Updated October 7, 2026. Quick answer: A member of the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago (LABF) retires on a formula annuity of 2.4% of final average salary for each year of service, capped at 80%, with age tests that differ for Tiers 1, 2 and 3. The pages read describe no lump-sum retirement option. The one election is a reversionary annuity: a reduction of up to $400 a month to pay a named person after the member’s death, which cannot be withdrawn once the reduced annuity starts. A refund of contributions ends every benefit, including retiree medical coverage.
What this page covers and what it does not
This page works from eight member pages published by the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund of Chicago (LABF) on labfchicago.org, read on October 7, 2026: the three tier summaries and the pages on the retirement annuity, refunds, the reversionary annuity, the widow’s annuity and service credit payments. Any figure here is LABF’s, or is labeled as a computed example from assumed inputs.
A member who took part in LABF or an Illinois reciprocal system before January 1, 2011 and takes part in LABF afterwards is in Tier 1. Tier 2 was created for public employees who first took part on or after January 1, 2011, and Tier 3 for those who first took part on or after July 6, 2017. This page covers all three tiers. The City’s municipal employees’ fund is a different system, on Chicago MEABF retirement decisions. State tax questions are on Illinois retirement taxes and does Illinois tax pensions.
When a pension can start, by tier
The retirement annuity page says “Age is the primary factor which determines if an employee is eligible to retire”, and the tiers differ.
| Tier | Unreduced formula annuity | Reduced formula annuity |
|---|---|---|
| Tier 1 | Age 50 with 30 years, age 55 with 25 years, or age 60 with 10 years | Age 55 with 20 years, reduced 0.25% per month under age 60 (3% per year) |
| Tier 2 | Age 67 with 10 years of service | Age 62 with 10 years of service, reduced 0.5% per month under age 67 (6% per year) |
| Tier 3 | Age 65 with 10 years of service | Age 60 with 10 years of service, reduced 0.5% per month under age 65 (6% per year) |
How the annuity is figured
The retirement annuity page gives the formula as “Service Years x 2.4% accrual factor (if applicable) x Monthly FAS x Age Discount (if applicable)”. The accrual rate is 2.4% a year in all three tiers. For Tier 1 the tier page says “Minimum formula annuity benefit is subject to a maximum of 80% of the highest final average salary for any 4 consecutive years within the last 10 years of service”. Tier 2 and Tier 3 average the highest 8 consecutive years instead of 4, and the pages state that “Minimum formula annuity benefit is subject to a maximum of 80% of the highest final average salary for any 8 consecutive years within the last 10 years of service. The final average salary is subject to a cap. As of January 1, 2023, the cap is $123,489.18”.
A computed example from assumed figures, not an LABF figure: 25 years of service at 2.4% a year is a computed 60% of final average salary. Applied to an assumed $5,000 monthly final average salary, that is 25 times 2.4% times $5,000, a computed $3,000 a month before any age reduction.
The early-retirement reduction comes off that figure. A computed example, not an LABF figure: a Tier 2 member who starts at 62 is an assumed 60 full months under age 67, and 60 months at 0.5% is a computed 30% reduction, which takes an assumed $3,000 formula annuity down to a computed $2,100 a month. A Tier 1 member with 20 years who starts at 57 is an assumed 36 full months under age 60; 36 months at 0.25% is a computed 9%, leaving a computed $2,730 from an assumed $3,000.
The Tier 1 alternative: the money purchase annuity
A second method is open to Tier 1 members: “The Money Purchase Annuity method uses the total amount of deductions withheld from your salary and the amount of City contributions that have been applied to your account”. The annuity page states that “Tier 2 and Tier 3 employees are not eligible for a Money Purchase Annuity”, and that “The maximum allowable annual Money Purchase Annuity is 60% of your highest annual salary”.
Retiring early has a price under this method: “If a Tier 1 employee retires under age 60 with less than 20 years of service, the amount of City contributions is reduced by 10% for each year of service under 20 years”. A computed example from an assumed 17 years of service, not an LABF figure: that is 3 years under 20, times 10%, a computed 30% reduction in the City contribution counted. The pages read do not say which method pays more, so the estimate LABF prepares is the way to compare.
The election: what a member actually chooses
The LABF pages read describe a spouse annuity set by rule and one optional election at retirement, the reversionary annuity. They do not describe a menu of joint-and-survivor options. For the general trade-off, see single-life versus joint-and-survivor pension.
| Choice | What it pays | What it does for a survivor |
|---|---|---|
| Formula annuity (no reversionary election) | 2.4% of final average salary per year of service, up to 80% | Spouse annuity of 50% (Tier 1) or 66 2/3% (Tier 2 and Tier 3) of the annuity, if eligible |
| Money purchase annuity (Tier 1 only) | Built from salary deductions plus City contributions, at most 60% of highest annual salary | Spouse annuity under the widow’s annuity rules |
| Reversionary annuity | The annuity is reduced by a chosen amount, up to $400 a month | A lifetime payment to the named person of not less than $50 a month |
| Refund in lieu of annuity | A refund of employee contributions for annuity purposes, only if the annuity would be under $800 a month | No annuity is paid |
The spouse annuity that comes with the pension
A surviving spouse can qualify with no election. LABF lists three groups: “the spouse of an employee whose death occurs while he/she was still in service”; “the spouse of an employee whose death occurs after the employee’s retirement on annuity, if the marriage occurred before the employee withdrew from service”; and “the spouse of an employee whose death occurs after withdrawal from service but before he or she went on annuity provided: a) that the employee did not take a refund of their contributions to LABF; b) the employee had at least ten years of service credit; and c) the marriage occurred before withdrawal from service”. For the third group a refund of contributions is disqualifying, which ties this section to the refund decision below.
The Tier 1 page puts the spouse annuity at 50% of the annuity, and the widow’s page gives Tier 2 as “The amount of the Minimum Formula Annuity for a spouse is equal to 66 2/3% of the annuity the employee would have been entitled to had he or she retired from service on the day preceding their death or 66 2/3% of the annuity the employee was receiving on the date of death”. The Tier 3 page lists the same two-thirds share. On increases, “There is no Cost of Living increase for surviving spouses of a Tier 1 member”, while “The widow’s annuity for a Tier 2 member is entitled to a cost of living increase”.
A computed example from an assumed $3,000 monthly annuity, not an LABF figure: 50% of $3,000 is a computed $1,500 a month for a Tier 1 spouse, and 66 2/3% of $3,000, two thirds, is a computed $2,000 for a Tier 2 or Tier 3 spouse, before any age discount. Children are paid separately: “Benefit is $220 per month if a spouse survives or $250 per month if no spouse; child annuity is payable until attainment of age 18”.
The reversionary annuity: the one irrevocable choice
The reversionary annuity lets a member provide for someone other than a spouse, or in addition to one. LABF says “A reversionary annuity is a reduction in your employee annuity to provide a life annuity for a spouse, parent, child, brother or sister”. It is the election with a point of no return: “Once you start receiving the reduced annuity you cannot withdraw your request”.
On timing, “Before you retire or at retirement, you must notify LABF in writing that you wish to establish a reversionary annuity”. Until retirement the choice is open, because “the written designation can be revoked at any time prior to your retirement”. It also lapses if the member dies before the retirement annuity starts or the designated person dies first. A waiting period applies to non-spouse designees, and LABF lists it among the cancellation events: “Upon your death if the death occurs before the expiration of one year (365 days) from the date the written designation was filed with the Retirement Board for a reversionary annuity for a parent, child, brother or sister. There is no such waiting period if the beneficiary is a spouse”.
The limits are in dollars: “You may reduce your retirement annuity up to a maximum of $400 per month”, and “The amount of the reversionary annuity may not be less than $50 a month”. If the designee dies first, “If your designated person dies before you, your full retirement annuity will be restored beginning with the payment after the date of the designated person’s death”.
The designee does not receive the amount of the reduction itself: “The amount of the monthly reversionary annuity is determined by multiplying the amount of the monthly reduction in your annuity by a factor shown in Illinois Pension Code Section 5/11-134.2(f)”. The pages read do not print the factors. A computed example from an assumed $3,000 monthly annuity, not an LABF figure: taking the largest reduction of $400 leaves the member a computed $2,600 a month, and the designee’s payment would be $400 times a factor from LABF’s table. See also survivor benefit with a government pension.
Lump sums, partial lump sums and DROP
The pages read describe no lump-sum retirement option, no partial lump sum and no deferred retirement option plan (DROP). The one cash alternative at retirement is narrow: “An employee who withdraws from active service whose annuity would amount to less than $800.00 a month for life may elect to receive a refund of the total sum accumulated to his or her credit from employee contributions for annuity purposes”. The general framework for cash against monthly income is on pension lump sum versus monthly annuity break-even.
Leaving before retirement: refund or leave it
A refund is open only to those who have left City employment, and the cost is stated plainly: “If you take a refund of your contributions, you are no longer eligible to receive any benefits under this plan, including retiree medical coverage”. “Only contributions you made to the fund are refundable to you”, and “Contributions made on your behalf while you were on disability are not refundable to you”.
Eligibility depends on tier and age. For Tier 1, the refunds page says “You are entitled to receive a refund if you withdraw from service and are under the age of 55 (with any length of service) or withdraw between the ages of 55 and 60 with less than 10 years of service”. For Tier 2, “A member may take a refund if he or she withdraws from service before the age of 62 (with any length of service) or withdraws with less than 10 years of service regardless of age”. The pages read state no refund-eligibility rule for Tier 3. The general question is on pension refund versus leaving it.
Two related rules: “If you do not have a legal eligible spouse on the date you resign, the contributions you made on behalf of a spouse will be refunded to you at the time of your first annuity payment”; and “If you have any outstanding balances with the Municipal Employees’ Credit Union, you will need to reconcile this debt or LABF will automatically direct payment from your refund to the Credit Union”.
How a refund is paid, rolled over and withheld
On the payment form, “You may choose to receive all or part of your refund’s taxable contributions”, and “If a partial refund is elected, the amount to be rolled over cannot be less than the minimum of $500.00”. On tax, LABF says “You will be responsible for all Federal Withholding Tax, according to the IRS tables”. It points readers to a Rollover Tax Notice, which was not read for this page.
A computed example from an assumed $10,000 taxable payment paid to the member, not an LABF figure: the IRS rule quoted below sets mandatory withholding at 20% for an eligible rollover distribution paid to the member, so 20% of $10,000 is a computed $2,000 withheld, leaving a computed $8,000 in cash. A direct rollover avoids that withholding. See 20% withholding on a pension lump sum.
Buying or restoring service credit
LABF has two kinds of service payment: “There are two types of service payments: Account Receivable (AR) and Unpaid Service (US)”. The optional kind: “Unpaid Service (US) service payments occur when you previously received a contribution refund from the Fund, or had service where contributions were not collected”; “These service payments are optional, accrue 3% interest until paid in full, and must be paid while you are an active employee”. “You can choose to pay for all or part of this service. Service is granted in six-month increments”.
A refund can be undone, within limits: “To re-establish service credit, you must complete at least two years of service with a reciprocal fund or at least 90 days of service with the City and also repay the refund with interest”. “Full or partial payment must be made while you are in service or within 90 days after withdrawal from City service”.
On paying: “You may pay service payments in one lump sum, or by installments”. See the pension buyback calculator for the general cost-versus-benefit method.
Annual increases after retirement
Tier 1: “Annual increase in annuity (commonly referred to as the “COLA”) is 3% compounded”. Tier 2 and Tier 3 get “the lesser of 3% or 50% of the percentage change in CPI-U for the 12 months ending each preceding September. The COLA is applied to original employee annuity amount. It is not compounded”.
A computed example from an assumed $3,000 monthly annuity and an assumed three increases, not LABF figures: three Tier 1 increases of 3% compounded give a computed $3,278.18 a month; three increases of 3% of the original amount, not compounded, give a computed $3,270.00. The Tier 2 and Tier 3 increase can be smaller than 3%, so that second figure is a ceiling, not a forecast.
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 LABF’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”. LABF’s refunds page describes partial refunds and rollovers on the same basis, including a minimum rollover amount for partial refunds. 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.
What this page could not settle
- The pages read do not state any interest rate credited on contributions or paid on a refund, only that repayment of a refund is made with interest.
- The pages read do not state the reversionary annuity factors; they say a factor table sets the designee’s payment.
- The pages read do not state a refund-eligibility rule for Tier 3 members.
- The pages read do not describe a lump-sum retirement option, a partial lump sum or a DROP.
- The pages read do not state which of the formula or money purchase annuity pays more for a given Tier 1 member.
- The Summary Plan Description, the Rollover Tax Notice, the Illinois Pension Code and the forms were not read; the member pages are summaries.
Common mistakes
- Taking a refund without weighing what ends; LABF says a refund ends every benefit under the plan, including retiree medical coverage.
- Assuming a refund leaves a spouse annuity; for a member who has left service, one of the conditions is that no refund was taken.
- Electing a reversionary annuity and expecting to undo it later; it cannot be withdrawn once the reduced annuity starts.
- Applying one tier’s ages to another; Tiers 1, 2 and 3 have different age tests, reductions and increase rules.
Related on this site: Illinois retirement taxes, does Illinois tax pensions, Chicago 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
- LABF, Tier 1 Membership (web page, read October 7, 2026): https://www.labfchicago.org/members/tier-1-membership/
- LABF, Tier 2 Membership (web page, read October 7, 2026): https://www.labfchicago.org/members/membership-and-benefits/tier-2-membership/
- LABF, Tier 3 Membership (web page, read October 7, 2026): https://www.labfchicago.org/members/tier-3-member/
- LABF, Retirement Annuity (web page, read October 7, 2026): https://www.labfchicago.org/members/retirement/retirement-annuity/
- LABF, Refunds (web page, read October 7, 2026): https://www.labfchicago.org/members/refunds/refunds/
- LABF, Reversionary Annuity (web page, read October 7, 2026): https://www.labfchicago.org/members/retirement/reversionary-annuity/
- LABF, Widow’s Annuity (web page, read October 7, 2026): https://www.labfchicago.org/retirees-and-survivors/survivors/widows-annuity/
- LABF, Service Credit Payments (web page, read October 7, 2026): https://www.labfchicago.org/members/refunds/service-payments/
- 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.