(40 ILCS 5/3-109.3)
(a) Purpose. The General Assembly finds that it is
important for municipalities to be able to attract and retain the most
qualified police officers and that in order to attract and retain these police
officers, municipalities should have the flexibility to provide a defined
contribution plan as an alternative for eligible employees who elect not
to participate in a defined benefit retirement program provided under this
Article. Accordingly, a self-managed plan shall be provided, which shall offer
participating employees the opportunity to accumulate assets for retirement
through a combination of employee and employer contributions that may be
invested in mutual funds, collective investment funds, or other investment
products and used to purchase annuity contracts, either fixed or variable,
or a combination thereof. The plan must be qualified under the Internal
Revenue Code of 1986.
(b) Study by Commission; Adoption of plan.
The Illinois Pension Laws Commission (or its successor, the Commission on Government Forecasting and Accountability) shall study
and evaluate the creation
of a statewide self-managed plan for eligible employees under this Article.
The Commission shall report its findings and recommendations to the General
Assembly no later than January 1, 2002.
In accordance with the recommendations of the Commission and any action
taken by the General Assembly in response to those recommendations, a statewide
self-managed plan shall be adopted for eligible employees under this Article.
The self-managed plan shall take effect as specified in the plan, but in no
event earlier than July 1, 2002 or the date of its approval by the U.S.
Internal Revenue Service, whichever occurs later.
The self-managed plan shall include a plan document and shall provide for the
adoption of such rules and procedures as are necessary or desirable for the
administration of the self-managed plan. Consistent with fiduciary duty to the
participants and beneficiaries of the self-managed plan, it may provide for
delegation of suitable aspects of plan administration to companies authorized
to do business in this State.
(c) Selection of service providers and funding vehicles. The principal
administrator of the self-managed plan shall solicit proposals to provide
administrative services and funding vehicles for the self-managed plan from
insurance and annuity companies and mutual fund companies, banks, trust
companies, or other financial institutions authorized to do business in this
State. In reviewing the proposals received and approving and contracting with
no fewer than 2 and no more than 7 companies, the principal administrator shall
consider, among other things, the following criteria:
(1) the nature and extent of the benefits that would
be provided to the participants;
(2) the reasonableness of the benefits in relation to
(3) the suitability of the benefits to the needs and
interests of the participating employees and the employer;
(4) the ability of the company to provide benefits
under the contract and the financial stability of the company; and
(5) the efficacy of the contract in the recruitment
and retention of employees.
The principal administrator shall periodically review each approved company.
A company may continue to provide administrative services and funding vehicles
for the self-managed plan only so long as it continues to be an approved
company under contract with the principal administrator.
(d) Employee Direction. Employees who are participating in the
program must be allowed to direct the transfer of their account balances among
the various investment options offered, subject to applicable contractual
provisions. The participant shall not be deemed a fiduciary by reason of
providing such investment direction. A person who is a fiduciary shall not be
liable for any loss resulting from such investment direction and shall not be
deemed to have breached any fiduciary duty by acting in accordance with that
direction. The self-managed plan does not guarantee any of the investments in
the employee's account balances.
(e) Participation. An eligible employee must make a written election in
accordance with the provisions of Section 3-109.2 and the procedures
established under the self-managed plan. Participation in the self-managed
plan by an eligible employee who elects to participate in the self-managed plan
shall begin on the first day of the first pay period following the later of the
date the employee's election is filed with the fund or the employer, but in no
event sooner than the effective date of the self-managed plan.
A police officer who has elected to participate in the self-managed plan
under this Section must continue participation while employed in an eligible
position, and may not participate in any other retirement program administered
by the municipality while employed as a police officer by that municipality.
Participation in the self-managed plan under this Section shall constitute
membership in an Article 3 pension fund.
(f) No Duplication of Service Credit. Notwithstanding any other provision
of this Article, a police officer may not purchase or receive service or
service credit applicable to any other retirement program administered by a
fund under this Article for any period during which the police officer was a
participant in the self-managed plan established under this Section.
(g) Contributions. The self-managed plan shall be funded by contributions
from participants in the self-managed plan and employer contributions as
provided in this Section.
The contribution rate for a participant in the self-managed plan under
this Section shall be a minimum of 10% of his or her salary. This required
contribution shall be made as an "employer pick-up" under Section 414(h) of
the Internal Revenue Code of 1986 or any successor Section thereof. An
employee may make additional contributions to the self-managed plan in
accordance with the terms of the plan.
The self-managed plan shall provide for employer contributions to be credited
to each self-managed plan participant at a rate of 10% of the participating
employee's salary, less the amount of the employer contribution used to provide
disability benefits for the employee. The amounts so credited shall be paid
into the participant's self-managed plan accounts in the manner prescribed by
An amount of employer contribution, not exceeding 1.5% of the participating
employee's salary, shall be used for the purpose of providing disability
benefits to the participating employee. Prior to the beginning of each plan
year under the self-managed plan, the principal administrator shall determine,
as a percentage of salary, the amount of employer contributions to be allocated
during that plan year for providing disability benefits for employees in the
(h) Vesting; Withdrawal; Return to Service. A participant in the
self-managed plan becomes fully vested in the employer contributions credited
to his or her account in the self-managed plan on the earliest to occur of the
(1) completion of 6 years of service with the
(2) the death of the participating employee while
employed by the municipality, if the participant has completed at least 1.5 years of service.
A participant in the self-managed plan who receives a distribution of his or
her vested amounts from the self-managed plan upon or after termination of
employment shall forfeit all service credit and accrued rights in the fund of
his or her employer; if subsequently re-employed, the participant shall be
considered a new employee. If a former participant again becomes a
participating employee and continues as such for at least 2 years, all such
rights, service credit, and previous status as a participant shall be restored
upon repayment of the amount of the distribution without interest.
(i) Benefit amounts. If a participating employee who is fully vested in
employer contributions terminates employment, the participating employee shall
be entitled to a benefit which is based on the account values attributable to
both employer and employee contributions and any investment return thereon.
If a participating employee who is not fully vested in employer contributions
terminates employment, the employee shall be entitled to a benefit based on the
account values attributable to the employee's contributions and any investment
return thereon, plus the following percentage of employer contributions and any
investment return thereon: 20% after the second year; 40% after the third year;
60% after the fourth year; 80% after the fifth year; and 100% after the sixth
year. The remainder of employer contributions and investment return thereon
shall be forfeited. Any employer contributions
that are forfeited shall be held in escrow by the company investing those
contributions and shall be used as directed by the municipality for future
allocations of employer contributions or for the restoration of amounts
previously forfeited by former participants who again become participating
(Source: P.A. 93-632, eff. 2-1-04; 93-1067, eff. 1-15-05.)