Updated October 2, 2026. Quick answer: For the State Employees’ Retirement System of Illinois (SERS), the survivor benefit is part of the pension, while the Level Income Option, the reversionary annuity and the Accelerated Total Pension Benefit Payment are elections. SERS says each is irrevocable once chosen. The buyout pays a lump sum equal to 60% of present value, requires forfeiting all service credit and must be elected by May 31, 2028 under SERS’s own fact sheet, while the Illinois Pension Code allows an election until June 30, 2028. Tier 2 needs 10 years for a pension, and a refund pays no interest and forfeits all rights to benefits.
More on public pension systems, topic by topic: Illinois SERS returning to work, Illinois SERS QILDRO and Illinois SERS early retirement and increases.
Which SERS tier a statement applies to
This page covers the State Employees’ Retirement System of Illinois (SERS), not the State Universities Retirement System or the Illinois Municipal Retirement Fund. SERS publishes separate material by group, so each statement says where it comes from. Tier 2: “This information applies to all active State employees who first became a member of SERS or a reciprocal system after December 31, 2010.” Tier 1: “This information applies to individuals who became a member of SERS or a reciprocal system before January 1, 2011.” The reversionary annuity fact sheet names no tier, so its examples are labelled as fact sheet examples. The pages read cover the regular formula only, not the alternative formula. On what controls, the handbook says: “If there is any discrepancy between this handbook and the plan document, the plan document controls.”
Eligibility, the formula and the early retirement reduction
Tier 2: “To receive a pension benefit, you must have a minimum of 10 years of creditable service.” The handbook lists “Age 67, with 10 years of creditable service”, or a reduced pension from age 62 up to 67 (10 years of service credit), with the handbook describing a “pension reduced 1/2 of 1% for each month under age 67”. Tier 1 lists “Age 60, with 8 years of service credit”, or a reduced pension at ages 55 to 59 with 25 to 29 years of service, with the handbook describing a “pension reduced 1/2 of 1% for each month under age 60”.
The formula percent depends on Social Security coverage. Tier 2: “Covered by Social Security: 1.67% for each year of service”; “Not Covered by Social Security : 2.2% for each year of service”. Tier 1: “Coordinated: 1.67% for each year of service”; “Non-Coordinated: 2.2% for each year of service”. For the base, Tier 2 says: “For regular formula employees, final average compensation is the average of the 96 highest consecutive months of service within the last 120 months of service.” Tier 1 says: “Final average compensation is the 48 highest consecutive months of service within the last 120 months of service.” “The maximum regular formula retirement benefit is 75% of final average compensation.”
A computed example from an assumed Tier 2 member covered by Social Security, with an assumed $4,000 of monthly final average compensation and 20 years of service, not a SERS figure: 1.67 percent for each of 20 years is a computed 33.4 percent, and that times $4,000 is a computed $1,336.00 a month before any reduction. If that member retired 5 years before age 67, that is 60 full months, and one half of one percent for each month is a computed 30 percent reduction, leaving a computed $935.20 a month. Not covered by Social Security, the same assumptions at 2.2 percent a year give a computed $1,760.00 a month before any reduction. A SERS estimate controls.
The elections at retirement, and what is irrevocable
“Your retirement benefit is paid monthly for your lifetime.” The survivor benefit comes with the pension. The elections are the Level Income Option, the reversionary annuity and, for a member who has qualified for an annuity, the buyout. A QILDRO, a divorce order, can limit them: “A member may not choose a benefit type that would diminish the alternate payee’s benefit without written consent from the alternate payee.”
| Choice | What it does | Reversible? | What it does for a survivor |
|---|---|---|---|
| Survivor benefit | Paid to eligible survivors | Built into the pension; a survivors’ portion of contributions is refundable if there are no eligible survivors | 66 2/3% of the pension at death |
| Level Income Option | Raises the benefit until Social Security age, then lowers it for life | Irrevocable (Tier 2 handbook) | Not described in the pages read |
| Reversionary annuity | Reduces the check to fund a dependent’s lifetime income | Cannot be rescinded | Paid to the dependent in addition to survivor benefits |
| Total Buyout | Lump sum of 60% of present value in place of any annuity | Irrevocable once chosen | All service credit is forfeited |
The Level Income Option
It exists for members covered by Social Security who retire before they qualify. Tier 2: “This option allows members who have paid into SERS and Social Security to receive their benefits at a level amount throughout their retirement years by combining their Social Security and SERS benefit.” “The level income option is an irrevocable election.” The Tier 2 handbook adds: “Once you reach the age as identified in the Social Security benefit estimate you provided at the time of your retirement, your monthly pension is reduced by the monthly estimated amount provided in Social Security benefit estimate.” “The amount as reduced under the level income option plan, is paid for your lifetime.” The Tier 1 page says the reduction applies regardless of when Social Security actually begins: “At this time, your pension is reduced regardless of when you actually begin receiving Social Security and regardless of how much this benefit actually is.” The statute adds two conditions. Section 14-112 applies to a covered employee “who at the time of retirement is fully insured under that Act”, and says “the option under this Section is not available if the resulting payments by the System after the employee becomes eligible for old age insurance payments under the Federal Social Security Act would be less than $10 per month”.
SERS’s Tier 1 example: “A member retires at age 60 with a monthly pension of $1,800 from SERS.” “Therefore, the SERS benefit would be $2,323.50, increasing 3% each year to $2,774.38 per month by age 66.” “The member’s monthly SERS benefit would be reduced to $1,774.38, because the Social Security benefit of $1,000 per month would begin.” Checking SERS’s arithmetic, $1,800 plus $523.50 is a computed $2,323.50, and $2,774.38 less the $1,000 Social Security benefit is a computed $1,774.38. The pages read do not describe the effect on a survivor, so confirm it before choosing.
The reversionary annuity
This election pays a dependent after the member dies. “This option reduces your monthly retirement benefit to provide a lifetime income for your designated dependent after your death.” The statute sets the terms of the election. Section 14-113 limits it to “any person who is dependent upon the member at the time of retirement”, provided that “the condition of dependency exists and is proved to the satisfaction of the board” and that the annuity is “not less than $10 per month, nor more than the amount of reduced retirement annuity which the member receives under this option”. “The election to provide a reversionary annuity is irrevocable.” “This benefit is in addition to the survivors’ benefit.” On the default: “However, a regular retirement benefit provides the largest amount payable to you throughout your lifetime.” On fit: “If your life expectancy is limited, or your dependent is significantly younger, the reversionary annuity might be a good option for you.”
The risks: “If the designated dependent dies before you, the reversionary annuity is void and your retirement benefit is not recalculated.” “If you terminate your marriage or civil union with your designated dependent, then your retirement benefit is not recalculated, and a reversionary annuity will be payable to them following your death.” “The reversionary annuity does not have an annual cost of living increase.” “You may choose a reversionary annuity benefit continuation in 10% increments from 10% to 100% of your retirement benefit.”
| Example | Reduced monthly benefit from $4,000 | What the spouse receives after death | Stated ages |
|---|---|---|---|
| Tier 2 handbook, 100% to spouse | $3,393.20 | 100% of the benefit at death | A 67 year old member |
| Tier 2 handbook, 50% to spouse | $3,671.60 | 50% of the benefit at death | A 67 year old member |
| Fact sheet, 100% to spouse | $3,567 | $3,567 plus a $1,783.50 survivor benefit | Spouse age 58 |
| Fact sheet, 50% to spouse | $3,770 | $1,885 plus a $1,885 survivor benefit | Spouse age 58 |
As arithmetic on those printed figures, not a SERS rate: the handbook’s cases lower the check by a computed $606.80 (about a computed 15.2 percent) and a computed $328.40 (about a computed 8.2 percent), and the fact sheet’s by a computed 10.8 percent and a computed 5.75 percent with the younger spouse. The pages read give no reduction table, so only SERS can price a real case.
The survivor benefit is part of the pension
Separate from the reversionary annuity: “If your death occurs after retirement, survivor benefits are 66 2/3% of your pension at the time of your death, split between all eligible payees.” “The Social Security offset will not reduce the survivor’s benefit to less than 50% of the benefit otherwise payable.” The 66 2/3% figure is the rule for members who first joined on or after January 1, 2011. Section 1-160(f) of the Pension Code sets the initial survivor annuity for a retired member who “first became a member or participant on or after January 1, 2011” at “66 2/3% of the retired member’s or participant’s retirement annuity at the date of death”. Section 14-121(e) separately says the survivors annuity of a member whose death occurs after retirement “shall not exceed the lesser of 80% of the member’s earned retirement annuity at the date of death or the maximum previously established in this Section”. “If you have no eligible survivors when you retire, you may elect to receive a refund of the survivors’ portion of your contributions.”
A computed example from an assumed $2,400 pension at death, not a SERS figure: 66 2/3 percent of $2,400 is a computed $1,600.00 a month before any Social Security offset, and the floor at 50 percent of that would be a computed $800.00. How a retiree eliminates the offset is not explained in the pages read.
The Accelerated Total Pension Benefit Payment (the Total Buyout)
It has a published expiry. “If you have qualified for a retirement annuity with the State Employees’ Retirement System, then beginning in April, 2019 through May 31, 2028, you may elect to waive your eligibility for retirement benefits and instead receive a lump-sum payment equal to 60% of the present value of your earned retirement benefit.” “Please note this payment option may end before May 31, 2028 if available funds are exhausted prior to that date.” The statute is wider than the fact sheet. Section 14-147.5(b) of the Illinois Pension Code says “Until June 30, 2028, an eligible person may irrevocably elect to receive an accelerated pension benefit payment in the amount that the System offers under this subsection in lieu of receiving any pension benefit”. Section 14-147.5(a) limits the offer to a person who “has terminated service”, “has not received any retirement annuity under this Article” and “has not made the election under Section 14-147.6”, so the buyout is not open to every member who has qualified for an annuity.
Eligibility: “The lump-sum payment is optional and only available to either a Tier 1 member that has accrued 8 years of service credit, or a Tier 2 member that has accrued 10 years of service credit.” “If you have a QILDRO (Qualified Illinois Domestic Relations Order) on file, you will have to receive permission for the buyout from the alternate payee.”
The cost is stated bluntly. “Members forfeit all service credit for all purposes under the Illinois Pension Code, including benefits provided under the Illinois Reciprocal Act.” “This election is irrevocable and any member who elects this option and later returns to service will be eligible for a benefit based solely on future service and will not have the option to repay the amount received under this program to reestablish the previous service credit.” “It is important to understand what you’re electing.”
A computed example from an assumed $500,000 present value, not a SERS figure: 60 percent of $500,000 is a computed $300,000, and the other 40 percent, a computed $200,000, is not paid as a lump sum. The pages read give no worked buyout example. Weighing a lump sum against a lifetime check is covered at pension lump sum versus monthly annuity.
Buyout rollover, taxes and health insurance
On the amount and its destination: “The calculated lump-sum payment amount will be based on current SERS’ actuarial assumptions, are subject to applicable IRS withholding and tax laws and must be transferred to a qualified retirement plan.” The fact sheet lists “Qualified plans include” 401(a), 401(k), 403(b), 457(b) and IRAs (SIMPLE and traditional). “Some IRAs limit the amount of transfers you can make within a 12-month period.”
Health insurance: “A member who elects the Accelerated Total Pension Benefit Payment option retains access to retiree health insurance through the State of Illinois Group Insurance Program.” “You will not automatically be enrolled in health insurance.” “Health insurance premiums will be billed directly to you by CMS.”
Leaving SERS before retirement: refund or leaving the money in
Tier 2: “If you resign, are discharged, dismissed or laid-off from state employment, you may choose to withdraw your contributions or leave them in SERS.” If contributions stay: “You must have ten years of service under SERS to qualify for a pension.” If they are refunded: “You will receive no interest on your contributions.” “You will forfeit all rights to benefits for yourself and your beneficiaries.” See also pension refund versus leaving it.
Reciprocal service helps: “If you have at least one year of service credit with an Illinois Public Retirement System under the Reciprocal Act, your service under that system may be used to meet the vesting requirements for SERS.” A refund can be undone only for a member who returns: “You will be eligible to repay your refunded contributions and have your previous creditable service restored after you have completed two additional years of creditable service.” The statute prices the repayment. Section 14-130(b) says a repayment of a refund issued after January 1, 1984 consists of “the amount refunded plus regular interest for the period from the date of refund to the end of the month in which repayment is made”.
Buying optional service credit
Tier 2: “Optional service credit is time that may be purchased to increase your pension.” “If you wish to establish optional service credit, you may make a payment of the required employee contributions due along with interest at 6.5% compounded per annum, either in a lump sum or installment payments.” “All optional service credit must be paid and established before retirement.” “The tax-deferred withholding is made through an irrevocable payroll agreement for the total amount of service credit purchased.” Sizing a purchase against the added benefit is the job of the pension buyback calculator.
Annual increases after retirement
Tier 2: “If you retire at age 67 or older, you will receive a non-compounded pension increase of 3% or one-half of the unadjusted percentage increase in the Consumer Price Index for the preceding year, whichever is less, every year on January 1, following your first full year of retirement.” For a reduced pension: “If you retire before age 67 with a reduced retirement benefit, you will receive a non-compounded pension increase of 3% or one-half of the unadjusted percentage increase in the Consumer Price Index for the preceding calendar year, whichever is less, every January 1 after you turn age 67 and have been retired at least one full year.”
Tier 1: “If you retire at age 60 or older, you will receive a 3% pension increase every year on January 1, following your first full year of retirement.” For a member who retires under the Rule of 85: “If you retire under the Rule of 85, you are eligible for your first 3% increase on January 1 following your first full year of retirement, even if you are not age 60.” “These pension increases are not limited by the 75% maximum.” On the reversionary annuity: “The reversionary annuity does not have an annual cost of living increase.”
How SERS says benefits and refunds are taxed
Tier 2: “You pay no Illinois State Income Tax.” “You will pay federal tax on most benefits.” “Therefore, we advise all members to check with a qualified tax consultant before receiving benefits or refunds.” For Illinois treatment, see does Illinois tax pensions and 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 SERS’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 Total Buyout fact sheet says the payment is subject to withholding and must be rolled to a qualified plan. 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 give the reversionary annuity reduction table, only worked examples at assumed ages.
- The pages read do not explain how the Social Security offset on a survivor benefit is eliminated.
- The pages read do not say whether a spouse must consent to the Level Income Option, the reversionary annuity or the buyout.
- The pages read do not say how SERS calculates present value for the buyout, or whether a survivor receives anything after a buyout.
- The pages read do not describe whether the Level Income Option changes the survivor benefit.
- The pages read do not cover the alternative formula, disability benefits, or Tier 1 refund and service purchase rules.
- The pages read do not say which election is right for a given member; that depends on health, a spouse’s income and the member’s own SERS estimate.
Common mistakes
- Treating the Level Income Option, the reversionary annuity or the Total Buyout as reversible. SERS describes each as irrevocable or as not able to be rescinded.
- Waiting for the buyout without noting the fact sheet date of May 31, 2028 and its warning that the option may end earlier if funds are exhausted.
- Electing the Total Buyout without weighing that all service credit is forfeited, including benefits under the Reciprocal Act, and that a later return to service cannot repay it.
- Assuming the buyout includes health insurance. SERS says a member retains access, but coverage is not automatic and premiums are billed by CMS.
- Taking a refund of contributions without noting that it pays no interest and forfeits all rights to benefits for the member and beneficiaries.
- Choosing a reversionary annuity for a spouse and expecting increases. SERS says it has no annual cost of living increase.
- Applying a Tier 2 rule to a Tier 1 member or the reverse, when the age, formula and increase rules differ.
Related on this site: Illinois retirement taxes, does Illinois tax pensions, pension lump sum versus monthly annuity, pension refund versus leaving it and public pension retirement decisions by system.
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Answer againSources
- State Employees’ Retirement System of Illinois, Tier 2 Active Member Handbook: https://ilsrs.illinois.gov/content/dam/soi/en/web/srs/sers/publications/documents/handbooks/sers-t2active-handbook.pdf
- SERS of Illinois, Accelerated Total Pension Benefit Payment fact sheet: https://ilsrs.illinois.gov/content/dam/soi/en/web/srs/sers/publications/documents/fact-sheets/accelerated-total-pension-benefit-payment.pdf
- SERS of Illinois, Reversionary Annuity fact sheet: https://ilsrs.illinois.gov/content/dam/soi/en/web/srs/sers/publications/documents/fact-sheets/sers-reversionary-annuity-fact-sheet.pdf
- SERS of Illinois, Tier 1 Regular Formula: https://ilsrs.illinois.gov/sers/retirement/retirement-benefits/tier-1-regular-formula.html
- 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 2, 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.