97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
HB1325

 

Introduced 2/9/2011, by Rep. Greg Harris

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/Art. 25 heading new
40 ILCS 5/25-101 new
40 ILCS 5/25-102 new
30 ILCS 805/8.35 new

    Amends the Illinois Pension Code. Authorizes each pension fund and retirement system to establish and administer an optional retirement plan. Sets forth requirements for the plans. Authorizes each employer that is subject to the Code to make an irrevocable election to participate in the plan. Requires each fund to solicit proposals to provide administrative services and funding vehicles for the plan. Requires those proposals to be assessed using specified criteria. Authorizes employees to direct the investment of their plan balances. Indemnifies fund fiduciaries. Also contains provisions concerning: participation in the plan; establishment of an initial account balance; duplication of service credit; required contributions; termination; vesting; withdrawal; return to service; benefit amounts; and the making of plan elections. Amends the State Mandates Act to require implementation without reimbursement.


LRB097 08190 JDS 48315 b

FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY
STATE MANDATES ACT MAY REQUIRE REIMBURSEMENT

 

 

A BILL FOR

 

HB1325LRB097 08190 JDS 48315 b

1    AN ACT concerning public employee benefits.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Pension Code is amended by adding
5Article 25 as follows:
 
6    (40 ILCS 5/Art. 25 heading new)
7
ARTICLE 25. OPTIONAL RETIREMENT PLANS

 
8    (40 ILCS 5/25-101 new)
9    Sec. 25-101. Authorization.
10    (a) The General Assembly finds that it is important for
11every public pension fund to have all of the tools that it
12requires to properly manage the retirement benefits of
13participants and that each fund should have the flexibility to
14provide a defined contribution plan as an alternative for
15eligible employees who elect not to participate in a defined
16benefit retirement program provided under this Code.
17Accordingly, each pension fund is hereby authorized to
18establish and administer an optional retirement plan, which
19shall offer participating employees the opportunity to
20accumulate assets for retirement through a combination of
21employee and employer contributions that may be invested in
22mutual funds, collective investment funds, or other investment

 

 

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1products and used to purchase annuity contracts, fixed,
2variable, or a combination thereof. The plan must be qualified
3under the Internal Revenue Code. For purposes of this Section,
4"pension fund" means any public pension fund, annuity and
5benefit fund, or retirement system established under this Code.
6    (b) Each employer subject to this Code may elect to adopt
7the optional retirement plan established under this Section;
8this election is irrevocable. An employer's election to adopt
9the optional retirement plan makes available to the eligible
10employees of that employer the elections described in Section
1125-102.
12    Each pension fund electing to offer an optional retirement
13plan shall be the plan sponsor for the optional retirement plan
14and shall prepare a plan document and prescribe rules and
15procedures that are necessary or desirable for the
16administration of the optional retirement plan. Consistent
17with its fiduciary duty to the participants and beneficiaries
18of the optional retirement plan, the pension fund may delegate
19aspects of plan administration as it sees fit to one or more
20companies authorized to do business in this State, to the
21employers, or to a combination of both.
22    (c) The pension fund, in consultation with the employers,
23shall solicit proposals to provide administrative services and
24funding vehicles for the optional retirement plan from
25insurance and annuity companies and mutual fund companies,
26banks, trust companies, or other financial institutions

 

 

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1authorized to do business in this State. In reviewing the
2proposals, each pension fund shall consider, among other
3things, the following criteria:
4        (1) the proposed costs to participants, including, but
5    not limited to, asset-based fees, sales loads, and
6    surrender charges;
7        (2) the experience of the company in providing similar
8    optional retirement plans in the public and private
9    sectors;
10        (3) the ability of the company to provide lifetime
11    income to participants in the optional retirement plan;
12        (4) the suitability of the benefits to the needs and
13    interests of the participating employees and the employer;
14    and
15        (5) the financial stability of the company.
16    The pension fund, in consultation with the employers, shall
17determine whether to approve a company to provide the services.
18Each service provider shall be approved periodically and may
19continue to provide administrative services and funding
20vehicles for the optional retirement plan only if it continues
21to be an approved company under contract with the pension fund.
22    (d) Employees who are participating in the program must be
23allowed to direct the transfer of their account balances among
24the various investment options offered, subject to applicable
25contractual provisions. The participant shall not be deemed a
26fiduciary by reason of providing investment direction. A person

 

 

HB1325- 4 -LRB097 08190 JDS 48315 b

1who is a fiduciary shall not be liable for any loss resulting
2from investment direction by the participant and shall not be
3deemed to have breached any fiduciary duty by acting in
4accordance with that direction. Neither the pension fund nor
5the employer guarantees any of the investments in the
6employee's account balances.
7    (e) An employee eligible to participate in the optional
8retirement plan must make a written election in accordance with
9the provisions of Section 25-102 and the procedures established
10by the pension fund. Participation in the optional retirement
11plan by an electing employee shall begin on the first day of
12the first pay period following the later of the date the
13employee's election is filed with the pension fund or the
14effective date as of which the employee's employer begins to
15offer participation in the optional retirement plan. An
16employee's participation in any other retirement program
17administered by the pension fund shall terminate on the date
18that participation in the optional retirement plan begins.
19    An employee who has elected to participate in the optional
20retirement plan under this Section must continue participation
21while employed in an eligible position, and may not participate
22in any other retirement program administered by the pension
23fund while employed by that employer unless the optional
24retirement plan is terminated in accordance with subsection (i)
25of this Section.
26    Participation in the optional retirement plan under this

 

 

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1Section shall constitute membership in the pension fund.
2    A participant under this Section is entitled to the
3benefits of Article 20 of this Code.
4    (f) If at the time an employee elects to participate in the
5optional retirement plan he or she has rights and credits in
6the pension fund due to previous participation in the
7traditional benefit package, the pension fund shall establish
8for the employee an opening account balance in the optional
9retirement plan, equal to the amount of contribution refund
10that the employee would be eligible to receive if the employee
11terminated employment on that date and elected a refund of
12contributions, except that this hypothetical refund shall
13include interest at the effective rate for the respective
14years. The pension fund shall transfer assets from the defined
15benefit retirement program to the optional retirement plan, as
16a tax-free transfer in accordance with Internal Revenue Service
17guidelines, for purposes of funding the employee's opening
18account balance.
19    (g) Notwithstanding any other provision of this Code, an
20employee may not purchase or receive service or service credit
21applicable to any other retirement program administered by the
22pension fund for any period during which the employee was a
23participant in the optional retirement plan established under
24this Section.
25    (h) The optional retirement plan shall be funded by
26contributions from employees participating in the optional

 

 

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1retirement plan and employer contributions as provided in this
2Section.
3    The contribution rate for employees participating in the
4optional retirement plan under this Section shall be equal to
5the employee contribution rate for other participants in the
6pension fund. This required contribution shall be made as an
7"employer pick up" under Section 414(h) of the Internal Revenue
8Code of 1986 or any successor Section thereof. Any employee
9participating in the pension fund's traditional benefit
10package prior to his or her election to participate in the
11optional retirement plan shall continue to have the employer
12pick up the required contributions. However, the amounts picked
13up after the election of the optional retirement plan shall be
14remitted to and treated as assets of the optional retirement
15plan. In no event shall an employee have an option of receiving
16these amounts in cash. Employees may make additional
17contributions to the optional retirement plan in accordance
18with procedures prescribed by the pension fund, to the extent
19permitted under rules prescribed by the pension fund.
20    An amount of the employer's contribution, not exceeding 1%
21of the participating employee's salary, shall be used for the
22purpose of providing the disability benefits of the pension
23fund to the employee. Prior to the beginning of each plan year
24under the optional retirement plan, the pension fund shall
25determine, as a percentage of salary, the amount of employer
26contributions to be allocated during that plan year for

 

 

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1providing disability benefits for employees in the optional
2retirement plan.
3    (i) Any optional retirement plan authorized under this
4Section may be terminated by the pension fund, subject to the
5terms of any relevant contracts, and the pension fund shall
6have no obligation to reestablish the optional retirement plan
7under this Section. This Section does not create a right to
8continued participation in any optional retirement plan set up
9by the pension fund under this Section. If the optional
10retirement plan is terminated, the participants shall have the
11right to participate in one of the other retirement programs
12offered by the pension fund and receive service credit in the
13other retirement program for any years of employment following
14the termination.
15    (j) Every pension fund adopting an optional retirement plan
16shall establish when a participant in the optional retirement
17plan becomes vested in the employer contributions credited to
18his or her accounts in the optional retirement plan.
19    A participant in the optional retirement plan who receives
20a distribution of his or her vested amounts from the optional
21retirement plan while not yet eligible for retirement under
22this Article (and Article 20, if applicable) shall forfeit all
23service credit and accrued rights in the pension fund; if
24subsequently re-employed, the participant shall be considered
25a new employee. If a former participant again becomes a
26participating employee (or becomes employed by a participating

 

 

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1system under Article 20 of this Code) and continues as such for
2at least 2 years, all rights, service credits, and previous
3status as a participant shall be restored upon repayment of the
4amount of the distribution, without interest.
5    (k) If an employee who is vested in employer contributions
6terminates employment, the employee shall be entitled to a
7benefit that is based on the account values attributable to
8both employer and employee contributions and any investment
9return thereon.
10    If an employee who is not vested in employer contributions
11terminates employment, the employee shall be entitled to a
12benefit based solely on the account values attributable to the
13employee's contributions and any investment return thereon,
14and the employer contributions and any investment return
15thereon shall be forfeited. Any employer contributions which
16are forfeited shall be held in escrow by the company investing
17those contributions and shall be used as directed by the
18pension fund for future allocations of employer contributions
19or for the restoration of amounts previously forfeited by
20former participants who again become participating employees.
 
21    (40 ILCS 5/25-102 new)
22    Sec. 25-102. Retirement program elections.
23    (a) Effective as of the date that an employer elects, as
24described in Section 25-101, to offer to its employees the
25optional retirement plan as an alternative to the traditional

 

 

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1benefit package, each of that employer's eligible employees (as
2defined in subsection (b) of this Section) shall be given the
3choice to elect which retirement program he or she wishes to
4participate in with respect to all periods of covered
5employment occurring on and after the effective date of the
6employee's election. The retirement program election made by an
7eligible employee must be made in writing, in the manner
8prescribed by the pension fund, and within the time period
9described in subsection (c) or (c-1) of this Section.
10    The employee election authorized by this Section is a
11one-time, irrevocable election. If an employee terminates
12employment after making the election provided under this
13subsection (a), then upon his or her subsequent re-employment
14with an employer the original election shall automatically
15apply to him or her, provided that the employer is then a
16participating employer as described in Section 25-101.
17    An eligible employee who fails to make this election shall,
18by default, participate in the traditional benefit package.
19    (b) "Eligible employee" means an employee who is either a
20currently eligible employee or a newly eligible employee. For
21purposes of this Section, a "currently eligible employee" is an
22employee who is employed by an employer on the effective date
23on which the employer offers to its employees the optional
24retirement plan as an alternative to the traditional benefit
25package. A "newly eligible employee" is an employee who first
26becomes employed by an employer after the effective date on

 

 

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1which the employer offers its employees the optional retirement
2plan. A newly eligible employee participates in the traditional
3benefit package until he or she makes an election to
4participate in the optional retirement plan. If an employee
5does not elect to participate in the optional retirement plan,
6he or she shall continue to participate in the traditional
7benefit package by default.
8    (c) A currently eligible employee must make this election
9within one year after the effective date of the employer's
10adoption of the optional retirement plan.
11    A newly eligible employee must make this election within 6
12months after the date on which the pension fund receives the
13report of status certification from the employer. If an
14employee elects to participate in the optional retirement plan,
15no employer contributions shall be remitted to the optional
16retirement plan when the employee's account balance transfer is
17made. Employer contributions to the optional retirement plan
18shall commence as of the first pay period that begins after the
19pension fund receives the employee's election.
20    (c-1) A newly eligible employee who, prior to the effective
21date of this amendatory Act of the 97th General Assembly, fails
22to make the election within the period provided under
23subsection (c) and participates by default in the traditional
24benefit package may make a late election to participate in the
25optional retirement plan instead of the traditional benefit
26package at any time within 6 months after the effective date of

 

 

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1this amendatory Act of the 97th General Assembly.
2    (d) An eligible employee shall be provided with written
3information prepared or prescribed by the pension fund which
4describes the employee's retirement program choices. The
5eligible employee shall be offered an opportunity to receive
6counseling from the pension fund prior to making his or her
7election. This counseling may consist of videotaped materials,
8group presentations, individual consultation with an employee
9or authorized representative of the pension fund in person or
10by telephone or other electronic means, or any combination of
11these methods.
 
12    Section 90. The State Mandates Act is amended by adding
13Section 8.35 as follows:
 
14    (30 ILCS 805/8.35 new)
15    Sec. 8.35. Exempt mandate. Notwithstanding Sections 6 and 8
16of this Act, no reimbursement by the State is required for the
17implementation of any mandate created by this amendatory Act of
18the 97th General Assembly.