Comprehensive Guide to Fire Pensions for Tier 1 Participants Hired Before January 1, 2011
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The Three-Legs of Retirement
For most workers, wages are replaced in retirement by
the so-called “three legs” of the retirement stool:
Pension, Social Security and personal savings
. For
many public employees, the main element of personal
savings is a deferred compensation plan. So for core
retirement training, our “chapters” are:
Pension
Social Security
Deferred Compensation
Retirement Planning
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W
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?
A
pension
is a fixed monthly payment that replaces
income that is lost due to:
Age
Disability
Death (particularly pre-mature death)
A pension benefit for retired firefighters
(outside of
Chicago and small towns) is established under
Article 4 of the Illinois Pension Code and referred to
as the “Downstate” fire pension system.
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Defined Benefit pension systems pay a pension
to a retiree based on his or her salary and length
of service. As to salary for Illinois firefighters….
For Tier 1 retirees
,
the final salary is used -
“salary attached to the rank at the time of
retirement.” This excludes overtime.
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For persons attaining 20 years of service and Age
50, the pension formula is below (it allows for partial
years -
e.g
. months - of service)…..
2.5% x years of service x salary (max: 75%).
Example
:
2.5% x
30 years
x $75,000 = $4,688 per
month (75% of a monthly salary of $6,250).
Example
:
2.5% x
26 years
x $75,000 = $4,062 per
month (65% of a monthly salary of $6,250).
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For retirees who do not attain 20 years
of
service, the pension formula is set forth in the
Pension Code for each year of service attained.
Tier 1
–
with 10 – 19 years of service, a
scheduled benefit is payable at age 60. For
example, at 10 years, the pension is 15% of
final
salary
;
at 15 years it is 30% of salary. See
Section 4.109(b) of the Code for each year’s
percentage.
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If retired before age 55
,
at age 55 the
pensioner receives a 3% increase for each year
the retiree has been in receipt of pension
(includes consideration of partial years); then
3% additionally (compounded) each January 1
st
.
- If retired on or after age 55
,
3% is paid after
one year of retirement and each January 1
st
after that.
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For non-duty related conditions
, benefits are 50% of
salary if the member has at least seven years of
service.
For duty-related conditions
,
benefits are 65% of
salary – or – the pension earned by virtue of years
of service (such as 70% of pay for 28 years of
service). Also, there is a small stipend ($20) for
children of duty-disabled firefighters.
Occupational Disease conditions
merit duty-related
consideration, such as heart disease, stroke, TB,
lung disease and certain cancers.
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- A spouse surviving a service or disability retiree
continues to receive the monthly pension being
paid.
- A spouse surviving an active firefighter who
dies in the line-of-duty
is entitled to 100% of pay
.
- A spouse surviving an active firefighter who
dies
not
in the line-of-duty
receives the pension
the firefighter had earned or 54% of pay,
whichever is higher.
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Tier 1 Survivors
.
There is no annual increase
provision for Tier 1 Survivors. However, the
state does set “minimum pensions” from time-to-
time that often effect survivor pensions.
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Tier 1 and Tier 2 members pay 9.455% of
pensionable salary to the fund each payday
.
Contributions are often tax-exempt
under a provision
known as “employer pick-up.” It is not really
payment by the employer, but is an allowable tax
saving provision.
Contributions are refundable
or can be rolled-over to
an IRA for employees who separate with less than
20 years of service.
Contributions help fund the system and are an
important part of the total pension financing plan
.
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The Pension Code allows a person to receive a fire
pension from a community where he or she worked
before transferring to another Article 4 plan.
Fire funds use the concept of
reciprocity;
your credit
stays with each separate pension plan.
Police funds us the concept of
portability
; the
pension credit moves from one plan to the next
(along with the money to pay for the benefit).
Fire reciprocity is best explained via example
.
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Robert has 4 years of service at Eastown FPD and
18 years at Westown FPD.
To effectuate reciprocity
,
Robert owes Eastown a
return of his contributions plus 6% interest (if he took
a refund) and 1% additional contributions on his pay
at Eastown plus interest. He also owes Westown
1% in additional contributions.
At retirement
,
he will receive (a) a pension from
Eastown based on his service and final salary there
and (b) a pension from Westown using their final
salary and combined service
minus
the pension
from Eastown.
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Robert’s Pension from Eastown:
4 years x 2.5% x $3,500 monthly salary =
$
3
5
0
Robert’s Pension from Westown:
22 years x 2.5% x $6,500 minus $350 =
$
3
,
2
2
5
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P
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:
$
3
,
5
7
5
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Governance
:
state law and local board – two
actives, a retiree and two citizens.
The Illinois Department of Insurance
–
acts as the
regulator, including audits. Visit their website for
information on your and other public pension funds.
Member Data for Participation
: help your pension
plan keep track of marriages, divorces and children
.
Administrative Review
–
your access to the court
system if you disagree with a board decision.
Other Players
–
“sponsor,” actuary, lawyer,
accountant and, possibly, an administrator company
.
15
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•
The Illinois Department of Insurance has an on-
line calculator to assist Tier 1 police and fire
employees and retirees in estimating their
retirement benefits.
•
The calculator also calculates future annual
increases and the dates they occur.
•
Go to:
https://insurance.illinois.gov/Applications/Pension/
BenefitCalculator.aspx
. Or simply follow Google to
the Illinois Department of Insurance Public
Pension page.
16
Q
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C
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!
Explore the essential aspects of fire pensions for Tier 1 participants hired before January 1, 2011, including definitions, salary considerations, pension formulas, and increases. Discover how pensions, along with social security and personal savings, form the cornerstone of retirement planning for public safety professionals. Gain insights into retirement training focused on pension, social security, and deferred compensation to achieve financial independence.
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Presentation Transcript
PSfit Public Safety Financial Independence Training Article 4 Fire Pensions Tier 1 Participants Hired Before January 1 2011 IPPFA - PSfit
The Three-Legs of Retirement For most workers, wages are replaced in retirement by the so-called three legs of the retirement stool: Pension, Social Security and personal savings. For many public employees, the main element of personal savings is a deferred compensation plan. So for core retirement training, our chapters are: Pension Social Security Deferred Compensation Retirement Planning 2
What is a Pension? A pension is a fixed monthly payment that replaces income that is lost due to: Age Disability Death (particularly pre-mature death) A pension benefit for retired firefighters (outside of Chicago and small towns) is established under Article 4 of the Illinois Pension Code and referred to as the Downstate fire pension system. 3
Article 4 Definition of Salary Defined Benefit pension systems pay a pension to a retiree based on his or her salary and length of service. As to salary for Illinois firefighters . For Tier 1 retirees, the final salary is used - salary attached to the rank at the time of retirement. This excludes overtime. 4
Pension Formula Tier 1 For persons attaining 20 years of service and Age 50, the pension formula is below (it allows for partial years - e.g. months - of service) .. 2.5% x years of service x salary (max: 75%). Example: 2.5% x 30 years x $75,000 = $4,688 per month (75% of a monthly salary of $6,250). Example: 2.5% x 26 years x $75,000 = $4,062 per month (65% of a monthly salary of $6,250). 5
Pension Formula: Less than 20 Years of Service For retirees who do not attain 20 years of service, the pension formula is set forth in the Pension Code for each year of service attained. Tier 1 with 10 19 years of service, a scheduled benefit is payable at age 60. For example, at 10 years, the pension is 15% of final salary; at 15 years it is 30% of salary. See Section 4.109(b) of the Code for each year s percentage. 6
Increases in Pension Tier 1 - If retired before age 55, at age 55 the pensioner receives a 3% increase for each year the retiree has been in receipt of pension (includes consideration of partial years); then 3% additionally (compounded) each January 1st. - If retired on or after age 55, 3% is paid after one year of retirement and each January 1st after that. 7
Disability Benefits For non-duty related conditions, benefits are 50% of salary if the member has at least seven years of service. For duty-related conditions, benefits are 65% of salary or the pension earned by virtue of years of service (such as 70% of pay for 28 years of service). Also, there is a small stipend ($20) for children of duty-disabled firefighters. Occupational Disease conditions merit duty-related consideration, such as heart disease, stroke, TB, lung disease and certain cancers. 8
Payments to Survivors Tier 1 - A spouse surviving a service or disability retiree continues to receive the monthly pension being paid. - A spouse surviving an active firefighter who dies in the line-of-duty is entitled to 100% of pay. - A spouse surviving an active firefighter who dies not in the line-of-duty receives the pension the firefighter had earned or 54% of pay, whichever is higher. 9
Increases in Pension - Survivors Tier 1 Survivors. There is no annual increase provision for Tier 1 Survivors. However, the state does set minimum pensions from time-to- time that often effect survivor pensions. 10
Employee Contributions Tier 1 and Tier 2 members pay 9.455% of pensionable salary to the fund each payday. Contributions are often tax-exempt under a provision known as employer pick-up. It is not really payment by the employer, but is an allowable tax saving provision. Contributions are refundable or can be rolled-over to an IRA for employees who separate with less than 20 years of service. Contributions help fund the system and are an important part of the total pension financing plan. 11
Reciprocity Between Article 4 Funds The Pension Code allows a person to receive a fire pension from a community where he or she worked before transferring to another Article 4 plan. Fire funds use the concept of reciprocity; your credit stays with each separate pension plan. Police funds us the concept of portability; the pension credit moves from one plan to the next (along with the money to pay for the benefit). Fire reciprocity is best explained via example. 12
Reciprocity: Example Robert has 4 years of service at Eastown FPD and 18 years at Westown FPD. To effectuate reciprocity, Robert owes Eastown a return of his contributions plus 6% interest (if he took a refund) and 1% additional contributions on his pay at Eastown plus interest. He also owes Westown 1% in additional contributions. At retirement, he will receive (a) a pension from Eastown based on his service and final salary there and (b) a pension from Westown using their final salary and combined service minus the pension from Eastown. 13
Reciprocity Example Robert s Pension from Eastown: 4 years x 2.5% x $3,500 monthly salary = $ 350 Robert s Pension from Westown: 22 years x 2.5% x $6,500 minus $350 = $3,225 Total Pension: $3,575 14
Article 4 Fire Funds Other Issues Governance: state law and local board two actives, a retiree and two citizens. The Illinois Department of Insurance acts as the regulator, including audits. Visit their website for information on your and other public pension funds. Member Data for Participation: help your pension plan keep track of marriages, divorces and children. Administrative Review your access to the court system if you disagree with a board decision. Other Players sponsor, actuary, lawyer, accountant and, possibly, an administrator company. 15
A Great Tool State Benefit Calculator The Illinois Department of Insurance has an on- line calculator to assist Tier 1 police and fire employees and retirees in estimating their retirement benefits. The calculator also calculates future annual increases and the dates they occur. Go to: https://insurance.illinois.gov/Applications/Pension/ BenefitCalculator.aspx. Or simply follow Google to the Illinois Department of Insurance Public Pension page. 16
Questions ? Contact IPPFA!
