SURS Facts – Separation Refund
General Information
You are entitled to (vested in) a SURS retirement annuity if you have been credited with the minimum number of service credit years required for vesting. If you first began participation prior to Jan. 1, 2011, you are vested with at least five years of service credit. If you first began participation on or after Jan. 1, 2011, you are vested with at least 10 years of service credit.
By accepting a separation refund, your claim to these future benefits is forfeited. You should contact SURS for specific information regarding the retirement annuity and the date it can begin. If you have at least one year of service credit with another Illinois retirement system (even if you have less SURS service credit than is required for you to be vested for a SURS retirement annuity), it may still be to your advantage to leave your funds on deposit with SURS and retire under the Reciprocal Act. For further information, contact SURS.
If you do not qualify for a retirement annuity or you do not wish to leave your funds on deposit with SURS, you may apply for a separation refund. However, by accepting a separation refund, your claim to future benefits is forfeited.
To receive a separation refund, you must have terminated your employment from all SURS-covered employers, or you must have been on layoff for a period exceeding 120 days. It is your responsibility to make sure you have properly notified your department or Human Resources and followed any necessary resignation procedures required by your employer. You will not be eligible if you have received a separation refund within the past year.
Here’s How It Works
For your convenience, the refundapplication process is initiated by telephone. However, before you contact SURS to start this process, you should first gather some information and make some decisions about your refund. Be prepared to provide SURS with your Member ID number and the date your employment terminated.
You should also be prepared to inform SURS of your citizenship status when you call. SURS must enforce special withholding requirements for members who are not U.S. citizens or Resident Aliens. It is SURS’s understanding that you are a Resident Alien if you are not a citizen of the United States, and you possess a green card or can meet the IRS substantial presence test. If you are not a citizen of the United States and you do not qualify as a Resident Alien, you are a Non-Resident Alien.
You will also need to decide if you wish to receive a lump-sum distribution and have it sent to your home address or savings/checking account, or if you are rolling funds into an IRA or other eligible employer plan. Please be prepared to provide your financial institution’s name, address, account number and account type. For more information regarding rollovers, please visit the IRS website at www.irs.gov or view the Special Tax Notice.
Once you have made your decision, you should call SURS to initiate your separation refund claim. A SURS Member Service Representative will send you an application to complete and assist you with the application process. The application may be completed electronically through the secure Member Website if certain criteria are met. Any applications processed by mail require an original signature witnessed by a Notary Public.
If you are in the SURS Retirement Savings Plan (RSP), you should contact your employer and request that a Termination Report be submitted to SURS as soon as possible. Once SURS receives this notification from your employer, along with any of your remaining contributions or the state’s, we will forward a “Termination Package” to you.
Taxability
If your refund is $200 or over, and you do not elect a direct rollover to an IRA or other eligible employer plan, SURS is required by law to withhold a minimum of 20% for federal income tax.
If your refund is less than $200, and you do not elect a direct rollover, SURS is not required to withhold any federal income tax. However, you may request to have federal income tax withheld at a percentage of your choice (minimum of 5%).
If you have not yet attained the age of 59 ½, or you are less than age 55 at termination date, your refund may be subject to an IRS early distribution tax of 10% of the taxable portion. The 10% tax is not withheld by SURS. The tax is calculated on Form 5329 to be filed with your federal tax return for the taxable year in which you receive your refund.
If you have reached Required Minimum Distribution (RMD) age, SURS is required to withhold a minimum distribution, based on IRS guidelines. This payment must be made to you in the form of a cash distribution, with federal income tax withheld. RMD age is as follows: born on or before 6/30/49, RMD age is 70 ½; born between 7/1/49-12/31/50, RMD age is 72; born on or after 1/1/51, RMD age is 73. The RMD age is scheduled to increase to age 75 for distributions after the year 2033.
In the month of January following your refund, you will receive a 1099-R to file with your federal income tax return. Your refund is not subject to Illinois income tax.
This page provides only a summary of the taxability information. For more detailed information, visit the IRS website at www.irs.gov or view the Special Tax Notice.
Processing Information
SURS will request a certificationof employment, date of termination, and last payroll information from your employer, if not already on file.
It is SURS policy to process refunds no sooner than 30 days after the last payroll is received to ensure that all contributions will be refunded. Therefore, our average processing time for separation refunds is 45 to 60 days from the date the completed application is received in our office.
Reinstating Separation Refunds
If you take a separation refund and then return to become an active member of SURS or another Illinois public retirement system covered under the Reciprocal Act, you may reinstate your service credit after contributing for at least two years. You will need to repay the amount of your refund plus any interest that would have accrued.