SURS Retirement Options: Choose Within Six Months, It Is Permanent

Updated October 2, 2026. Quick answer: A new member of the State Universities Retirement System of Illinois (SURS) chooses Traditional, Portable or the Retirement Savings Plan within six months, and the choice is permanent. A member who does not choose is placed in Traditional, which pays a lifetime annuity with a survivor benefit at no added cost. Its refund returns contributions plus interest of not more than 4.5%, without the state match, and accepting it forfeits future benefits. Tier I members can retire at 55 with eight years of service, Tier II members at 62 with ten. The statute, 40 ILCS 5/15-135, sets earlier ages for police officers and firefighters, covered below.

More on public pension systems, topic by topic: Illinois SURS employment after retirement, Illinois SURS Disability Retirement Annuity and Illinois SURS service credit.

Chicago police officers, firefighters and laborers belong to separate city funds with their own refund and annuity rules: Chicago police PABF retirement decisions, Chicago firefighters FABF retirement decisions and Chicago Laborers’ Fund retirement decisions.

Chicago public school teachers belong to a separate fund with its own refund and pension rules: Chicago teachers CTPF retirement decisions.

The first decision: Traditional, Portable or RSP

Every new SURS member makes one plan choice, and it is the one with the longest reach. SURS says: “The choice is permanent and cannot be changed.” The deadline appears on the Traditional plan page: “The Traditional Pension Plan is also the default plan assigned to members who fail to choose a plan within six months of certification.” The statute, 40 ILCS 5/15-134.5, words the clock this way: “A newly eligible employee must make this election within 6 months after the date on which the System receives the report of status certification from the employer.” On mechanics, SURS says: “Plan elections can be made online or by returning the election form.” SURS also offers a Plan Choice Decision Tool on its Member Website. One limit is in the statute, not in the plan descriptions: a member who already has enough age and service to qualify for a retirement annuity under Section 15-135 when first eligible to elect “may elect to participate in the traditional benefit package or the portable benefit package, but may not elect to participate in the self-managed plan” (40 ILCS 5/15-134.5(c)).

Two of the plans are pensions and one is an account. On the Traditional plan SURS says: “It provides lifetime retirement benefits and a survivor benefit at no additional cost.” The trade-off SURS names is a smaller refund: “However, the separation refund feature is not as generous as the Portable Pension Plan”. On the Portable plan: “It provides a more generous separation refund if you leave the System.” “However, the provisions for survivor benefits require a reduction to the retirement and death benefits.” Section 15-136.4 describes the reduction: “If the participant is married on the date his or her annuity payments commence, then the annuity payments shall be paid in the form of a qualified joint and survivor annuity that is the actuarial equivalent of the single-life annuity.” A married participant who chooses another optional form needs the spouse: “If the participant is married and elects an optional form of payment under subsection (h) other than a joint and survivor annuity with the eligible spouse designated as the contingent annuitant, then such election shall require the consent of his or her eligible spouse in the manner described in subsection (d).”

The third choice is not a pension. SURS says: “The Retirement Savings Plan is a defined contribution plan that establishes an account in your name into which your contributions and the employer (state of Illinois) matching contributions are placed.” Its default investment option is the Lifetime Income Strategy, and SURS says that “As you near retirement, you have the option to secure guaranteed retirement income that you cannot outlive.”

Tier I or Tier II, and who can retire when

Which tier a member is in decides the ages. SURS says: “If you first began participation prior to Jan. 1, 2011, you are considered a Tier I member.” “If you first began participation on or after Jan. 1, 2011, you would be considered a Tier II member.” Prior service elsewhere in Illinois matters here: “It is important that you notify SURS if you participated in another Illinois retirement system or if you had previous participation with SURS but accepted a refund”.

The pension plans share the same eligibility language. For Tier I the guide lists three ways to qualify: “You are at least age 55 and have eight or more years of Illinois service (benefits will be reduced for early retirement if you retire between ages 55 and 60)”; “You are at least age 62 and have five or more years of service”; or “At any age when you achieve 30 years of service, provided your covered employment terminated on or after Aug. 2, 2002.” For Tier II it lists two: “You are at least age 62 and have ten or more years of Illinois service (benefits will be reduced for early retirement if you retire between ages 62 and 67)”; or “You are at least age 67 and have ten or more years of service”. These are the general ages. Section 15-135 sets earlier ages for police officers and firefighters: “A participant who has at least 25 years of service in this system as a police officer or firefighter is entitled to a retirement annuity on or after the attainment of age 50, if Rule 4 of Section 15-136 is applicable to the participant.” For a Tier II member: “A Tier 2 member who has at least 20 years of service in this system as a police officer or firefighter is entitled to a retirement annuity upon written application on or after the attainment of age 60 if Rule 4 of Section 15-136 is applicable to the participant.”

What early retirement costs, with a computed example

The reduction is a flat monthly rate. For Tier I the guide says: “The law requires a 0.5% reduction to the General Formula benefit for each full month you are under the normal retirement age.” “For Tier I, Normal retirement age is 60.” For Tier II: “For Tier II, normal retirement age is 67.” The Tier I rule is waived with 30 or more years of service credit. Section 15-136 lists two other cases where the reduction does not apply, one of them for “For that portion of a retirement annuity which has been provided on account of service of the participant during periods when he or she performed the duties of a police officer or firefighter, if these duties were performed for at least 5 years immediately preceding the date the retirement annuity is to begin.”

A computed example from an assumed Tier II member with $60,000 of final average earnings and 20 years of service, not a SURS figure: the guide’s own example applies “(see 2.2% General Formula tables)”, so 2.2 percent for each of 20 years is 44.0 percent, and $60,000 times that is $26,400 a year before any reduction. If that member retired 5 years before 67, that is 60 full months, and 0.5 percent for each month is a 30 percent reduction, leaving a computed $18,480 a year. The computed example rests on assumed inputs of $60,000, 20 years and 5 years. As a cross-check against SURS’s own Tier II table, 10 years of service shows 22.00 at 67 and older and 15.40 at 62, and 22.00 reduced by 30 percent is 15.40. SURS pays the largest of the formulas a member is eligible for, so the real figure can differ, and a SURS estimate controls.

The Traditional payout choices: survivor benefit and the reversionary annuity

The Traditional plan page describes the standard survivor benefit as provided at no additional cost. The election the guide describes that reduces the member’s own check is the reversionary annuity. “At the time of your retirement, you have the option of providing your spouse/civil union partner or other dependent with a reversionary annuity.” “If elected, your monthly benefit is reduced for life to cover the cost of this additional benefit.” “This benefit is available under the Traditional Pension Plan only.”

The election has a deadline and a lock. “To elect the reversionary annuity, you must complete the Election of Reversionary Annuity form in the Traditional retirement application at least 30 days before you retire.” A change of mind is allowed only until retirement: “Once you retire, the election cannot be changed.”

There are two payment forms. “Option 1: If your reversionary annuity beneficiary should die after your benefit begins, you will continue to receive the reduced annuity.” “Option 2: If your reversionary annuity beneficiary should die after your benefit begins, your full retirement annuity will be reinstated.”

The guide gives a cost example for a retiree at age 60 with a 55 year-old beneficiary: “Your retirement annuity would be reduced approximately $13 per month and your spouse/civil union partner would receive $100 per month during his/her lifetime after your death in addition to the survivors annuity payable under the survivors program.” A computed example from an assumed $300 per month reversionary amount at those same ages, not a SURS figure: $300 is three times $100, and the guide’s own cost tables, effective July 2, 2025, print $14 for a retiree at 60 with a beneficiary at 55 under both Option 1 and Option 2, so the reduction is about 3 times $14, or roughly $42 a month. The guide’s narrative example for the same ages says $13 per $100, which would give about $39 a month; this page uses the dated table figure, and the two differ by $1 per $100. The tables vary with both ages and with the option, so only SURS can price a real case.

Survivor amounts differ by tier. For a member who dies before retirement, the Tier II guide lists a monthly survivor benefit of “66 2/3% of your earned retirement annuity” among what qualifying survivors receive, and the Tier I guide says: “The monthly survivor benefit will then be the larger of the Maximum or Minimum formulas.” For Tier II the statute states the rate in 40 ILCS 5/15-145.1: “The initial survivor’s insurance annuity of a survivors insurance beneficiary of a Tier 2 annuitant shall be in the amount of 66 2/3% of the Tier 2 member’s retirement annuity at the date of death.” “In the case of the death of a Tier 2 member who has not retired, eligibility for a survivor’s insurance benefit shall be determined by the applicable Section of this Article. The initial benefit shall be 66 2/3% of the earned annuity without a reduction due to age.”

Decisions made once at retirement: survivor contributions

One retirement-day item is fixed for good. “If you have no eligible survivors, you may elect a lump-sum refund of your survivor contributions (1%) plus the interest that has accumulated on the amount paid upon finalization of your claim.” “However, the decision of whether to take the refund or preserve the rights of future survivors must be made at retirement and cannot be changed.” Beneficiary designations, by contrast, can be revisited: “You may change your designation at any time.” The statute offers two choices, not one. Section 15-154(c), subject to an exception in subsection (c-5), says “if a participant covered under the traditional benefit package has made survivors insurance contributions, but has no survivors insurance beneficiary upon retirement, he or she shall be entitled to elect a refund of the accumulated survivors insurance contributions, or to elect an additional annuity the value of which is equal to the accumulated survivors insurance contributions. This election must be made prior to the date the person’s retirement annuity is approved by the System.”

The Portable lump sum and what happens if you return to work

A SURS page covers members who took a Portable Lump Sum Retirement and then return to work. The pages read do not describe how that lump sum is calculated or taxed, so this section covers only the return-to-work rules. “If you received a Portable Lump Sum Retirement from SURS, you must wait 60 calendar days from the date the lump sum check was issued to return to work with a SURS-covered employer.” “If you do not satisfy this requirement, you will be required to repay the full lump sum to SURS.” The amount is set by statute. Section 15-136.4 says “The participant may elect to receive a lump sum retirement benefit that is equal to the amount of a refund payable under Section 15-154(a-2).” Section 15-154(a-2) says “The refund payable to a participant described in subsection (a-1) shall be the sum of the participant’s accumulated normal and additional contributions, as defined in Sections 15-116 and 15-117, plus the entire contribution made by the participant under Section 15-113.3.” It adds: “If the participant terminates with 5 or more years of service for employment as defined in Section 15-113.1, he or she shall also be entitled to a distribution of employer contributions in an amount equal to the sum of the accumulated normal and additional contributions, as defined in Sections 15-116 and 15-117.”

Re-participation is a separate election. “If you wish to resume participation in the SURS system, complete and return the election form within 30 days.” There is a minimum stay: “You must be reemployed for at least nine consecutive months to be eligible for additional benefits from SURS.” “All contributions will be returned to your employer without interest.” The statute, 40 ILCS 5/15-139(c), which governs an annuitant who returns to work and resumes participation, names a different recipient when that employment ends within nine months: “If the participant’s employment is terminated because of circumstances other than death before 9 months from the date of reemployment, the provisions of this Section regarding resumption of status as a participating employee shall not apply.” It continues: “The normal and survivors insurance contributions which are deducted during this period shall be refunded to the annuitant without interest”. Ask SURS who receives the contributions in your case.

Going back to work after a monthly annuity

A retiree on a monthly annuity faces different limits. The Tier I guide says: “You may not be re-employed by an employer covered by SURS until you have been retired for at least 60 calendar days.” “If you exceed the limits, your benefit is subject to reduction or suspension.” Section 15-139(a) adds a harder rule for the first 60 days: “If an annuitant returns to employment for an employer within 60 days after the beginning of the retirement annuity payment period, the retirement annuity shall be cancelled, and the annuitant shall refund to the System the total amount of the retirement annuity payments which he or she received.” It adds: “If the retirement annuity is cancelled, the participant shall continue to participate in the System.” For an annuity that began before age 60, SURS says: “If your annuity payments began before age 60, your base monthly earnings from an employer covered by SURS may not exceed your current monthly base annuity.” Section 15-139(b) sets the triggers. For an annuity that began before age 60, the rule applies when the annuitant receives, in any month, “compensation in excess of the monthly retirement annuity (including any automatic annual increases) for services performed after the date of retirement for any employer under this System”, and then “that portion of the monthly retirement annuity provided by employer contributions shall not be payable”. For an annuity that began at 60 or over, it applies to academic-year “compensation in excess of the difference between his or her highest annual earnings prior to retirement and his or her annual retirement annuity”, and then that portion “shall be reduced by an amount equal to the compensation that exceeds such difference”. Anyone planning to work after retiring should confirm the limit that applies to them with SURS before accepting a job.

Leaving before retirement: refund or leaving the money in

A member who leaves SURS-covered work has a one-way choice. SURS says: “Should you leave the System entirely, you can receive your retirement contributions in a lump sum.” “However, by accepting a separation refund, your claim to future benefits will be forfeited.” The statute limits who can apply. Section 15-154(a) says “A participant whose status as an employee is terminated, regardless of cause, or who has been on lay off status for more than 120 days, and who is not on leave of absence, is entitled to a refund of contributions upon application; except that not more than one such refund application may be made during any academic year”. For the broader trade-off, see pension refund versus leaving it.

The refund is smaller than the money that funds the pension. SURS says: “Your refund is a return of your contributions and interest on those contributions at a rate of not more than 4.5%.” “Any interest previously credited to your balance in excess of 4.5 % is forfeited.” “In the Traditional Pension Plan, state matching funds are not includable in refunds and are only used in the calculation of retirement and survivor annuity payments.”

The mechanics are paperwork-heavy. “Applications must be returned within 45 days.” “Only one refund per academic year may be paid.” On where the money goes, the application asks “Whether you wish to have the funds paid directly to you or rolled to an eligible retirement account.” “If you receive a refund, you must receive it by the April 1 following the year you reach RMD age to be in compliance with RMD rules.”

Refund taxes and the rollover

SURS lays out the tax treatment. “If your refund is $200 or more and you do not elect a direct rollover, SURS is required by law to withhold a minimum of 20% for federal income tax.” On the penalty, SURS says: “Your refund is subject to a 10% early withdrawal penalty unless:” Among the exceptions it lists are that “You are over age 59.5” and that “You terminated employment after age 55”. “Your refund is not subject to state of Illinois income tax.” For how Illinois treats pensions more broadly, see does Illinois tax pensions and Illinois retirement taxes.

The deferral route is a rollover. “You may defer taxation by rolling the taxable portion of your refund directly from SURS into an IRA, a qualified 401(a) retirement plan, a 403(b) plan, or a 457 plan.”

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 SURS’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”. SURS’s refund page asks whether the funds go to the member or are rolled to an eligible retirement account. 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.

Buying service credit and repaying a refund

Service credit can be bought in several ways. SURS allows a purchase for work with another SURS-covered employer, and says: “This employment must have been at least 50% time and must have occurred before you began SURS participation.”

For other public employment the guide says: “The payment required to purchase each year of service credit is 8% of your full-time (or full-time equivalent) rate of pay on the date you began SURS participation.” Section 15-113.6 prices it differently: the person “pays the lesser of (A) an amount equal to 8% of his or her annual basic compensation on the date of becoming a participating employee subsequent to this service multiplied by the number of years of such service, together with compound interest from the date participation begins to the date payment is received by the board at the rate of 6% per annum through August 31, 1982, and at the effective rates after that date, and (B) 50% of the actuarial value of the increase in the retirement annuity provided by this service”. The same sentence sets two other conditions: the person “cannot qualify for a retirement pension or other benefit based upon employer contributions from another retirement system, exclusive of federal social security, based in whole or in part upon this employment”, and must then contribute for at least 5 years to SURS or another of the teacher systems the section lists. “You may purchase up to 10 years of OPE, but not more than two-thirds of your direct SURS service credit.” “OPE may not be used to meet SURS minimum vesting requirements.” To weigh a cost against the extra benefit, the pension buyback calculator frames the arithmetic.

A member who took a refund earlier can undo it: “If you choose to repay the amount of the refund, it must be paid in its entirety.” “Once you repay a refund, all rights and credits that were initially forfeited by acceptance of a refund are restored.” The statute is narrower on the conditions. Section 15-154(b) says “If such person again becomes a participating employee and continues as such for 2 years, or is employed by an employer and participates for at least 2 years in the Federal Civil Service Retirement System, all such rights, credits, and previous status as a participant shall be restored upon repayment of the amount of the refund, together with compound interest thereon from the date the refund was issued to the date of repayment at the rate of 6% per annum through August 31, 1982, and at the effective rates after that date”.

Cost-of-living increases: Tier I and Tier II

The two tiers differ sharply. For Tier I: “Each Jan. 1, your monthly retirement benefit will automatically receive a 3% compounded increase.” For Tier II: “If you elect a lifetime monthly benefit, a non-compounding annual increase will apply to the monthly retirement annuity beginning on the Jan. 1 occurring on or after the later of your attainment of age 67 or the first anniversary of the commencement of your annuity.” “This annual increase will be the lesser of half of the change in Consumer Price Index-Urban (CPI-U) from the preceding year or 3%, computed on the original retirement annuity amount.” For Tier II, Section 15-136(d-5) adds a floor: “Each annual increase shall be calculated at 3% or 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, whichever is less, of the originally granted retirement annuity.”

What this page could not settle

• The pages read do not state the dollar amount or formula of the Portable refund, or how it differs from the Traditional refund beyond calling it more generous.
• The pages read do not state how a Portable Lump Sum Retirement is calculated, whether it can be rolled over, or how it is taxed, only the return-to-work rules that follow one.
• The pages read do not state whether a spouse must consent to a payout election.
• The pages read do not give the RSP withdrawal, vesting or payout rules, only that it is a defined contribution account with state matching contributions.
• The pages read do not state a vesting period for a refund or what interest is credited in the Portable plan.
• The Traditional plan page names age 72 as the point by which an annuity must begin, while the Tier I guide ties the date to RMD age; the pages read do not reconcile the two. Section 15-135(b) answers it: if the member is not an employee of an employer participating in SURS or in another system participating under Article 20 on April 1 of the calendar year after the year of reaching the federal required-distribution age, “the annuity payment period shall begin on that date regardless of whether an application has been filed”.
• The pages read do not give the SURS purchase cost tables or the effective interest rate for a future purchase, only the 8 percent of pay formula for other public employment and the interest rule.
• The pages read do not state which of the three plans a particular member should choose; that depends on career length, spouse and risk, and SURS offers a Plan Choice Decision Tool.

Common mistakes

• Letting the six month plan-choice window pass, which places the member in the Traditional plan permanently.
• Treating the plan choice as reversible. SURS says the choice is permanent and cannot be changed.
• Taking a separation refund without weighing that accepting it forfeits the claim to future benefits and that the Traditional refund excludes state matching funds.
• Electing a reversionary annuity without realizing it reduces the monthly benefit for life and cannot be changed after retirement.
• Assuming the survivor contribution refund can be taken later. The decision to take it or preserve future survivor rights is made at retirement.
• Going back to work for a SURS-covered employer inside 60 days of a Portable lump sum, which SURS says requires repaying the full lump sum.

Related on this site: Illinois retirement taxes, does Illinois tax pensions, pension refund versus leaving it, pension buyback calculator and public pension retirement decisions by system.

Sources

• SURS, Traditional Retirement Plan: https://surs.org/retirement-plans/traditional/
• SURS, Portable Retirement Plan: https://surs.org/retirement-plans/portable/
• SURS, Retirement Savings Plan (RSP): https://surs.org/retirement-plans/rsp/
• SURS, Return to Work After a Portable Lump Sum Retirement: https://surs.org/life-events/return-to-work-portable-lump-sum-retirement/
• SURS, Refund of Contributions: https://surs.org/benefits/refund/
• SURS, Guide to Tier I Traditional Retirement Benefits: https://surs.org/wp-content/uploads/Guide-TRD-TierI.pdf
• SURS, Guide to Tier II Traditional Retirement Benefits: https://surs.org/wp-content/uploads/Guide-TRD-TierII.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 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.