On May 31, the Illinois legislature passed a bill that would impose a penalty on employers that contribute to the Illinois Municipal Retirement Fund (IMRF) for certain end-of-career salary increases for IMRF-covered employees. Specifically, this new rule imposes a penalty on employers for any salary increases in excess of 6% (or 1.5 times CPI, if higher) in any of the four one-year periods used to calculate an employee’s final rate of earnings (typically, the employee’s final four years of service). The new penalty provision was included in Senate Bill 1831, which would add a new subsection to the Illinois Pension Code (40 ILCS 5/7-172(k)). If the bill is signed by Governor Quinn and becomes law, the penalty provision will be effective on January 1, 2012.

The penalty is equal to the present value of the amount that the employee’s IMRF pension will increase as a result of the salary increase over 6%, computed on an actuarial basis. The penalty must be paid to the IMRF within three years of the assessment.