes”. “There is no deadline for active eligible participants to purchase these credits.” “Interest is charged to purchase these credits.” For earlier Chicago police service: “Active participants may transfer contributions earned in the PABF to the FABF for the purpose of annuity service credit.”
On payment, the Fund says “All of the above service credit purchase maybe completed with your deferred comp (nontax) account with Nationwide”, so a deferred compensation account is one funding source the Fund names. The pages read do not print a price, so the Fund’s quote supplies the cost. See the pension buyback calculator for the break-even logic.
Contributions and the Tier 2 salary cap
The cap changes both pension and payroll for Tier 2. “contributions cease when the participant meets the annual salary cap”, the benefit summary says, and it lists a salary cap effective July 1, 2025, of $141,407.74. The Fund’s cap table lists $145,649.97 as the maximum from July 1, 2026. Salary used in the Tier 2 formula is limited to the cap.
Tax on the pension itself
“Under current law, retired participants that are Illinois residents do not pay State income tax in the state of Illinois on retirement income.” “Retirement benefits are subject to federal income tax.” “Participants receive a 1099R in January stating the amount of their taxable benefit.” For state questions 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 FABF’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 pages read do not say whether a refund of contributions is paid to the member or can be rolled over directly, or how it is withheld, so the Fund should confirm that before a refund is requested. 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 2 salary cap adjustment, the Participant Annuities page uses “one-half of the annual unadjusted percentage increase” in the CPI-U, while the August 2025 benefit summary words the same adjustment without the one-half. The Survivor Annuities page also refers to a Tier 1 participant in a paragraph under its Tier 2 heading that describes Tier 2 percentages. The Fund should confirm which wording controls.
What this page could not settle
- The pages read describe no payment option menu, lump-sum retirement option, partial lump sum or DROP.
- The pages read do not state whether a retirement application can be withdrawn after the Board approves it.
- The pages read do not state whether a refund of contributions can be rolled over or how it is withheld for federal tax.
- The pages read do not show whether the Tier 2 age reduction is applied to the annuity or to the percentage of salary.
- The pages read do not state the dollar price of any service credit purchase, only the method and the interest.
- The pages read do not state the interest rate on a military-service purchase or the actuarially assumed rate used for a refund repayment.
- Disability benefits, retiree health coverage, union agreements and the individual forms were not worked through.
- The Illinois Pension Code text itself (40 ILCS 5/6) was not read; the Fund says the Code supersedes its pages.
Common mistakes
- Assuming a Tier 1 rule applies to a Tier 2 member; the 53 and 23 annuity and the 3% simple increase from age 55 belong to Tier 1 only.
- Retiring at 50 under Tier 2 without pricing the reduction of 1/2 of 1% for each month under 55.
- Taking a refund and expecting a pension later; the refund right lasts only until the member re-enters service or the annuity is fixed.
- Taking a refund of the spouse’s annuity contributions at retirement and expecting the widow to be covered; repayment with 4% interest is a condition.
Related on this site: Illinois retirement taxes, does Illinois tax pensions, Chicago municipal employees’ MEABF retirement decisions, pension refund versus leaving it, single-life versus joint-and-survivor pension, pension buyback calculator, 20% withholding on a pension lump sum, survivor benefit with a government pension and public pension retirement decisions by system.
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Answer againSources
- Firemen’s Annuity and Benefit Fund of Chicago, Active Members, Frequently Asked Questions (fabf.org web page, read October 7, 2026): https://fabf.org/Members/Active-Members
- Firemen’s Annuity and Benefit Fund of Chicago, Contribution Refunds and Repayments (fabf.org web page, read October 7, 2026): https://fabf.org/Members/Contribution-Refunds-Repayments
- Firemen’s Annuity and Benefit Fund of Chicago, Service Credits (fabf.org web page, read October 7, 2026): https://fabf.org/Members/Service-Credits
- Firemen’s Annuity and Benefit Fund of Chicago, Survivor Annuities (fabf.org web page, read October 7, 2026): https://fabf.org/Members/Survivor-Annuities
- Firemen’s Annuity and Benefit Fund of Chicago, Participant Annuities (fabf.org web page, read October 7, 2026): https://fabf.org/Members/Participant-Annuities
- Firemen’s Annuity and Benefit Fund of Chicago, Employee and City Contributions (fabf.org web page, read October 7, 2026): https://fabf.org/Members/Employee-and-City-Contributions
- Firemen’s Annuity and Benefit Fund of Chicago, Tier 1 and Tier 2 Benefit Summary Overview (dated August 20, 2025): https://fabf.org/Portals/0/PDF/Members/FABF%20Tier%20Benefit%20Summary%202025_AMENDED%20PA%20104%200065%20and%20PA%20104%200248.pdf
- Firemen’s Annuity and Benefit Fund of Chicago, Summary of Benefits booklet (Board listing as of December 2025): https://fabf.org/Portals/0/PDF/Members/Summary%20of%20Benefits.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.