1 / 125

Pension Benefits Administration

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)

elysia
Download Presentation

Pension Benefits Administration

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Pension Benefits Administration Article 3 Police Pension Funds Article 4 Firefighters’ Pension Funds Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  2. Illinois Public Pension Fund Association Certified Trustee Program Presented by Allison R. Barrett, Partner Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  3. Pension Benefits Administration • Calculation 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.com

  4. Pension Benefits Administration • Calculation of Benefits - COMPONENTS • Benefit is a percentage of salary • Retirement: percentage is determined by length of creditable service • Disability: percentage is fixed, regardless of length of service • Salary = “Pensionable Salary” (see IDOI webpage) • Includes - base salary attached to rank, longevity • Excludes – clothing or car allowances, spikes • ??? – Holiday pay, overtime • Creditable Service • “Give to Get” theory • Excludes some unpaid leaves of absence • Felony conviction Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  5. Pension Benefits Administration • Calculation of Benefits – CALCULATOR • IDOI web page • Requires input of components • Exceptions • Dependent benefits for Fire (Duty or Occupational Disease Disability) • Conversions Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  6. Pension Benefits Administration • Calculation of Benefits – THINGS TO KNOW • Tier 1 versus Tier 2 • Member FIRST HIRED by a pension fund under this article after 01/01/11 = Tier 2 • Subsequent slides reference Tier 1 Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  7. POP QUIZ!! Q: TRUE or FALSE? You must be 50 years old and must have completed 20 years of active service to be eligible for a retirement pension Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  8. Pension Benefits Administration A: False • Police • 8 – 19 years of service • Age 60 • Fire • 10-19 years of service • Age 60 Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  9. POP QUIZ!! Q: TRUE or FALSE? A line of duty disability pension is granted at 65% of pensionable salary Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  10. Pension Benefits Administration A: 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 dependent • Benefit paid directly to member but • Report on IDOI report under dependent Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  11. Pension Benefits Administration • Calculation of Benefits – THINGS TO KNOW • Nonduty Disability Pension • 50% of pensionable salary • Taxable Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  12. Pension Benefits Administration • Calculation of Benefits – THINGS TO KNOW • Initial Increases • Retirement • Effective: Later of month after turn 55 or month after retired for one year • Amount: (1/12) of (3% of original benefit) times (# of full months between retirement date and effective date of initial increase) • Disability • Effective: 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.com

  13. Pension Benefits Administration • Calculation of Benefits – THINGS TO KNOW • Subsequent Increases (COLAs) • Retirement • Effective: Every January 1st after the initial increase has been received • Amount: 3% compounded • Disability • Effective: Every January 1st after the initial increase has been received • Amount: 3% of original benefit Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  14. Pension Benefits Administration • Calculation of Benefits – THINGS TO KNOW • COLAs • Spousal – NONE! • Dependents for Fire • Duty or Occupational Disease Disability • 3% compounded • Every January, regardless of age of pensioner Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  15. Pension Benefits Administration • Calculation of Benefits – THINGS TO KNOW • Survivor benefits • Eligible Spouse • Police – married at time pension began • Fire – married at least one year prior to death • Dependent Child(ren) • Under age 18 • Legally handicapped (mentally or physically) – for life • Dependent Parent(s) • Estate • if pension withdrawn is less than contributions made Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  16. Pension Benefits Administration • Calculation 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.com

  17. Pension Benefits Administration • Calculation of Benefits – CONVERSIONS • “Disability Pension Option” • Requirements • Age 50 • 20 years of service (active or active+disability) • Initial benefit should be calculated using statute in effect at time of disability • SALARY???? - if at least 20 years of active service, use salary at time of conversion • Calculator 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.com

  18. POP QUIZ!! Q: TRUE or FALSE? Pension benefits should be paid monthly at any time during the month Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  19. Pension Benefits Administration A: False • Department of Insurance written opinion • Fiduciary responsibility not to prepay benefits • Should be paid on last business day of month for the month (August benefits paid 08/31) Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  20. Pension Benefits Administration • Service Purchase – Disability Buy Back • Up to 3 years of disability time • Must pay contributions that would have been withheld • Using salary at time of disability • Interest – 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.com

  21. Pension Benefits Administration • Service 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 wages • Employer can withhold full contributions, partial contributions, or no contributions • NO INTEREST! Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  22. Pension Benefits Administration • Service Purchase – Military Service (before hired) • Can purchase up to 24 months • Must pay full amount of new unfunded liability • Use salary at date of hire • Employee 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.com

  23. Pension Benefits Administration • Service Purchase – PORTABILITY (police only) • Article 3 to Article 3 • “Moves” service time • Must have at least 2 years of service with Prior Fund • Unless left due to lay-off • Unless left prior to 08/17/97 • Must transfer 100% of service time Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  24. Pension Benefits Administration • Service 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 contributions • B. 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.com

  25. Pension Benefits Administration • Service Purchase – PORTABILITY (continued) • If True Cost is greater than amount from Prior Fund • Option #1 • Officer pays difference to Current Fund (within 5 years) • Receives credit for 100% of Prior Fund service • Option #2 • Officer pays nothing to Current Fund • Receives partial credit (amount from Prior Fund divided by Total True Cost) • If True Cost is less than amount from Prior Fund, Current Fund keeps difference Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  26. Pension Benefits Administration • Service Purchase – PORTABILITY (example) • Option #1 – example • Prior Fund service time 4 years, 2 months, 18 days • Prior Fund sends $63,800 • True Cost is $145,000 • Balance due to Current Fund from officer • $145,000 – $63,800 = $81,200 • Lump sum or installments (within 5 years) Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  27. Pension Benefits Administration • Service Purchase – PORTABILITY (example) • Option #2 – example • Prior Fund service time 4 years, 2 months, 18 days (= 50.6 months) • Prior Fund sends $63,800 • True Cost is $145,000 • 63,800 / 145,000 = .44 • .44 x 50.6 months = 22.27 months • Additional service granted of 1 year, 10 months, 8 days • No additional cost to officer Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  28. Pension Benefits Administration • Service Purchase – RECIPROCITY (fire only) • Article 4 • “Combines” service time – does not “move” • Must have at least 1 year of service with Prior Fund(s) • Must have at least 3 years of service with Final Fund • Must be 50 years old and have at least 20 years of service between funds • If hired after 07/01/04, must notify funds of intent within 21 months Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  29. Pension Benefits Administration • Service 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 Date” • Employer withholds additional 1% from paycheck as of “Declaration Date” Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  30. Pension Benefits Administration • Service Purchase – Reciprocity – PENSION BENEFIT • Retirement • Prior Fund(s) • 1/12 of 2.5% of final monthly salary for each month of service in that fund(s) • Final Fund • Calculate benefit as if ALL service was with this fund, using salary of this fund • Subtract amount(s) paid by prior fund(s) • Mutliple 1099R forms Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  31. Pension Benefits Administration • Service Purchase – Reciprocity – PENSION BENEFIT • Nonduty Disability, Duty Disability • Full benefit paid by Current Fund • Occupational Disease Disability • Benefit paid by all funds to whom payment has been completed • Each fund pays a prorated share based upon length of service Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  32. Pension Benefits Administration • Service 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 Report • Status • Hire Date • Length of Service • COST PROHIBITIVE!! Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  33. Pension Benefits Administration • HELPS (“Healthcare Enhancement for Local Public Safety) • Effective January 2007 • Reduce taxable earnings by $3,000/year • Insurance premiums • Deducted from pension check • Paid directly to provider • Do not withhold pre-tax (limits pensioner’s filing options on their 1040 form) • DO NOT REFLECT ON 1099R FORM!!!! Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  34. Pension Benefits Administration • Social Security • Windfall Elimination Provision • Spousal / widow benefits • Contact local SSA office • www.ssa.gov (calculator) Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  35. Pension Benefits Administration • Taxability of Pension Benefits - REPORTING • New pensions first paid after 12/31/97 • Replaces Safe Harbor Method with “Simplified Method” • Divide total after-tax contributions by the number of months of life expectancy • Number 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.com

  36. Pension Benefits Administration • Taxability of Pension Benefits - REPORTING • Taxability of pension transfers to spousal pension • Tax-free pensions should not be reported to the IRS • Killed in the line of duty • 65% duty/occupational disease disability • If awarded for cancer (4-110.1) – IS taxable Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  37. Pension Benefits Administration • Taxability of Pension Benefits – TAX FORM #1 • SS-4 – Application for Employer Identification Number • IRS needs to know pension fund is a separate entity from municipality/district • www.ssa.gov Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  38. Pension Benefits Administration • Taxability 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 check • Marital status / number of exemptions • Cannot request a flat dollar amount! Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  39. Pension Benefits Administration • Taxability of Pension Benefits – TAX FORM #3 • 945 – Annual Return of Withheld Federal Income Tax • Pension Fund lists tax liability dates and amounts due • IRS 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.com

  40. Pension Benefits Administration • Taxability of Pension Benefits – TAX FORM #4 • 1099R • In lieu of W-2 • Taxable pension payments • Contribution refunds • Due January 31st to payee; due February 28th to IRS Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  41. Pension Benefits Administration • Taxability of Pension Benefits – TAX FORM #5 • 1099MISC • Vendor payments • All legal services • All medical services • All non-incorporated vendors to whom paid at least $600 during the calendar year • Due January 31st to payee; due February 28th to IRS Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  42. Pension Benefits Administration • Taxability of Pension Benefits – TAX FORM #6 • 1096 – Annual Summary and Transmittal of U.S. Information Returns • “Cover page” • Use with 1099R and 1099MISC forms • Due February 28th to IRS Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  43. Pension Benefits Administration • Taxability of Pension Benefits – TAX NOTES • Circular E (Publication 15) • Federal tax withholding tables • Deposit schedule (safest  pay taxes on pay day!) • EFTPS (www.eftps.gov) • Tax liabilities • Federal withholding tax – yes • IL withholding tax – no • Other state withholding tax – maybe • Social Security / Medicare – no Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  44. Pension Benefits Administration • Coalition for Qualified Plan Status • AFFI / IGFOA / ILFOP / IMTA / IPFA / IPPFA / MAP (IDOI, Lauterbach & Amen) • To maintain “Qualified Plan” status with IRS • Tax-free pension benefits • Pre-tax contribution deductions / roll-overs • No tax due on interest from investments • IRS grants “Determination Letter” • 5-year cycle • IDOI webpage • Cost 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.com

  45. Pension Benefits Administration • Contributions – EMPLOYER PICK-UP PLAN • Option presented by IRS in mid-1980’s • Pre-tax contribution deductions (increases net pay) • Employer Resolution • Determination Letter covers Fund • Irrevocable • Not required for employer, but if implemented, mandatory participation by employees Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  46. Pension Benefits Administration • Contributions – Rates • Police • 9.91% • Effective 01/01/01 • Fire • 9.455% • Effective 07/01/04 • Additional 1% for reciprocity • Pensionable earnings ONLY Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  47. Pension Benefits Administration • Contributions – Refunds • After-tax contributions • Paid directly to member • No taxes withheld • Pre-tax contributions • Paid directly to member • Must withhold 20% in federal tax • IRS notification of potential penalties / taxes when file 1040 • Roll-over to another Qualified Plan • No tax withheld • Payable and sent to Qualified Plan (not member) • Reflect refund on 1099R Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  48. Pension Benefits Administration • QILDRO • Qualified Illinois Domestic Relations Order • Effective 07/01/06 • Only applicable against contribution refund or retirement pension • 3 pieces • All must be filed in court • Have Board Attorney review before implementing • Available on DOI webpage (with reference manual) Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  49. Pension Benefits Administration • QILDRO – 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 07/01/99 • Calculation Form • Completed by member, ex-spouse, their attorneys • Can’t be completed until creditable service is done Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

  50. Pension Benefits Administration • QILDRO – Taxability • 1099R Reporting • Alternate Payee • List benefit as fully taxable • Member • Gross benefit (Box 1) - no effect • Taxable benefit (Box 2a) – reflect QILDRO paid in this box • Gross less QILDRO (less recovered after-tax contributions) Lauterbach & Amen, LLP 630.393.1483 * www.lauterbachamen.com

More Related