I’m leaving the University of Illinois. Should I cash in my pension?
Updated: Feb 15
As an employee of the University of Illinois or other public institution in the State of Illinois, you participate in SURS. The State Universities Retirement System manages your retirement investments, which you contribute approximately 8% of your gross salary during your years employed at the University.
Having had ties with the University of Illinois for nearly three decades, I have known many SURS participants. These participants are in various stages of their retirement planning. Some are diligently working towards receiving their full pension, others have retired, and some have left the system to pursue new career goals.
Navigating your ideal path with SURS is based on your individual circumstances and can be a complicated topic. Many have reached out to me for advice regarding how SURS fits in with their overall retirement plan, and most of these conversations began with the question “I’m leaving the University of Illinois. What should I do with my pension?”
I’m leaving the University of Illinois. What should I do with my pension?
If you leave the University, you will need to decide whether to leave your retirement investments at SURS or move your money to a different plan. The answer depends on several factors, including: how many service credits did you accumulate while employed at U of I, what type of pension plan had you selected at the start of your employment, and what future employment opportunities might you have within another public institution in the State of Illinois.
This article will address the most important questions you’ll need to understand if you plan to leave or have left employment at the University of Illinois.
How long have you worked at the University of Illinois?
If you have worked for the University of Illinois for more than 10 years full time, you are vested in the retirement plan (5 years if you started prior to 2011). This means that you may be eligible for a retirement payout depending on when you started working and the age you plan to retire. The most robust retirement benefits generally go to those who retire with 20 plus years of employment or those who retire after age 62.
The more years you have worked means the more service credits you have earned, which generally translates to a higher retirement payout. The details are more nuanced than the guidelines here, but the concept is that if you have worked at the University for more than 10 years you are probably eligible for a pension payment or the ability to create an annuity with your contributions and investment earnings.
SURS has a benefit estimator that can forecast your retirement payout. Use this calculator before you decide whether to cash out your pension.
If you worked more than 20 years, your health insurance should be paid for by the State of Illinois when you collect your retirement. If that is the case, it is usually a good idea to leave your money with the SURS system even if you change employers. Health insurance is a large expense in retirement and you wouldn’t want to miss out on this significant benefit.
Are you in the traditional pension, the portable pension, or the retirement savings plan (previously the self managed plan)?
If you participate in the traditional pension plan or the portable pension plan and worked at least 10 years, the retirement payment you have accrued is robust and would be hard to replace by withdrawing your money (aka separation refund) and investing somewhere else. Further, you were probably not participating in social security working at the University, so having a steady income from a pension during retirement is probably a good idea.
If you are in the retirement saving plan (formerly self managed plan), the decision depends on how close you are to retirement and whether you have at least 20 years to get the health insurance premiums paid. If you have achieved the required number of years for health insurance, it probably is best to leave your money with SURS. However, if you only have a few years at SURS in the retirement savings plan and do not plan to continue working with a public university in Illinois, you may want to consider moving your retirement to an IRA or your new employers’ 401k plan.
You can leave the University of Illinois and choose whether to draw your retirement income if you have sufficient service credit (10 or more years) and have reached retirement age (62 or over). Or, you can leave and work somewhere else and delay drawing your retirement income. Waiting to draw your retirement income can boost your ultimate payout. You can estimate these benefits on the SURS website.
What if I do take my money with me when I change jobs, how much do I get?
Under the traditional pension plan your separation refund is a return of your contributions and includes interest credited, but not in excess of 4.5%. Any interest previously credited to your account in excess of that amount will be forfeited.
Under the portable pension plan if you have less than ten years of service credit, you will receive all of your contributions plus the full interest accumulated on those contributions. If you have ten or more years of qualified service credit, you will receive all your contributions, the full interest that has accumulated on those contributions, and the match from the university.
Under the retirement savings plan (previously called self managed plan), if you have ten or more years of service credit you will receive your contributions, the match from your employer match, and the investments earnings or losses.
What about taxes?
When you take money out of SURS, it is called a separation refund. If you can take a lump sum cash distribution, you will most likely owe a lot of taxes. However, you can also move the funds to another tax deferred retirement account, such as a Traditional IRA or a 401k at your new employer.
Make a wise choice to keep the funds invested toward your retirement and avoid paying the taxes today.
Where will you work next?
If you are going to work at another university in the State of Illinois or to another workplace in Illinois with a public retirement system, it is better to leave your money with SURS.
If you work at another university, your account with SURS will continue and you don’t have to make any changes. For example, if you switched from working at the University of Illinois in Urbana to Illinois State University in Bloomington then you are still a SURS participant.
If you go to work for another public employer in Illinois such as a city or school district, you are eligible to receive reciprocal retirement benefits
If you go to work for another public employer in Illinois such as a city or school district, you are eligible to receive reciprocal retirement benefits. This means the record of earnings you have in each system can be combined to raise the base for your pension calculation in whichever systems you draw retirement from. You will need at least one year of service credit in each system to gain the reciprocal retirement benefit. This combination of benefits can really boost your retirement paycheck.
Do you believe you might return in the future?
If you are close to being vested with 10 years of service or achieving the 20 years required for health insurance paid by the State of Illinois, you may want to leave your money with SURS while you work somewhere else. That way, you can return to the University of Illinois or another Illinois public college in the future and pick up the last few years you need for fully paid health insurance or to achieve a pension payout if you are in the traditional or portable pension.
As mentioned, this is a complex subject. This article covers just the tip of the iceberg. If you are planning a life transition, and are looking for advice on how to handle your investments within SURS or other pension systems, the Peak Wealth Planning team can guide you toward the solution that suits you best.
You may also be interested in reading:
New to SURS? Selecting the Right Retirement Plan for Illinois University Employees
Big Changes To SURS Self Managed Plan (And What It Means For You)
Other Useful Resources:
Read through the SURS Plan Choice Guide - Tier II
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About the Author
Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind.
Peak Wealth Planning provides concierge services to meet your wealth management needs. Services include: financial planning, investment management, esop diversification, retirement income, insurance, and estate planning advice. Peak Wealth Planning is a fee-based financial advisor based in Champaign, Illinois, and Fraser, Colorado.