IMRF Pension Options: Reversionary Annuity, Refund and Survivor

Updated October 2, 2026. Quick answer: An Illinois Municipal Retirement Fund (IMRF) Tier 2 Regular Plan member is always eligible for the Standard pension, paid monthly for life. The one elective trade is the Reversionary Annuity: a smaller pension now so that a person you name receives a lifetime pension after you die, and once you agree to it the reduction is permanent. The other decision is a refund: IMRF says that for anyone with enough service for a pension there are almost no circumstances when a refund beats the pension, and a refund gives up the service credit and every benefit. This page covers the Tier 2 Regular Plan only.

The Chicago municipal employees’ fund, with its own refund and annuity rules: Chicago MEABF retirement decisions.

Another Illinois system with its own decision page, the State Employees’ Retirement System: Illinois SERS retirement decisions.

Another Illinois system with its own decision page: SURS retirement decisions.

The Standard pension

IMRF’s options page opens with a fixed point: “At retirement, you are always eligible for the Standard pension option.” Under it, IMRF says, “you receive a payment every month after you retire for the rest of your life”. Any other choice is made after the claim is approved: IMRF sends a preliminary benefit statement letter and the member returns it with the final choice.

For Tier 2 Regular members, IMRF’s benefit page sets the entry test: “Must have at least 10 years of service credit (can include reciprocal retirement system service credit).” On age it says “Although you can retire as early as age 62, age 67 is your full retirement age. Your pension may be reduced if you retire before age 67, depending upon the amount of service credit you have.” The pension is a percentage of final rate of earnings (FRE) for each year of service, in IMRF’s words “1-2/3% of your FRE (up to the wage cap) for each of the first 15 years of service credit, plus” and “2% of your FRE(up to the wage cap) for each additional year of service credit over 15 years.” “Your total pension at retirement cannot exceed 75% of your final rate of earnings.” The FRE is an average: “the FRE used to calculate your pension will be your highest total earnings during any 96 consecutive months within your last 10 years of IMRF service, divided by 96.” “When you retire, IMRF will calculate your FRE using both methods and will use the FRE that provides you with the larger pension.”

The statute under the entry test is the Illinois Pension Code, Article 7. Section 7-141(a)1. sets the age: “He is at least age 55 if he is a Tier 1 regular employee, he is age 62 if he is a Tier 2 regular employee, or, in the case of a person who is eligible to have his annuity calculated under Section 7-142.1, he is at least age 50;” Section 7-141(a)4. sets the service: “If he first became a participating employee after December 31, 1961 and is a Tier 1 regular employee, he has at least 8 years of service, or, if he is a Tier 2 regular member, he has at least 10 years of service.” It continues: “This service requirement shall not apply to any participating employee, regardless of participation date, if the General Assembly terminates the Fund;” Section 7-141(a)3. adds a floor: “The amount of his annuity, before the application of paragraph (b) of Section 7-142 is at least $10 per month;”

Section 7-142(a)1. says the annuity is the higher of two computations, not only the percentage formula above: “For Tier 1 regular employees with 8 or more years of service or for Tier 2 regular employees, an annuity computed pursuant to subparagraphs a or b of this subparagraph 1, whichever is the higher, and for employees with less than 8 or 10 years of service, respectively, the annuity computed pursuant to subparagraph a:” Computation a is a money-purchase amount: “The monthly annuity which can be provided from the total accumulated normal, municipality and prior service credits, as of the attained age of the employee on the date the annuity begins provided that such annuity shall not exceed 75% of the final rate of earnings of the employee.” The percentages IMRF quotes above are computation b, in s. 7-142(a)1.b(i), and the 75 percent limit also appears in b(iii). This page does not compute computation a, so it cannot say which is higher for a given member.

A computed example from assumed inputs, not a quote from IMRF: a member with 20 years of service credit and a final rate of earnings of $60,000. The first 15 years at 1-2/3 percent compute to $15,000, the other 5 years at 2 percent compute to $6,000, so the annual pension computes to $21,000, well under the 75 percent cap, which computes to $45,000 of that earnings figure. The wage cap itself is set in s. 1-160(b-5) of the Pension Code, which says: “Beginning on January 1, 2011, for all purposes under this Code (including without limitation the calculation of benefits and employee contributions), the annual earnings, salary, or wages (based on the plan year) of a member or participant to whom this Section applies shall not exceed $106,800; however, that amount shall annually thereafter be increased by the lesser of (i) 3% of that amount, including all previous adjustments, or (ii) one-half the annual unadjusted percentage increase (but not less than zero) in the consumer price index-u for the 12 months ending with the September preceding each November 1, including all previous adjustments.” The page does not apply the wage cap, because the statute states a starting amount and a yearly adjustment, not the dollar amount for the current year, and this page did not look that figure up.

IMRF’s early-retirement reduction for Tier 2, as the benefit page prints it
Tier 2 Regular service credit	Reduction for retiring before the full retirement age
At least 10 years but less than 30 years of service credit	1/2% for each month under age 67
At least 30 years but less than 35 years	The lesser of 1/2% for each month under age 67 or 1/2% for each month of service credit under 35 years
Age 62 or later with at least 35 years of service credit	No reduction

The reduction in the table is in s. 7-142(a)1.b(iv). It applies to computation b, and it says: “For employees who have less than 35 years of service, the annuity computed in accordance with this subparagraph b (as reduced by application of subparagraph (iii) above) shall be reduced by 0.25% thereof (0.5% if service was terminated before January 1, 1988 or if the employee is a Tier 2 regular employee) for each month or fraction thereof (1) that the employee’s age is less than 60 years for Tier 1 regular employees, (2) that the employee’s age is less than 67 years for Tier 2 regular employees, or (3) if the employee has at least 30 years of service credit, that the employee’s service credit is less than 35 years, whichever is less, on the date the annuity begins.”

The final rate of earnings is defined in s. 7-116, which also limits how much the last months of pay can count. Section 7-116(d)(5), one of the items on how the final rate of earnings is computed, provides that “the earnings to be considered for each of the final three months of the final earnings period for persons who first became participants before January 1, 2012 and the earnings to be considered for each of the final 24 months for participants who first become participants on or after January 1, 2012 shall not exceed 125% of the highest earnings of any other month in the final earnings period;” IMRF’s 96-month description above does not mention this limit.

The Reversionary Annuity: the one elective payment option

IMRF describes it in one sentence: “With the Reversionary Annuity option, you choose to receive a smaller IMRF pension so you can provide a lifetime pension for someone else upon your death.” On its own page: “The younger the age of your Reversionary Beneficiary, the greater the reduction in your monthly pension.” The recipient can be anyone you choose, not only a spouse.

The Reversionary Annuity choices for Tier 2, from IMRF’s page
Your situation	What the Reversionary Annuity can provide
Your spouse is eligible for an IMRF surviving spouse pension	An additional pension equal to 8% or 18% of your reduced pension, to your spouse or another person
You have no spouse, or your spouse is not eligible for a surviving spouse pension	A pension equal to 50%, 75% or 100% of your reduced pension to your Reversionary Beneficiary

The spouse’s own pension is separate: “Your spouse will still receive a surviving spouse pension equal to 50% of the unreduced pension you would have been receiving had you not chosen a Reversionary Annuity.” The limits matter more than the choices. IMRF says “You can name only one individual to receive this pension. You cannot name a trust or institution.” If the person dies first, “the pension that would have been paid to him or her is no longer payable. Your pension will not be adjusted.” The window to back out is the preliminary letter: the member can “Cancel your decision to elect a Reversionary Annuity option”. After that, “Once you agree to reduce your pension, the reduction is permanent.”

The statute for this option is s. 7-145. Subsection (a) says: “An employee entitled to a retirement annuity may elect to provide a reversionary annuity for a beneficiary if:” The second condition is: “His accumulated additional and optional credits are sufficient to provide a reversionary annuity, of at least $10 per month, for the beneficiary.” Subsection (d) says: “If the beneficiary does not survive the annuitant, no reversionary annuity shall be payable, but only the death benefit as provided in Sections 7-163 and 7-164.” Subsection (e) says: “Any election made under this Section shall be irrevocable by the employee.” Section 7-145 itself states no percentage and does not mention reducing the pension; it ties the reversionary amount to the member’s additional and optional credits, and this page does not reconcile that with IMRF’s description above.

The surviving spouse percentage the statute gives a Tier 2 regular employee is not the 50 percent in the IMRF sentence quoted above. Section 7-156(a)1. says the surviving spouse annuity on the death of an employee annuitant is, in part: “an amount equal to 50% for a Tier 1 regular employee or 66 2/3% for a Tier 2 regular employee of the retirement annuity which was or would have been payable exclusive of the amount so payable which was provided from additional credits, and disregarding any election made under paragraph (b) of Section 7-142, plus (ii) an annuity which could be provided at the then attained age of the surviving spouse and under actuarial tables then in effect, from the excess of the additional credits, (excluding any such credits used to create a reversionary annuity) used to provide the annuity granted pursuant to paragraph (a) (2) of Section 7-142 of this article over the total annuity payments made pursuant thereto.”

So 50 percent is the statute’s figure for a Tier 1 regular employee and 66 2/3 percent is its figure for a Tier 2 regular employee. This page does not resolve why IMRF’s Reversionary Annuity page prints 50 percent; ask IMRF which figure applies to your benefit.

The surviving spouse pension and annual increases

A spouse who qualifies gets a pension without any election: “you will receive your Surviving Spouse pension for the rest of your life, even if you remarry.” The Reversionary Annuity page also says it is separate from that pension and from the “$3,000 lump sum death benefit”. The statute is changing that amount. Section 7-164, paragraph 4, as amended by Public Act 104-810 effective January 1, 2027, says: “Upon the death of an employee in an employment relationship, or an employee who has service and was entitled to a retirement annuity on the date of death, when a surviving spouse or child annuity is awarded, $8,000 ($3,000 for those who first retired prior to the effective date of this amendatory Act of the 104th General Assembly).” It adds: “The increase in certain death benefits from $3,000 to $8,000 provided by this amendatory Act of the 104th General Assembly shall apply only to deaths occurring on or after January 1, 2027.” So the $8,000 figure does not reach a member who first retired before January 1, 2027; for that member the amended paragraph keeps $3,000.

Annual increases are not compounded for Tier 2. IMRF says each January 1 increase is “calculated on your original benefit amount” and is the lower of 3% or one-half of the increase in the Consumer Price Index (urban) for the preceding year. Increases start on the later of two dates: “The January following your 67th birthday” or “The January after you have received one year of benefit payments”. “If the CPI decreases or is zero, no increase is paid.”

Going back to work after you retire

A retiree who returns to an IMRF employer can lose the pension while working. Section 7-144(a) says: “If any person receiving any annuity again becomes an employee and receives earnings from employment in a position requiring him, or entitling him to elect, to become a participating employee, then the annuity payable to such employee shall be suspended as of the first day of the month coincidental with or next following the date upon which such person becomes such an employee, unless the person is authorized under subsection (b) of Section 7-137.1 of this Code to continue receiving a retirement annuity during that period.”

The same subsection continues: “Notwithstanding any other provision of this Article, an annuitant shall be considered a participating employee if he or she returns to work as an employee with a participating employer and works more than 599 hours annually (or 999 hours annually with a participating employer that has adopted a resolution pursuant to subsection (e) of Section 7-137 of this Code).” Subsection (e) separately suspends the annuity of a Tier 2 regular employee who first began participation on or after January 1, 2012 during contractual service to the governmental entity from which the person retired; read it before taking contract work.

Refund or pension

A member who leaves an IMRF employer is not required to take anything. IMRF puts the downside plainly: “you will not receive interest when you apply for a separation refund, no matter how long you keep your contributions on deposit with IMRF.” A refund means “You lose all of the service credit you have earned”, “You give up your right to any retirement or disability benefits” and “Your beneficiary(ies) will not be entitled to any death benefit”. For a member with a pension in reach, IMRF’s benefit page is direct: “if you have enough service credit to qualify for an IMRF pension we strongly discourage you from requesting a refund. There are almost no circumstances when a refund will be an advantage to you over a pension.”

IMRF does allow a refund in some pension-eligible cases: “You are age 62 or older and have ten or more years of service credit, but your monthly pension would be less than $100.” No refund is available while the member is still working for an IMRF employer: “You are working for any IMRF employer, in any capacity”.

The statute for refunds is s. 7-166. Paragraph 2 allows a separation benefit in place of an annuity under $100 a month, which is the case IMRF lists above. Paragraph 3 adds a second case: “Upon separation from the service of all participating municipalities and instrumentalities thereof and participating instrumentalities, any participating employee who, on the date of application for such benefit, is entitled to a retirement annuity, but wishes instead to use the amounts to his or her credit in the Fund to purchase credit in another retirement plan, may elect to take a separation benefit in lieu of the retirement annuity.” Section 7-168 sets the amount: “The amount of the separation benefits shall be the sum of the employee’s accumulated normal, survivor and additional contributions.”

From January 1, 2027, Public Act 104-634 rewrites paragraphs 1 to 3 of s. 7-166 so that, in each of the three cases, the separation is measured from the employer with which the member last participated in the Fund rather than from all IMRF employers. Paragraph 1 will read: “Any participating employee who, on the date of application for such benefit, is not entitled to a retirement annuity and has separated from the service of the participating municipality or instrumentality with which the participating employee last participated in the Fund shall be entitled to a separation benefit.” The same act adds a condition to s. 7-141(a)5.: “He has not prearranged to return to the service of the participating municipalities and instrumentalities thereof and participating instrumentalities from which the participating employee retired.”

If you take one, the tax rules decide the form. IMRF says it “is required by federal law to withhold 20% of the taxable portion of your refund unless you elect to have the taxable portion directly rolled over into a traditional IRA (not a Roth IRA) or other qualified retirement plan.” “You may defer the additional 10% tax by directly rolling your refund into a traditional IRA or other qualified pension plan.” A Roth rollover is taxed up front. See also the 20 percent withholding rule on a pension lump sum.

A member who refunded and returns can restore the credit: “IMRF will calculate your current cost”, through an application to reinstate service credit. The sources read do not state a cost formula.

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 IMRF’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”. IMRF’s own refund page says a direct rollover to a traditional IRA or other qualified plan avoids the withholding. 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.

Refunds that are paid at retirement

A separate set of refunds applies when a member retires with a pension. If the member has no eligible spouse, “IMRF will refund your surviving spouse contributions, with interest”. IMRF gives two ways to take it: “Choose a one-time lump sum payment” or “Choose a lifetime monthly annuity, if the lump sum converted to an annuity would equal at least $10.00 a month”. Voluntary additional contributions follow the same lump sum or annuity pattern, with an annuity available for “A monthly annuity if your VAC balance is $4,500 or more”. The conversion has a rule that surprises people: “You must convert the entire amount of your refund.”

What this page could not settle

It covers the Tier 2 Regular Plan. Tier 1 Regular, SLEP and ECO members have their own IMRF pages and rules, and Tier 1 vesting and annual increases are not stated here.
The Tier 2 wage cap on pensionable earnings is set in s. 1-160(b-5), quoted above; the dollar amount for the current year is not stated on this page.
The cost of reinstating refunded service is calculated by IMRF per member; no formula is published in the pages read.
IMRF’s Reversionary Annuity page describes the surviving spouse pension as 50% of the unreduced pension, while s. 7-156(a)1. gives 66 2/3% for a Tier 2 regular employee; the two are not reconciled here, and the surviving spouse page read does not state a percentage itself.
IMRF prints example Reversionary Annuity amounts for a member retiring at age 65 in a table this page does not reproduce, so no dollar example from IMRF is quoted.

Common mistakes

Taking a separation refund while a pension is within reach. IMRF says there are almost no circumstances when a refund is an advantage.
Electing a Reversionary Annuity for a much younger beneficiary without seeing the larger reduction in the preliminary letter.
Assuming the Reversionary Annuity is replaced by the surviving spouse pension. They are separate.
Assuming annual increases compound. For Tier 2 they are calculated on the original benefit amount.
Rolling a refund into a Roth IRA and overlooking the tax due up front.

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Sources

IMRF, Tier 2 Regular Retirement Benefits: https://www.imrf.org/en/members/inactive-members/tier-2-regular-retirement-benefits
IMRF, Pension Estimates: https://www.imrf.org/en/members/members-must-know/pension-estimates
IMRF, Surviving Spouses: https://www.imrf.org/en/retirees/surviving-spouses
IMRF, Pension Options and Refunds at Retirement, Tier 2 Regular Plan: https://www.imrf.org/en/members/tier-2-regular-plan/pension-options
IMRF, Refunds Before Retirement, Tier 2 Regular Plan: https://www.imrf.org/en/members/tier-2-regular-plan/refunds-before-retirement
IMRF, Reversionary Annuity, Tier 2 Regular Plan: https://www.imrf.org/en/members/tier-2-regular-plan/reversionary-annuity
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
Illinois Compiled Statutes, 40 ILCS 5/7-141, retirement annuities, conditions (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-141.htm
Illinois Compiled Statutes, 40 ILCS 5/7-142, retirement annuities, amount (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-142.htm
Illinois Compiled Statutes, 40 ILCS 5/7-145, reversionary annuities (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-145.htm
Illinois Compiled Statutes, 40 ILCS 5/7-156, surviving spouse annuities, amount (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-156.htm
Illinois Compiled Statutes, 40 ILCS 5/7-164, death benefits (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-164.htm
Illinois Compiled Statutes, 40 ILCS 5/7-166, separation benefits, eligibility (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-166.htm
Illinois Compiled Statutes, 40 ILCS 5/7-116, final rate of earnings (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-116.htm
Illinois Compiled Statutes, 40 ILCS 5/7-144, annuities suspended during employment (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-144.htm
Illinois Compiled Statutes, 40 ILCS 5/1-160, provisions applicable to new hires, including the earnings cap (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K1-160.htm
Illinois Compiled Statutes, 40 ILCS 5/7-168, separation benefits, amount (Illinois General Assembly): https://www.ilga.gov/Documents/legislation/ilcs/documents/004000050K7-168.htm

Sources: the primary documents linked above, read on October 2, 2026, except the added passages from 40 ILCS 5/1-160, 7-116, 7-141, 7-142, 7-144, 7-145, 7-156, 7-164, 7-166 and 7-168 on the Tier 2 formula, earnings cap, reversionary annuity, surviving spouse percentage, death benefit, return to work and refunds, which were read on October 24, 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.

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