97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
HB3466

 

Introduced 2/24/2011, by Rep. Daniel J. Burke

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/14-110.5 new

    Amends the State Employee Article of the Illinois Pension Code. Provides a Deferred Retirement Option Plan to members of the State Employees' Retirement System of Illinois who are eligible to receive the alternative formula under which members effectively retire and have their retirement accumulate, after applicable taxes, in the System while they continue covered employment for up to 5 years. Effective immediately.


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FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB3466LRB097 08901 JDS 49033 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
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
17retirement dates, the DROP eligibility date may be determined
18by the member as the first day of the month in which normal
19retirement is achieved in either class. For an elected officer
20member who has reached normal retirement date during a term of
21office, the DROP initial eligibility date may be deferred to
22the first day of the month after the beginning date of the next
23succeeding term of office.

 

 

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

 

 

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1period during which the member may elect to participate in the
2DROP and the 60-month period that a member is allowed to
3participate in DROP begin on the member's DROP eligibility
4date.
5    "DROP end date" means the date DROP participation ceases
6and shall be the date termination of all employment occurs. The
7DROP end date shall be effective as of the date of the
8participant's designated deferred resignation or earlier if
9the participant terminates prior to the designated resignation
10date.
11    "DROP participation period" means the period of time a
12member participates in DROP, not to exceed 60 months.
13    "Initial eligibility date" means the first day of the month
14in which a vested member first becomes eligible to elect to
15participate in DROP by virtue of reaching his or her normal
16retirement date.
17    "Normal retirement date" means when the member becomes age
1850 or when the member completes 26 years and 8 months of
19service. The member may either include or exclude optional
20service credit in determining the date on which 26 years and 8
21months of service has been attained.
22    "Optional service credit" includes credit for prior
23service, past service purchased by the member, and military
24service. "Optional service credit" does not include workers'
25compensation credit or past service credit paid for by the
26employer.

 

 

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1    (b) A member who is eligible for benefits under Section
214-110 of this Code is eligible to participate in the DROP
3provided the member attains a normal retirement date and is
4employed in a regularly established position within their
5Department.
6    An eligible member must elect to participate in DROP no
7less than 3 months prior to the member's DROP eligibility date,
8subject to the following conditions:
9        (1) A member who reaches age 50 with 25 years of
10    service or 26 years and 8 months at any age in accordance
11    with section (b)1.
12        (2) A member may elect to include or exclude any
13    optional service credit from the total service used to
14    establish the DROP begin date when determining the DROP
15    eligibility date.
16        (3) A member with dual normal retirement dates, due to
17    an employment history in 2 different classes of membership
18    with different normal retirement date and age
19    requirements, may elect to participate in DROP within 12
20    months of attaining normal retirement date in either
21    membership class.
22        (4) An elected officer who reaches his or her DROP
23    eligibility date during a term of office may defer DROP
24    participation until the next term in such office. The
25    officer must elect to participate in DROP within 12 months
26    of the first day of the month following the first month of

 

 

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1    such succeeding term and may participate for no more than
2    60 months after such day or until the end of the term,
3    whichever occurs first.
4    (c) It is the responsibility of the eligible member to make
5proper application to the System to participate in DROP. To
6qualify for DROP, the member shall submit a notice of election
7to participate that shall specify the DROP begin date and the
8DROP termination and resignation date and is acknowledged by
9the employer, and the notice of election to participate shall
10be received by the System no later than the end of the last
11month of the member's election period described in subsection
12(b) of this Section or a later date, if authorized in
13subsection (b). Such termination and resignation date shall
14constitute a binding letter of resignation with the employer.
15Failure to complete the notice of election to participate
16within the limitations of subsection (b) of this Section shall
17result in the member being ineligible for DROP participation.
18    An application for service retirement and the DROP shall be
19accepted by the System up to 6 months, but no later than 3
20months, in advance of the intended DROP begin date and shall
21establish the member's effective date of retirement and DROP
22begin date. The effective date of retirement and the DROP begin
23date shall both be the first day of the month that the member
24indicates on his or her application as the date he or she
25wishes his or her DROP participation to begin, provided the
26System receives the member's application no later than the

 

 

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

 

 

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1month of the DROP begin date. The DROP benefit shall be deemed
2cashed or deposited as of the last day of the month following
3the DROP begin date.
4    (f) If all the required information and documents have not
5been received by the System after 3 follow-up notices have been
6sent to the member, the System must send the member a certified
7letter, advising the member that he has 21 days to provide such
8information or documents without loss of his DROP begin date.
9If the System has not received all of the required information
10and documents after the 21 days specified in the certified
11letter, the System must send a final agency action letter to
12the member advising the member that his or her application is
13canceled and that he or she must reapply to join DROP, if
14eligible, with a new effective DROP begin date to be
15established upon application.
16    (g) All employers paying the salary of a DROP participant
17shall contribute the required percentage of such participant's
18gross compensation. In addition, health insurance benefits
19continue in accordance with the State Employees Group Insurance
20Act of 1971.
21    (h) The retirement benefit of a member who has elected to
22participate in the DROP shall be calculated as provided in this
23Section.
24    A member may choose to receive his accumulated annual leave
25and applicable sick time payments and earned in accordance with
26agency policy, either upon beginning or terminating DROP. This

 

 

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

 

 

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1    Such beneficiary is eligible for both the accrued DROP
2    benefits and any continuing benefits.
3        (3) If the participant retired under option 3 or 4, he
4    or she may name a new beneficiary who will receive only the
5    accrued DROP benefits. Such beneficiary shall not replace
6    the joint annuitant or spouse or be eligible for any
7    continuing benefits.
8        (4) The participant may not name a beneficiary to
9    receive DROP benefits who is different from the beneficiary
10    designated to receive the retirement benefits.
11    (j) Effective with the DROP begin date, the member's
12initial normal monthly benefit shall be fixed and shall accrue
13monthly in the System Trust Fund. Interest shall accrue at an
14effective annual rate of 6.5% compounded monthly, on the prior
15month's accumulated ending balance, up to the month of the DROP
16participant's termination or death. The DROP benefit is
17increased by the annual cost-of-living adjustment as otherwise
18provided in this Article.
19    (k) A DROP participant is not eligible to apply for or
20receive retiree health insurance subsidy payments until such
21participant has terminated employment and DROP participation.
22A member shall not earn creditable service applicable to the
23health insurance subsidy while participating in DROP.
24    (l) A DROP participant is considered an annuitant; however,
25participation in DROP does not alter the participant's
26employment status. Terms and conditions of employment,

 

 

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

 

 

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1attachment of benefits, and forfeiture of benefits,
2respectively.
3    (p) Eligibility to participate in the DROP ends upon the
4death of the participant. A DROP participant's survivors shall
5not be eligible to receive the participant's line-of-duty death
6benefits. If the participant dies on or after the DROP begin
7date, but prior to the first monthly benefit being credited to
8his or her DROP account, benefits shall be paid as follows:
9        (1) according to the option selected by the participant
10    at the time he or she entered DROP;
11        (2) if the beneficiary qualifies as a joint annuitant
12    and the participant had selected an option other than
13    option 3, the beneficiary may choose to receive a benefit
14    payable under option 3 with no payout of DROP accrual, as
15    though the participant had not applied for DROP and had
16    retired on the date of death; or
17        (3) if no option had been selected by the participant,
18    benefits shall be paid in accordance with System rules.
19    Upon the death of a DROP participant, the designated
20beneficiary shall be entitled to apply for and receive the
21accrued benefits in the DROP.
22    (q) A DROP participant not in the Elected Officers' Class
23must terminate employment on or before the preselected
24resignation date. If a participant fails to terminate on or
25before the DROP termination and resignation date: (1)
26retirement and DROP participation are voided; (2) the DROP

 

 

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1accumulation and any monthly retirement benefits received are
2forfeited; (3) membership in the System is retroactively
3reestablished to the date the member initiated DROP
4participation; (4) each employer is liable for payment of or
5eligible for a refund of, as applicable, the difference between
6the DROP contributions paid and the required retirement
7contributions for the applicable class of membership during the
8period of DROP participation, plus 6.5% interest compounded
9annually; no interest is payable on refunds to employers; and
10(5) the designated beneficiary shall remain the named
11beneficiary, unless revised.
12    (r) A member of the Elected Officers' Class participating
13in the DROP may continue to serve in elected office upon
14reaching the DROP end date. No additional DROP benefits shall
15accrue on behalf of the officer after the officer's DROP end
16date, however, cost-of-living adjustments and interest shall
17continue to accrue until the officer ceases holding office and
18satisfies the definition of termination provided in this
19Section. The officer shall not be a renewed member in the
20Elected Officers' Class and the employer shall not make
21retirement contributions on the officer's behalf after the
22officer's DROP end date, however, the employer shall submit
23health insurance subsidy contributions until the officer
24ceases holding elective office. Monthly retirement benefit
25payments shall be paid to the officer beginning the first month
26after the officer ceases holding office and satisfies the

 

 

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1definition of termination provided in this Section. After
2satisfying the definition of termination, such officer who is
3reemployed or reelected shall be subject to the reemployment
4limitations provided in this Article.
5    (s) Upon the participant's termination of all employment,
6the deferred resignation becoming effective, and the
7conclusion of the DROP participation period, or upon the death
8of the participant, or for an elected officer as provided in
9this Section, benefits shall be paid or distributed as follows:
10        (1) The previously determined normal monthly
11    retirement benefits, plus applicable cost-of-living
12    increases, commence in accordance with the method of
13    payment chosen by the participant at the time he or she
14    began DROP participation.
15        (2) The total accumulated DROP benefits are
16    distributed to the participant, or, if deceased, to the
17    participant's joint annuitant or beneficiary as
18    appropriate, provided the System receives the proper forms
19    signed by both the participant and employer verifying
20    termination of employment and notifying the System as to
21    which of the following methods of payment he or she has
22    chosen: (i) lump sum (if the participant is deceased, a
23    beneficiary, other than a spouse, must receive the lump sum
24    distribution only), (ii) direct rollover, or (iii)
25    combined partial lump sum and rollover.
26    A DROP participant or beneficiary who submits all required

 

 

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1forms, but fails to elect a method of payment within 60 days of
2termination of DROP, automatically receives a lump sum
3distribution, less applicable withheld taxes.
4    A participant who elects a rollover must have the rollover
5paid directly to the custodian of an eligible retirement plan.
6Eligible retirement plans include an individual retirement
7account as described in Section 408(a) of the Internal Revenue
8Code, an Individual Retirement Annuity as described in Section
9408(b) of the Internal Revenue Code, excluding an endowment
10contract, a qualified trust established in accordance with
11Section 401(a) of the Internal Revenue Code, for the sole and
12exclusive benefit of employees or their beneficiaries, an
13annuity plan as described in Section 403(a) of the Internal
14Revenue Code, excluding a plan described in Sections 403(b) and
15457 of in the Internal Revenue Code, an eligible deferred
16compensation plan described in Section 457(B) of the Internal
17Revenue Code that is maintained by an eligible employer as
18described in Section 457(e)(1)(A) of the Internal Revenue Code,
19and an annuity contract as described in Section 403(b) of the
20Internal Revenue Code. If the DROP participant dies and the
21surviving spouse wishes to roll over the DROP account, it can
22only be rolled over into an individual retirement account, an
23individual retirement annuity, an eligible deferred
24compensation plan, or an annuity contract.
25    (t) Benefits accumulating in the DROP are not subject to
26federal benefit limitations specified in Section 415 of the

 

 

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1Internal Revenue Code until DROP participation ends and the
2participant begins receiving his monthly retirement benefits.
3The amount of the accumulated DROP at the time the member
4ceases DROP is amortized over the member's expected lifetime,
5in the manner required by the Internal Revenue Code, and the
6annualized value of the DROP account reduces the federal
7maximum annual benefit the member is entitled to receive.
8    (u) Reemployment with an employer during the first calendar
9month after concluding DROP shall result in cancellation of
10DROP and retirement. The member's DROP application shall be
11void, and he or she shall be required to repay all DROP and
12monthly retirement benefits received. The employer who
13re-employs such member is liable for payment of or eligible for
14a refund of, as applicable, the difference between the DROP
15contributions paid and the required SERS retirement
16contributions for the applicable class of membership during the
17period of DROP participation. Payment of additional
18contributions for the applicable class of membership during the
19period of DROP participation. Payment of additional
20contributions shall include 6.5% interest compounded annually.
21No interest will be paid on refunds to employers.
 
22    Section 99. Effective date. This Act takes effect upon
23becoming law.