Rep. Daniel J. Burke

Filed: 3/3/2011

 

 


 

 


 
09700HB3466ham001LRB097 08901 JDS 51796 a

1
AMENDMENT TO HOUSE BILL 3466

2    AMENDMENT NO. ______. Amend House Bill 3466 by replacing
3everything after the enacting clause with the following:
 
4    "Section 5. The Illinois Pension Code is amended by adding
5Section 14-110.5 as follows:
 
6    (40 ILCS 5/14-110.5 new)
7    Sec. 14-110.5. Deferred Retirement Option Plan.
8    (a) As used in this Section:
9    "Deferred eligibility date" means the first day of any
10month to which a vested member is eligible to defer his
11election to participate in DROP. A vested member who has
12reached 26 years and 8 months of actual service and has not
13reached the age of 50 may enter the DROP and be eligible for
14contributions to this fund. If the member resigns or dies prior
15to age 50 he or his designee is not eligible to collect any of
16the DROP contributions. For a member with dual normal

 

 

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1retirement dates, the DROP eligibility date may be determined
2by the member as the first day of the month in which normal
3retirement is achieved in either class.
4    "Deferred Retirement Option Plan" or "DROP" means a program
5available to certain members who are eligible to receive
6benefits under Section 14-110 of this Code under which members
7effectively retire and have their retirement accumulate, after
8applicable taxes, in the System while they continue covered
9employment for up to 5 years.
10    "DROP begin date" means the first day of the month in which
11the member's DROP participation period begins and is always the
12same date as the member's effective date of retirement. Such
13date shall be the first day of the month in which the eligible
14member submits a DROP application, or any future month after
15the member reaches his or her DROP eligibility date, as
16selected by the member. However, a member's DROP begin date
17cannot precede the month the Board receives the DROP
18application.
19    "DROP break in service" means a period for which no
20compensation is reported for a DROP participant during one full
21month of the participant's work year and there is no continuing
22employer-employee relationship. A member who is on leave of
23absence without pay or on a workers' compensation leave has an
24employer-employee relationship.
25    "DROP eligibility date" means the first day of the month in
26which a vested member becomes eligible to elect to participate

 

 

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1in DROP by virtue of reaching either his normal retirement date
2or a deferred eligibility date, if a deferred eligibility date
3is applicable and elected by the member. Both the 12-month
4period during which the member may elect to participate in the
5DROP and the 60-month period that a member is allowed to
6participate in DROP begin on the member's DROP eligibility
7date.
8    "DROP end date" means the date DROP participation ceases
9and shall be the date termination of all employment occurs. The
10DROP end date shall be effective as of the date of the
11participant's designated deferred resignation or earlier if
12the participant terminates prior to the designated resignation
13date.
14    "DROP participation period" means the period of time a
15member participates in DROP, not to exceed 60 months.
16    "Initial eligibility date" means the first day of the month
17in which a vested member first becomes eligible to elect to
18participate in DROP by virtue of reaching his or her normal
19retirement date.
20    "Normal retirement date" means when the member becomes age
2150 or when the member completes 26 years and 8 months of
22service. The member may either include or exclude optional
23service credit in determining the date on which 26 years and 8
24months of service has been attained.
25    "Optional service credit" includes credit for prior
26service, past service purchased by the member, and military

 

 

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1service. "Optional service credit" does not include workers'
2compensation credit or past service credit paid for by the
3employer.
4    (b) A member who is eligible for benefits under Section
514-110 of this Code is eligible to participate in the DROP
6provided the member attains a normal retirement date and is
7employed in a regularly established position within their
8Department.
9    An eligible member must elect to participate in DROP no
10less than 3 months prior to the member's DROP eligibility date,
11subject to the following conditions:
12        (1) A member who reaches age 50 with 25 years of
13    service or 26 years and 8 months at any age.
14        (2) A member may elect to include or exclude any
15    optional service credit from the total service used to
16    establish the DROP begin date when determining the DROP
17    eligibility date.
18        (3) A member with dual normal retirement dates, due to
19    an employment history in 2 different classes of membership
20    with different normal retirement date and age
21    requirements, may elect to participate in DROP within 12
22    months of attaining normal retirement date in either
23    membership class.
24    (c) It is the responsibility of the eligible member to make
25proper application to the System to participate in DROP. To
26qualify for DROP, the member shall submit a notice of election

 

 

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1to participate that shall specify the DROP begin date and the
2DROP termination and resignation date and is acknowledged by
3the employer, and the notice of election to participate shall
4be received by the System no later than the end of the last
5month of the member's election period described in subsection
6(b) of this Section or a later date, if authorized in
7subsection (b). Such termination and resignation date shall
8constitute a binding letter of resignation with the employer.
9Failure to complete the notice of election to participate
10within the limitations of subsection (b) of this Section shall
11result in the member being ineligible for DROP participation.
12    An application for service retirement and the DROP shall be
13accepted by the System up to 6 months, but no later than 3
14months, in advance of the intended DROP begin date and shall
15establish the member's effective date of retirement and DROP
16begin date. The effective date of retirement and the DROP begin
17date shall both be the first day of the month that the member
18indicates on his or her application as the date he or she
19wishes his or her DROP participation to begin, provided the
20System receives the member's application no later than the
21close of business on the last day 3 months prior to when the
22DROP begin date occurs. If a member fails to apply for DROP by
23the last day of the month in which his or her intended DROP
24begin date occurs, the effective date of retirement and the
25DROP begin date shall be the first day of the month in which
26the System receives the member's application, provided the

 

 

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1application is received within the 3-month election period.
2    (d) When the System receives a member's application for
3DROP, the System must:
4        (1) acknowledge receipt of the member's application
5    and advise him or her of any required information or
6    documents that have not yet been received; such information
7    may include, but is not limited to, birth date, beneficiary
8    designation, option selection, any payments due the
9    member's account for purchase of additional service credit
10    or a written statement from the member that the member does
11    not wish to claim such service credit, and certification of
12    final salary and accumulated annual leave payments;
13        (2) establish the DROP begin date; and
14        (3) send a follow-up notice, reminding the member of
15    any required information or documents that have not yet
16    been received.
17    (e) Subject to timely submission of all required documents,
18the effective date of DROP participation shall be the effective
19date of retirement. The DROP participant may not modify or
20cancel his or her retirement benefit after the last day of the
21month of the DROP begin date. The DROP benefit shall be deemed
22cashed or deposited as of the last day of the month following
23the DROP begin date.
24    (f) If all the required information and documents have not
25been received by the System after 3 follow-up notices have been
26sent to the member, the System must send the member a certified

 

 

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1letter, advising the member that he has 21 days to provide such
2information or documents without loss of his DROP begin date.
3If the System has not received all of the required information
4and documents after the 21 days specified in the certified
5letter, the System must send a final agency action letter to
6the member advising the member that his or her application is
7canceled and that he or she must reapply to join DROP, if
8eligible, with a new effective DROP begin date to be
9established upon application.
10    (g) All employers paying the salary of a DROP participant
11shall contribute the required percentage of such participant's
12gross compensation. In addition, health insurance benefits
13continue in accordance with the State Employees Group Insurance
14Act of 1971.
15    (h) The retirement benefit of a member who has elected to
16participate in the DROP shall be calculated as provided in this
17Section.
18    A member may choose to receive his accumulated annual leave
19and applicable sick time payments and earned in accordance with
20agency policy, either upon beginning or terminating DROP. This
21early annual leave payment shall be based on the hourly wage of
22the member at the time he or she begins participation in DROP.
23Any additional annual leave payment made at the DROP end date
24according to the employer's leave policy cannot be included in
25the retirement benefit, which was determined and fixed by law
26when the member elected to participate in DROP. If the member

 

 

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1elects to receive the annual leave payment upon termination of
2DROP and termination of employment with his or her employer,
3any accumulated annual leave payment made at that time cannot
4be included in the retirement benefit, which was determined and
5fixed by law when the member elected to participate in DROP.
6    (i) The beneficiary eligible to receive any accrued DROP
7benefits payable if the DROP participant dies before the
8completion of the DROP participation period is the most recent
9joint annuitant or beneficiary designated to receive
10retirement benefits upon the death of the participant, as
11directed by the participant on his or her beneficiary forms.
12However, if the beneficiary or joint annuitant dies during the
13DROP participation period, the participant may designate a new
14beneficiary as follows:
15        (1) If the participant retired under option 1 or 2, he
16    or she may name a new beneficiary. Such beneficiary is
17    eligible for both the DROP benefits and any benefits
18    provided by the option selected.
19        (2) If the participant retired under option 3 or 4, he
20    or she may name a new qualified joint annuitant or spouse.
21    Such beneficiary is eligible for both the accrued DROP
22    benefits and any continuing benefits.
23        (3) If the participant retired under option 3 or 4, he
24    or she may name a new beneficiary who will receive only the
25    accrued DROP benefits. Such beneficiary shall not replace
26    the joint annuitant or spouse or be eligible for any

 

 

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1    continuing benefits.
2        (4) The participant may not name a beneficiary to
3    receive DROP benefits who is different from the beneficiary
4    designated to receive the retirement benefits.
5    (j) Effective with the DROP begin date, the member's
6initial normal monthly benefit shall be fixed and shall accrue
7monthly in the System Trust Fund. The system shall earn any
8interest that may accrue at an effective annual rate of 3%
9compounded monthly, on the prior month's accumulated ending
10balance, up to the month of the DROP participant's termination
11or death. Any accrued interest in excess of 3% shall be divided
12equally between the System and the DROP participant. The DROP
13benefit is increased by the annual cost-of-living adjustment as
14otherwise provided in this Article.
15    (k) A DROP participant is not eligible to apply for or
16receive retiree health insurance subsidy payments until such
17participant has terminated employment and DROP participation.
18A member shall not earn creditable service applicable to the
19health insurance subsidy while participating in DROP.
20    (l) A DROP participant is considered an annuitant; however,
21participation in DROP does not alter the participant's
22employment status. Terms and conditions of employment,
23including, but not limited to, salary, insurance coverage,
24leave accrual and seniority status, do not change as a result
25of DROP participation. However, employment is not guaranteed
26during the DROP participation period.

 

 

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1    Employment continues during participation in DROP through
2the date the member preselected to stop participation in DROP,
3except that elected officers may continue in office after the
4DROP end date. A DROP participant may change jobs or have more
5than one employer under this Article, as long as the
6participant does not have a break in service. If a break in
7service occurs, DROP participation ceases as of the end of the
8month in which no compensation is received for covered
9employment. All employers are required to acknowledge the
10participant's DROP termination date and to acknowledge
11potential liability for any additional retirement
12contributions and interest required if the participant fails to
13timely terminate employment.
14    (m) DROP participants shall not be eligible for disability
15benefits under this Article.
16    (n) If a participant continues employment beyond the
17preselected DROP end date and prior to completion of the
18maximum 60 months allowed, a new form must be submitted with a
19new DROP end date acknowledged by both the participant and any
20affected employer.
21    (o) DROP benefits shall be subject to the provisions of
22this Article pertaining to assignment, execution, or
23attachment of benefits, and forfeiture of benefits,
24respectively.
25    (p) Eligibility to participate in the DROP ends upon the
26death of the participant.

 

 

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1    (q) A DROP participant must terminate employment on or
2before the preselected resignation date. If a participant fails
3to terminate on or before the DROP termination and resignation
4date: (1) retirement and DROP participation are voided; (2) the
5DROP accumulation and any monthly retirement benefits received
6are forfeited; (3) membership in the System is retroactively
7reestablished to the date the member initiated DROP
8participation; (4) each employer is liable for payment of or
9eligible for a refund of, as applicable, the difference between
10the DROP contributions paid and the required retirement
11contributions for the applicable class of membership during the
12period of DROP participation, plus interest at an annual
13effective rate of 3%, compounded annually; no interest is
14payable on refunds to employers; and (5) the designated
15beneficiary shall remain the named beneficiary, unless
16revised.
17    (r) Upon the participant's termination of all employment,
18the deferred resignation becoming effective, and the
19conclusion of the DROP participation period, or upon the death
20of the participant, benefits shall be paid or distributed as
21follows:
22        (1) The previously determined normal monthly
23    retirement benefits, plus applicable cost-of-living
24    increases, commence in accordance with the method of
25    payment chosen by the participant at the time he or she
26    began DROP participation.

 

 

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1        (2) The total accumulated DROP benefits are
2    distributed to the participant, or, if deceased, to the
3    participant's joint annuitant or beneficiary as
4    appropriate, provided the System receives the proper forms
5    signed by both the participant and employer verifying
6    termination of employment and notifying the System as to
7    which of the following methods of payment he or she has
8    chosen: (i) lump sum (if the participant is deceased, a
9    beneficiary, other than a spouse, must receive the lump sum
10    distribution only), (ii) direct rollover, or (iii)
11    combined partial lump sum and rollover.
12    A DROP participant or beneficiary who submits all required
13forms, but fails to elect a method of payment within 60 days of
14termination of DROP, automatically receives a lump sum
15distribution, less applicable withheld taxes.
16    A participant who elects a rollover must have the rollover
17paid directly to the custodian of an eligible retirement plan.
18Eligible retirement plans include an individual retirement
19account as described in Section 408(a) of the Internal Revenue
20Code, an Individual Retirement Annuity as described in Section
21408(b) of the Internal Revenue Code, excluding an endowment
22contract, a qualified trust established in accordance with
23Section 401(a) of the Internal Revenue Code, for the sole and
24exclusive benefit of employees or their beneficiaries, an
25annuity plan as described in Section 403(a) of the Internal
26Revenue Code, excluding a plan described in Sections 403(b) and

 

 

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1457 of in the Internal Revenue Code, an eligible deferred
2compensation plan described in Section 457(B) of the Internal
3Revenue Code that is maintained by an eligible employer as
4described in Section 457(e)(1)(A) of the Internal Revenue Code,
5and an annuity contract as described in Section 403(b) of the
6Internal Revenue Code. If the DROP participant dies and the
7surviving spouse wishes to roll over the DROP account, it can
8only be rolled over into an individual retirement account, an
9individual retirement annuity, an eligible deferred
10compensation plan, or an annuity contract.
11    (s) Benefits accumulating in the DROP are not subject to
12federal benefit limitations specified in Section 415 of the
13Internal Revenue Code until DROP participation ends and the
14participant begins receiving his monthly retirement benefits.
15The amount of the accumulated DROP at the time the member
16ceases DROP is amortized over the member's expected lifetime,
17in the manner required by the Internal Revenue Code, and the
18annualized value of the DROP account reduces the federal
19maximum annual benefit the member is entitled to receive.
20    (t) Reemployment with an employer during the first calendar
21month after concluding DROP shall result in cancellation of
22DROP and retirement. The member's DROP application shall be
23void, and he or she shall be required to repay all DROP and
24monthly retirement benefits received. The employer who
25re-employs such member is liable for payment of or eligible for
26a refund of, as applicable, the difference between the DROP

 

 

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1contributions paid and the required SERS retirement
2contributions for the applicable class of membership during the
3period of DROP participation. Payment of additional
4contributions for the applicable class of membership during the
5period of DROP participation. Payment of additional
6contributions shall include interest at an annual effective
7interest rate of 3%, compounded annually. No interest will be
8paid on refunds to employers.
 
9    Section 99. Effective date. This Act takes effect upon
10becoming law.".