Pension Benefits Administration. Article 3 Police Pension Funds Article 4 Firefighters’ Pension Funds. Illinois Public Pension Fund Association Certified Trustee Program . Presented by Allison R. Barrett , Partner. Pension Benefits Administration. Calculation of Benefits (tab 1) - PowerPoint PPT Presentation
Slide 1
Pension Benefits AdministrationLauterbach & Amen, LLP
630.393.1483 * www.lauterbachamen.comArticle 3 Police Pension
FundsArticle 4 Firefighters Pension Funds110/7/2010Illinois Public
Pension Fund Association Certified Trustee Program Presented
byAllison R. Barrett, Partner
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits (tab 1)Service Purchases (tab 1)IRS Reporting (tab
2)Contributions (tab 3) QILDROs (tab 3)
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits - COMPONENTSBenefit is a percentage of salaryRetirement:
percentage is determined by length of creditable serviceDisability:
percentage is fixed, regardless of length of serviceSalary =
Pensionable Salary (see IDOI webpage)Includes - base salary
attached to rank, longevityExcludes clothing or car allowances,
spikes??? Holiday pay, overtime Creditable ServiceGive to Get
theory Excludes some unpaid leaves of absence Felony
convictionLauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits CALCULATOR
IDOI web page Requires input of componentsExceptionsDependent
benefits for Fire (Duty or Occupational Disease Disability)
Conversions
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www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits THINGS TO KNOW
Tier 1 versus Tier 2Member FIRST HIRED by a pension fund under
this article after 01/01/11 = Tier 2Subsequent slides reference
Tier 1
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www.lauterbachamen.comPOP QUIZ!! Lauterbach & Amen, LLP
630.393.1483 * www.lauterbachamen.comQ: TRUE or FALSE?
You must be 50 years old and must have completed 20 years of
active service to beeligible for a retirement pension
710/7/2010Pension Benefits AdministrationA: False Police 8 19
years of serviceAge 60 Fire10-19 years of serviceAge 60Lauterbach
& Amen, LLP 630.393.1483 * www.lauterbachamen.comPOP QUIZ!!
Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.comQ:
TRUE or FALSE?
A line of duty disability pension is granted at 65% of
pensionable salary
910/7/2010Pension Benefits AdministrationA: False GREATER OF
65%, or The retirement amount the member is eligible for at time of
disability (max 75%)REMEMBER First 65% is tax-free; anything above
65% is taxable Fire: Additional benefit paid for dependentBenefit
paid directly to member butReport on IDOI report under
dependent
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits THINGS TO KNOW
Nonduty Disability Pension50% of pensionable salary
TaxableLauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits THINGS TO KNOWInitial IncreasesRetirementEffective: Later
of month after turn 55 or month after retired for one yearAmount:
(1/12) of (3% of original benefit) times (# of full months between
retirement date and effective date of initial
increase)DisabilityEffective: January 1st after reach age 60
Amount: (3% of original benefit) times (# of full years between
disability date and effective date of initial increase)Lauterbach
& Amen, LLP 630.393.1483 * www.lauterbachamen.comPension
Benefits AdministrationCalculation of Benefits THINGS TO
KNOWSubsequent Increases (COLAs)RetirementEffective: Every January
1st after the initial increase has been received Amount: 3%
compounded DisabilityEffective: Every January 1st after the initial
increase has been received Amount: 3% of original benefit
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits THINGS TO KNOWCOLAsSpousal NONE!Dependents for Fire Duty
or Occupational Disease Disability3% compoundedEvery January,
regardless of age of pensioner
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits THINGS TO KNOWSurvivor benefitsEligible SpousePolice
married at time pension beganFire married at least one year prior
to deathDependent Child(ren)Under age 18Legally handicapped
(mentally or physically) for lifeDependent Parent(s)Estate if
pension withdrawn is less than contributions madeLauterbach &
Amen, LLP 630.393.1483 * www.lauterbachamen.comPension Benefits
AdministrationCalculation of Benefits THINGS TO KNOW
Minimum Gross Benefit Police - $1,000 (01/01/01)Fire - $1,159.27
(07/01/08) Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCalculation of
Benefits CONVERSIONS
Disability Pension OptionRequirementsAge 50 20 years of service
(active or active+disability)Initial benefit should be calculated
using statute in effect at time of disabilitySALARY???? - if at
least 20 years of active service, use salary at time of
conversionCalculator not available - ask IDOI for assistance
Consider taxability (gross may be more but net may be
less)Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPOP QUIZ!! Lauterbach & Amen, LLP
630.393.1483 * www.lauterbachamen.comQ: TRUE or FALSE?
Pension benefits should be paid monthlyat any time during the
month
1810/7/2010Pension Benefits AdministrationA: FalseDepartment of
Insurance written opinionFiduciary responsibility not to prepay
benefitsShould be paid on last business day of month for the month
(August benefits paid 08/31) Lauterbach & Amen, LLP
630.393.1483 * www.lauterbachamen.comPension Benefits
AdministrationService Purchase Disability Buy Back Up to 3 years of
disability timeMust pay contributions that would have been
withheldUsing salary at time of disabilityInterest 6% compounded
from each missed pay date to repayment date Must return to active
service for a period of time equal to the time being purchased
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationService
Purchase Military Service (after hired) Can purchase up to 5 years
(if hired before 07/01/73, no limit) Must pay full contributions
due as if remained active employee Employer pays difference between
full wages and military wagesEmployer can withhold full
contributions, partial contributions, or no contributions NO
INTEREST!
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Purchase Military Service (before hired) Can purchase up to 24
monthsMust pay full amount of new unfunded liabilityUse salary at
date of hireEmployee AND Employer contributions, using Percent of
Total Normal Costs from tax levy Interest Reserve time? Document
procedures in your Rules & Regs!!!Lauterbach & Amen, LLP
630.393.1483 * www.lauterbachamen.comPension Benefits
AdministrationService Purchase PORTABILITY (police only)Article 3
to Article 3 Moves service timeMust have at least 2 years of
service with Prior Fund Unless left due to lay-offUnless left prior
to 08/17/97 Must transfer 100% of service time
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Purchase PORTABILITY (continued)3 calculations Repay contribution
refund, plus 6% interest (Prior Fund does)Prior Fund sends to
Current Fund (Prior Fund does)A. Employee contributionsB. Interest
calculation 6% from date of each payroll deduction to date of
transfer (THIS IS NOT THE SAME INTEREST CALC AS #1 ABOVE!)C. Match
of A and B True Cost calculation (by certified actuary) (Current
Fund does) Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationService
Purchase PORTABILITY (continued)If True Cost is greater than amount
from Prior FundOption #1Officer pays difference to Current Fund
(within 5 years)Receives credit for 100% of Prior Fund service
Option #2Officer pays nothing to Current FundReceives partial
credit (amount from Prior Fund divided by Total True Cost)
If True Cost is less than amount from Prior Fund, Current Fund
keeps differenceLauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationService
Purchase PORTABILITY (example)Option #1 example Prior Fund service
time 4 years, 2 months, 18 days Prior Fund sends $63,800True Cost
is $145,000
Balance due to Current Fund from officer $145,000 $63,800 =
$81,200Lump sum or installments (within 5 years)Lauterbach &
Amen, LLP 630.393.1483 * www.lauterbachamen.comPension Benefits
AdministrationService Purchase PORTABILITY (example)Option #2
example Prior Fund service time 4 years, 2 months, 18 days (= 50.6
months)Prior Fund sends $63,800True Cost is $145,000
63,800 / 145,000 = .44.44 x 50.6 months = 22.27 monthsAdditional
service granted of 1 year, 10 months, 8 daysNo additional cost to
officerLauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationService
Purchase RECIPROCITY (fire only)Article 4 Combines service time
does not moveMust have at least 1 year of service with Prior
Fund(s)Must have at least 3 years of service with Final FundMust be
50 years old and have at least 20 years of service between fundsIf
hired after 07/01/04, must notify funds of intent within 21
months
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationService
Purchase RECIPROCITY cost to member 3 calculations Repay
contribution refund (to all Prior Funds)Plus 6% interest 10 years
to repay Additional 1% contribution (to all Prior Funds)6% interest
Lump sum / installments Additional 1% contribution (to Current
Funds)6% interest prior to Declaration DateEmployer withholds
additional 1% from paycheck as of Declaration Date
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Purchase Reciprocity PENSION BENEFITRetirement Prior Fund(s)1/12 of
2.5% of final monthly salary for each month of service in that
fund(s)Final FundCalculate benefit as if ALL service was with this
fund, using salary of this fundSubtract amount(s) paid by prior
fund(s) Mutliple 1099R forms
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Purchase Reciprocity PENSION BENEFITNonduty Disability, Duty
DisabilityFull benefit paid by Current Fund
Occupational Disease DisabilityBenefit paid by all funds to whom
payment has been completedEach fund pays a prorated share based
upon length of service
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Purchases Final Thoughts Credit received once all payments made by
all parties Good record keeping is a must!Deductions made from
payroll for purchase of service must be AFTER-TAX (even if regular
contributions are pre-tax)Update Department of Insurance
ReportStatusHire DateLength of Service
COST PROHIBITIVE!!Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationHELPS
(Healthcare Enhancement for Local Public Safety)Effective January
2007Reduce taxable earnings by $3,000/yearInsurance
premiumsDeducted from pension checkPaid directly to provider Do not
withhold pre-tax (limits pensioners filing options on their 1040
form)DO NOT REFLECT ON 1099R FORM!!!!
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationSocial
SecurityWindfall Elimination Provision Spousal / widow
benefitsContact local SSA office www.ssa.gov (calculator)
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits - REPORTINGNew pensions first paid after
12/31/97
Replaces Safe Harbor Method with Simplified MethodDivide total
after-tax contributions by the number of months of life
expectancyNumber of months provided by one of two IRS tables
(marital status)
Pension Fund responsible for reporting taxability on 1099R
form
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits - REPORTING
Taxability of pension transfers to spousal pension
Tax-free pensions should not be reported to the IRSKilled in the
line of duty65% duty/occupational disease disabilityIf awarded for
cancer (4-110.1) IS taxable
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX FORM #1
SS-4 Application for Employer Identification NumberIRS needs to
know pension fund is a separate entity from
municipality/districtwww.ssa.gov
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX FORM #2
W-4P Withholding Certificate for Pension or Annuity Payments
Determines the amount of federal tax to withhold from pension
checkMarital status / number of exemptions Cannot request a flat
dollar amount!
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX FORM #3
945 Annual Return of Withheld Federal Income Tax Pension Fund
lists tax liability dates and amounts dueIRS uses to reconcile
against tax deposits to determine if paid timely Due February 945-A
may be required
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX FORM #4
1099R In lieu of W-2 Taxable pension paymentsContribution
refundsDue January 31st to payee; due February 28th to IRS
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX FORM #5
1099MISCVendor payments All legal services All medical
servicesAll non-incorporated vendors to whom paid at least $600
during the calendar yearDue January 31st to payee; due February
28th to IRS
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX FORM #6
1096 Annual Summary and Transmittal of U.S. Information
ReturnsCover page Use with 1099R and 1099MISC forms Due February
28th to IRS
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationTaxability of
Pension Benefits TAX NOTES
Circular E (Publication 15)Federal tax withholding tablesDeposit
schedule (safest pay taxes on pay day!)EFTPS (www.eftps.gov)Tax
liabilitiesFederal withholding tax yesIL withholding tax noOther
state withholding tax maybeSocial Security / Medicare no
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationCoalition for
Qualified Plan Status AFFI / IGFOA / ILFOP / IMTA / IPFA / IPPFA /
MAP (IDOI, Lauterbach & Amen)To maintain Qualified Plan status
with IRSTax-free pension benefitsPre-tax contribution deductions /
roll-oversNo tax due on interest from investments IRS grants
Determination Letter5-year cycleIDOI webpageCost savings As
individual pension fund = $40,000+As part of Article 3 or Article 4
= $400 (did you contribute?)Annual review of IL statutes to ensure
compliance with IRS code
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationContributions
EMPLOYER PICK-UP PLAN Option presented by IRS in mid-1980sPre-tax
contribution deductions (increases net pay)Employer
ResolutionDetermination Letter covers FundIrrevocableNot required
for employer, but if implemented, mandatory participation by
employees
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationContributions
Rates Police9.91%Effective 01/01/01Fire9.455%Effective
07/01/04Additional 1% for reciprocityPensionable earnings ONLY
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationContributions
RefundsAfter-tax contributionsPaid directly to member No taxes
withheld Pre-tax contributions Paid directly to memberMust withhold
20% in federal taxIRS notification of potential penalties / taxes
when file 1040Roll-over to another Qualified PlanNo tax
withheldPayable and sent to Qualified Plan (not member) Reflect
refund on 1099R
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationQILDRO
Qualified Illinois Domestic Relations OrderEffective 07/01/06
Only applicable against contribution refund or retirement pension3
piecesAll must be filed in courtHave Board Attorney review before
implementingAvailable on DOI webpage (with reference manual)
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationQILDRO
Components QILDRO Order Names parties Allocates benefit as a
percentage of the marital portion of the pension Consent To
Issuance form Required if hired prior to 07/01/99Calculation
FormCompleted by member, ex-spouse, their attorneys Cant be
completed until creditable service is done
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.comPension Benefits AdministrationQILDRO
Taxability
1099R ReportingAlternate Payee List benefit as fully taxable
MemberGross benefit (Box 1) - no effectTaxable benefit (Box 2a)
reflect QILDRO paid in this box Gross less QILDRO (less recovered
after-tax contributions)
Lauterbach & Amen, LLP 630.393.1483 *
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Cessation
If Alternate Payee dies
If Member diesNot applicable to survivor pension
Lauterbach & Amen, LLP 630.393.1483 *
www.lauterbachamen.com
Allison R. BarrettLauterbach & Amen, LLP27W457 Warrenville
RdWarrenville, IL 60555
630.393.1483 /
[email protected]
