IPERS Member Handbook

IF YOU DECIDE TO LEAVE IPERS-COVERED EMPLOYMENT BEFORE RETIREMENT

When you leave IPERS-covered employment before you retire, you need to decide what to do with your IPERS account. You have several choices, and it’s a good idea to contact IPERS to talk about your options before you decide what to do.

A. Leaving Funds With IPERS

If you leave IPERS-covered public employment before you retire, you may leave your contributions in IPERS. Your account will continue to accrue interest until you apply for retirement benefits, return to covered employment, or take a refund. If you are a vested member, you may apply for retirement benefits to start as early as age 55, although early retirement reductions may apply. A vested member who qualifies for IPERS disability benefits may retire before age 55.

If you return to IPERS-covered employment, you will continue to build on the service credits in your account.

If you leave money in IPERS, do not contribute for five years, and have an account balance less than the maximum set by the IRS, IPERS automatically will send a payout check to close your account. You have 60 days to restore your account. If IPERS cannot locate you to close out your account, no further interest will be credited.

B. Applying for a Refund

When you terminate employment with an IPERS-covered employer, you are allowed to take a refund of your accumulated contributions. Vested members also will receive a portion of their employers’ accumulated contributions. The portion is the percentage calculated when the member’s years of service are divided by the applicable denominator. The applicable denominator is 30 for regular members and 22 for sheriffs, deputy sheriffs, and members in other protection occupations. The percentage cannot exceed 100 percent.

Refunds will not be sent automatically upon your termination from public employment. You must apply for a refund on an Application for IPERS Refund. This form includes IPERS’ Special Tax Notice Regarding Plan Payments. Like all IPERS publications and forms, paper copies of the form and the Special Tax Notice by itself are available from IPERS for free.

1. If You Take a Refund

When you take a refund, you forfeit all membership rights, including any further benefit claims upon IPERS for the period covered by the refund. Generally the only way to reinstate a period of service covered by a refund is to return to covered employment, become vested, and complete a service purchase. Limited exceptions apply to persons who are reinstated following an employment dispute and persons who qualify for social security disability or railroad retirement disability benefits. If you are in one of these groups, contact IPERS immediately for more information.

You must stay out of covered employment for 30 days after terminating your employment or your refund will be revoked. You must pay back IPERS the amount of your refund within 30 days after receiving notice. After that, you must complete a service purchase if you wish to restore service credit for the period covered by the refund.

Even though, by law, you are allowed to take a refund of your contributions if you leave IPERS-covered employment, it may not always be in your best interest. IPERS recommends that you speak to an IPERS representative before initiating this request. Representatives can help you understand all your options.

2. Rollovers

Federal law permits members to roll over the pretax portion of a refund or actuarial equivalent lump-sum benefit to a traditional Individual Retirement Account (IRA) or an eligible retirement plan, which includes plans qualified under Section 401(a) of the Internal Revenue Code. If acceptable to the recipient plan, after-tax amounts are also eligible for rollover transfers.

3. Lump-Sum Distributions

All taxable amounts paid out in a lump sum are subject to a mandatory 20 percent federal withholding tax if not directly rolled over to an eligible retirement plan. If you are a resident of Iowa and the taxable portion is more than $6,000 per year, IPERS also will withhold 5 percent of the taxable portion for Iowa income tax purposes. (Nonresidents may request Iowa withholding from a refund.)