99TH GENERAL ASSEMBLY
State of Illinois
2015 and 2016
SB3455

 

Introduced 11/29/2016, by Sen. Michael E. Hastings

 

SYNOPSIS AS INTRODUCED:
 
See Index

    Amends the Illinois Pension Code. Moves the investment power for eligible downstate police and downstate firefighter pension funds that have net assets in trust that exceed an amount equal to 3 months of current liabilities to the Board of Trustees of the Illinois Municipal Retirement Fund (IMRF). Provides that within 18 months of the effective date of the amendatory Act, the Department of Insurance shall audit the investment assets of each eligible pension fund to determine a certified investment asset list. Provides that upon receipt of the certified investment asset list, the Board of IMRF shall initiate the transfer of assets from the board of trustees of the eligible pension fund to the Board of IMRF. Makes conforming changes. Amends the State Mandates Act to require implementation without reimbursement.


LRB099 23881 RPS 51407 b

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

 

 

A BILL FOR

 

SB3455LRB099 23881 RPS 51407 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 changing
5Sections 1-113.1, 1-113.2, 1-113.3, 1-113.4, 1-113.4a,
61-113.5, 1-113.6, 1-113.7, 3-127, 3-132, 3-135, 4-120, 4-123,
7and 4-128 and by adding Sections 1-101.6, 1-101.7, 1-113.05,
83-135.1, 3-135.2, 4-128.1, 4-128.2, 7-226, and 7-227 as
9follows:
 
10    (40 ILCS 5/1-101.6 new)
11    Sec. 1-101.6. Eligible pension fund. "Eligible pension
12fund" means a pension fund established pursuant to Article 3 or
13Article 4 of this Code that has net assets in trust that exceed
14the threshold amount defined in Section 1-101.7 of this Code.
15The status of "eligible pension fund", once established,
16continues in effect without regard to subsequent variations in
17the net assets of the pension fund. "Eligible pension fund"
18does not include a pension fund established pursuant to Article
193 or Article 4 of this Code that has elected before the
20effective date of this amendatory Act of the 99th General
21Assembly to come under the authority of the Illinois State
22Board of Investment for the management of its investments and
23that continues to be under the authority of the Illinois State

 

 

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1Board of Investment for the management of its investments.
 
2    (40 ILCS 5/1-101.7 new)
3    Sec. 1-101.7. Threshold amount. "Threshold amount", when
4used in relation to the financial assets of a pension fund
5established under Article 3 or Article 4 of this Code, means an
6amount equal to 3 months of current liabilities of the pension
7fund, including benefit payments owed to annuitants and
8beneficiaries of the pension fund and reasonable operational
9expenses.
 
10    (40 ILCS 5/1-113.05 new)
11    Sec. 1-113.05. Transfer of investment authority of certain
12pension funds established under Article 3 or 4. Upon receiving
13a certified investment asset list from the Department of
14Insurance pursuant to Section 3-135.1 or Section 4-128.1 of
15this Code, the board of trustees of an eligible pension fund
16established under Article 3 or 4 of this Code shall cease
17investment activities and shall transfer all investment assets
18of the pension fund to the Board of Trustees of the Illinois
19Municipal Retirement Fund in the manner prescribed by rules
20adopted by the Board of Trustees of the Illinois Municipal
21Retirement Fund. Upon completion of that transfer, the
22investment authority of the board of trustees shall terminate.
 
23    (40 ILCS 5/1-113.1)

 

 

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1    Sec. 1-113.1. Investment authority of certain pension
2funds established under Article 3 or 4.
3    (a) Beginning 18 months after the effective date of this
4amendatory Act of the 99th General Assembly, or when the
5transfer of investment authority is made pursuant to Section
61-113.05, whichever occurs first, subsection (b) of this
7Section does not apply to any pension fund that is an eligible
8pension fund as defined in Section 1-101.6.
9    This Section continues to apply to any pension fund
10established under Article 3 or 4 that is not an eligible
11pension fund as defined in Section 1-101.6.
12    (b) The board of trustees of a police pension fund
13established under Article 3 of this Code or firefighter pension
14fund established under Article 4 of this Code shall draw
15pension funds from the treasurer of the municipality and,
16beginning January 1, 1998, invest any part thereof in the name
17of the board in the items listed in Sections 1-113.2 through
181-113.4 according to the limitations and requirements of this
19Article. These investments shall be made with the care, skill,
20prudence, and diligence that a prudent person acting in like
21capacity and familiar with such matters would use in the
22conduct of an enterprise of like character with like aims.
23    Interest and any other income from the investments shall be
24credited to the pension fund.
25    For the purposes of Sections 1-113.2 through 1-113.11, the
26"net assets" of a pension fund include both the cash and

 

 

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1invested assets of the pension fund.
2(Source: P.A. 90-507, eff. 8-22-97.)
 
3    (40 ILCS 5/1-113.2)
4    Sec. 1-113.2. List of permitted investments for certain all
5Article 3 or 4 pension funds.
6    (a) Beginning 18 months after the effective date of this
7amendatory Act of the 99th General Assembly, or when the
8transfer of investment authority is made pursuant to Section
91-113.05, whichever occurs first, subsection (b) of this
10Section does not apply to any pension fund that is an eligible
11pension fund as defined in Section 1-101.6.
12    (b) Except as provided in subsection (a), any Any pension
13fund established under Article 3 or 4 may invest in the
14following items:
15    (1) Interest bearing direct obligations of the United
16States of America.
17    (2) Interest bearing obligations to the extent that they
18are fully guaranteed or insured as to payment of principal and
19interest by the United States of America.
20    (3) Interest bearing bonds, notes, debentures, or other
21similar obligations of agencies of the United States of
22America. For the purposes of this Section, "agencies of the
23United States of America" includes: (i) the Federal National
24Mortgage Association and the Student Loan Marketing
25Association; (ii) federal land banks, federal intermediate

 

 

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1credit banks, federal farm credit banks, and any other entity
2authorized to issue direct debt obligations of the United
3States of America under the Farm Credit Act of 1971 or
4amendments to that Act; (iii) federal home loan banks and the
5Federal Home Loan Mortgage Corporation; and (iv) any agency
6created by Act of Congress that is authorized to issue direct
7debt obligations of the United States of America.
8    (4) Interest bearing savings accounts or certificates of
9deposit, issued by federally chartered banks or savings and
10loan associations, to the extent that the deposits are insured
11by agencies or instrumentalities of the federal government.
12    (5) Interest bearing savings accounts or certificates of
13deposit, issued by State of Illinois chartered banks or savings
14and loan associations, to the extent that the deposits are
15insured by agencies or instrumentalities of the federal
16government.
17    (6) Investments in credit unions, to the extent that the
18investments are insured by agencies or instrumentalities of the
19federal government.
20    (7) Interest bearing bonds of the State of Illinois.
21    (8) Pooled interest bearing accounts managed by the
22Illinois Public Treasurer's Investment Pool in accordance with
23the Deposit of State Moneys Act, interest bearing funds or
24pooled accounts of the Illinois Metropolitan Investment Funds,
25and interest bearing funds or pooled accounts managed,
26operated, and administered by banks, subsidiaries of banks, or

 

 

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1subsidiaries of bank holding companies in accordance with the
2laws of the State of Illinois.
3    (9) Interest bearing bonds or tax anticipation warrants of
4any county, township, or municipal corporation of the State of
5Illinois.
6    (10) Direct obligations of the State of Israel, subject to
7the conditions and limitations of item (5.1) of Section 1-113.
8    (11) Money market mutual funds managed by investment
9companies that are registered under the federal Investment
10Company Act of 1940 and the Illinois Securities Law of 1953 and
11are diversified, open-ended management investment companies;
12provided that the portfolio of the money market mutual fund is
13limited to the following:
14        (i) bonds, notes, certificates of indebtedness,
15    treasury bills, or other securities that are guaranteed by
16    the full faith and credit of the United States of America
17    as to principal and interest;
18        (ii) bonds, notes, debentures, or other similar
19    obligations of the United States of America or its
20    agencies; and
21        (iii) short term obligations of corporations organized
22    in the United States with assets exceeding $400,000,000,
23    provided that (A) the obligations mature no later than 180
24    days from the date of purchase, (B) at the time of
25    purchase, the obligations are rated by at least 2 standard
26    national rating services at one of their 3 highest

 

 

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1    classifications, and (C) the obligations held by the mutual
2    fund do not exceed 10% of the corporation's outstanding
3    obligations.
4    (12) General accounts of life insurance companies
5authorized to transact business in Illinois.
6    (13) Any combination of the following, not to exceed 10% of
7the pension fund's net assets:
8        (i) separate accounts that are managed by life
9    insurance companies authorized to transact business in
10    Illinois and are comprised of diversified portfolios
11    consisting of common or preferred stocks, bonds, or money
12    market instruments;
13        (ii) separate accounts that are managed by insurance
14    companies authorized to transact business in Illinois, and
15    are comprised of real estate or loans upon real estate
16    secured by first or second mortgages; and
17        (iii) mutual funds that meet the following
18    requirements:
19            (A) the mutual fund is managed by an investment
20        company as defined and registered under the federal
21        Investment Company Act of 1940 and registered under the
22        Illinois Securities Law of 1953;
23            (B) the mutual fund has been in operation for at
24        least 5 years;
25            (C) the mutual fund has total net assets of $250
26        million or more; and

 

 

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1            (D) the mutual fund is comprised of diversified
2        portfolios of common or preferred stocks, bonds, or
3        money market instruments.
4    (14) Corporate bonds managed through an investment advisor
5must meet all of the following requirements:
6        (1) The bonds must be rated as investment grade by one
7    of the 2 largest rating services at the time of purchase.
8        (2) If subsequently downgraded below investment grade,
9    the bonds must be liquidated from the portfolio within 90
10    days after being downgraded by the manager.
11(Source: P.A. 96-1495, eff. 1-1-11.)
 
12    (40 ILCS 5/1-113.3)
13    Sec. 1-113.3. List of additional permitted investments for
14certain pension funds with net assets of $2,500,000 or more.
15    (a) Beginning 18 months after the effective date of this
16amendatory Act of the 99th General Assembly, or when the
17transfer of investment authority is made pursuant to Section
181-113.05, whichever occurs first, subsection (a-5) of this
19Section does not apply to any pension fund that is an eligible
20pension fund as defined in Section 1-101.6.
21    (a-5) Except as provided in subsection (a), in (a) In
22addition to the items in Section 3-113.2, a pension fund
23established under Article 3 or 4 that has net assets of at
24least $2,500,000 may invest a portion of its net assets in the
25following items:

 

 

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1        (1) Separate accounts that are managed by life
2    insurance companies authorized to transact business in
3    Illinois and are comprised of diversified portfolios
4    consisting of common or preferred stocks, bonds, or money
5    market instruments.
6        (2) Mutual funds that meet the following requirements:
7            (i) the mutual fund is managed by an investment
8        company as defined and registered under the federal
9        Investment Company Act of 1940 and registered under the
10        Illinois Securities Law of 1953;
11            (ii) the mutual fund has been in operation for at
12        least 5 years;
13            (iii) the mutual fund has total net assets of $250
14        million or more; and
15            (iv) the mutual fund is comprised of diversified
16        portfolios of common or preferred stocks, bonds, or
17        money market instruments.
18    (b) A pension fund's total investment in the items
19authorized under this Section shall not exceed 35% of the
20market value of the pension fund's net present assets stated in
21its most recent annual report on file with the Illinois
22Department of Insurance.
23(Source: P.A. 90-507, eff. 8-22-97.)
 
24    (40 ILCS 5/1-113.4)
25    Sec. 1-113.4. List of additional permitted investments for

 

 

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1certain pension funds with net assets of $5,000,000 or more.
2    (a) Beginning 18 months after the effective date of this
3amendatory Act of the 99th General Assembly, or when the
4transfer of investment authority is made pursuant to Section
51-113.05, whichever occurs first, subsection (a-5) of this
6Section does not apply to any pension fund that is an eligible
7pension fund as defined in Section 1-101.6.
8    (a-5) Except as provided in subsection (a), in (a) In
9addition to the items in Sections 1-113.2 and 1-113.3, a
10pension fund established under Article 3 or 4 that has net
11assets of at least $5,000,000 and has appointed an investment
12adviser under Section 1-113.5 may, through that investment
13adviser, invest a portion of its assets in common and preferred
14stocks authorized for investments of trust funds under the laws
15of the State of Illinois. The stocks must meet all of the
16following requirements:
17        (1) The common stocks are listed on a national
18    securities exchange or board of trade (as defined in the
19    federal Securities Exchange Act of 1934 and set forth in
20    subdivision G of Section 3 Section 3.G of the Illinois
21    Securities Law of 1953) or quoted in the National
22    Association of Securities Dealers Automated Quotation
23    System National Market System (NASDAQ NMS).
24        (2) The securities are of a corporation created or
25    existing under the laws of the United States or any state,
26    district, or territory thereof and the corporation has been

 

 

SB3455- 11 -LRB099 23881 RPS 51407 b

1    in existence for at least 5 years.
2        (3) The corporation has not been in arrears on payment
3    of dividends on its preferred stock during the preceding 5
4    years.
5        (4) The market value of stock in any one corporation
6    does not exceed 5% of the cash and invested assets of the
7    pension fund, and the investments in the stock of any one
8    corporation do not exceed 5% of the total outstanding stock
9    of that corporation.
10        (5) The straight preferred stocks or convertible
11    preferred stocks are issued or guaranteed by a corporation
12    whose common stock qualifies for investment by the board.
13        (6) The issuer of the stocks has been subject to the
14    requirements of Section 12 of the federal Securities
15    Exchange Act of 1934 and has been current with the filing
16    requirements of Sections 13 and 14 of that Act during the
17    preceding 3 years.
18    (b) A pension fund's total investment in the items
19authorized under this Section and Section 1-113.3 shall not
20exceed 35% of the market value of the pension fund's net
21present assets stated in its most recent annual report on file
22with the Illinois Department of Insurance.
23    (c) A pension fund that invests funds under this Section
24shall electronically file with the Division any reports of its
25investment activities that the Division may require, at the
26times and in the format required by the Division.

 

 

SB3455- 12 -LRB099 23881 RPS 51407 b

1(Source: P.A. 90-507, eff. 8-22-97; revised 10-25-16.)
 
2    (40 ILCS 5/1-113.4a)
3    Sec. 1-113.4a. List of additional permitted investments
4for certain Article 3 and 4 pension funds with net assets of
5$10,000,000 or more.
6    (a) Beginning 18 months after the effective date of this
7amendatory Act of the 99th General Assembly, or when the
8transfer of investment authority is made pursuant to Section
91-113.05, whichever occurs first, subsection (a-5) of this
10Section does not apply to any pension fund that is an eligible
11pension fund as defined in Section 1-101.6.
12    (a-5) Except as provided in subsection (a), in (a) In
13addition to the items in Sections 1-113.2 and 1-113.3, a
14pension fund established under Article 3 or 4 that has net
15assets of at least $10,000,000 and has appointed an investment
16adviser, as defined under Sections 1-101.4 and 1-113.5, may,
17through that investment adviser, invest an additional portion
18of its assets in common and preferred stocks and mutual funds.
19    (b) The stocks must meet all of the following requirements:
20        (1) The common stocks must be listed on a national
21    securities exchange or board of trade (as defined in the
22    Federal Securities Exchange Act of 1934 and set forth in
23    paragraph G of Section 3 of the Illinois Securities Law of
24    1953) or quoted in the National Association of Securities
25    Dealers Automated Quotation System National Market System.

 

 

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1        (2) The securities must be of a corporation in
2    existence for at least 5 years.
3        (3) The market value of stock in any one corporation
4    may not exceed 5% of the cash and invested assets of the
5    pension fund, and the investments in the stock of any one
6    corporation may not exceed 5% of the total outstanding
7    stock of that corporation.
8        (4) The straight preferred stocks or convertible
9    preferred stocks must be issued or guaranteed by a
10    corporation whose common stock qualifies for investment by
11    the board.
12    (c) The mutual funds must meet the following requirements:
13        (1) The mutual fund must be managed by an investment
14    company registered under the Federal Investment Company
15    Act of 1940 and registered under the Illinois Securities
16    Law of 1953.
17        (2) The mutual fund must have been in operation for at
18    least 5 years.
19        (3) The mutual fund must have total net assets of
20    $250,000,000 or more.
21        (4) The mutual fund must be comprised of a diversified
22    portfolio of common or preferred stocks, bonds, or money
23    market instruments.
24    (d) A pension fund's total investment in the items
25authorized under this Section and Section 1-113.3 shall not
26exceed 50% effective July 1, 2011 and 55% effective July 1,

 

 

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12012 of the market value of the pension fund's net present
2assets stated in its most recent annual report on file with the
3Department of Insurance.
4    (e) A pension fund that invests funds under this Section
5shall electronically file with the Division any reports of its
6investment activities that the Division may require, at the
7time and in the format required by the Division.
8(Source: P.A. 96-1495, eff. 1-1-11.)
 
9    (40 ILCS 5/1-113.5)
10    Sec. 1-113.5. Investment advisers and investment services
11for certain all Article 3 or 4 pension funds.
12    (a) Beginning 18 months after the effective date of this
13amendatory Act of the 99th General Assembly, or when the
14transfer of investment authority is made pursuant to Section
151-113.05, whichever occurs first, subsection (a-1) of this
16Section does not apply to any pension fund that is an eligible
17pension fund as defined in Section 1-101.6.
18    (a-1) Except as provided in subsection (a), the (a) The
19board of trustees of a pension fund established under Article 3
20or 4 of this Code may appoint investment advisers as defined in
21Section 1-101.4. The board of any pension fund investing in
22common or preferred stock under Section 1-113.4 shall appoint
23an investment adviser before making such investments.
24    The investment adviser or consultant shall be a fiduciary,
25as defined in Section 1-101.2, with respect to the pension fund

 

 

SB3455- 15 -LRB099 23881 RPS 51407 b

1and shall be one of the following:
2        (1) an investment adviser registered under the federal
3    Investment Advisers Act of 1940 and the Illinois Securities
4    Law of 1953;
5        (2) a bank or trust company authorized to conduct a
6    trust business in Illinois;
7        (3) a life insurance company authorized to transact
8    business in Illinois; or
9        (4) an investment company as defined and registered
10    under the federal Investment Company Act of 1940 and
11    registered under the Illinois Securities Law of 1953.
12    (a-5) Notwithstanding any other provision of law, a person
13or entity that provides consulting services (referred to as a
14"consultant" in this Section) to a pension fund with respect to
15the selection of fiduciaries may not be awarded a contract to
16provide those consulting services that is more than 5 years in
17duration. No contract to provide such consulting services may
18be renewed or extended. At the end of the term of a contract,
19however, the contractor is eligible to compete for a new
20contract. No person shall attempt to avoid or contravene the
21restrictions of this subsection by any means. All offers from
22responsive offerors shall be accompanied by disclosure of the
23names and addresses of the following:
24        (1) The offeror.
25        (2) Any entity that is a parent of, or owns a
26    controlling interest in, the offeror.

 

 

SB3455- 16 -LRB099 23881 RPS 51407 b

1        (3) Any entity that is a subsidiary of, or in which a
2    controlling interest is owned by, the offeror.
3    Beginning on July 1, 2008, a person, other than a trustee
4or an employee of a pension fund or retirement system, may not
5act as a consultant under this Section unless that person is at
6least one of the following: (i) registered as an investment
7adviser under the federal Investment Advisers Act of 1940 (15
8U.S.C. 80b-1, et seq.); (ii) registered as an investment
9adviser under the Illinois Securities Law of 1953; (iii) a
10bank, as defined in the Investment Advisers Act of 1940; or
11(iv) an insurance company authorized to transact business in
12this State.
13    (b) All investment advice and services provided by an
14investment adviser or a consultant appointed under this Section
15shall be rendered pursuant to a written contract between the
16investment adviser and the board, and in accordance with the
17board's investment policy.
18    The contract shall include all of the following:
19        (1) acknowledgement in writing by the investment
20    adviser that he or she is a fiduciary with respect to the
21    pension fund;
22        (2) the board's investment policy;
23        (3) full disclosure of direct and indirect fees,
24    commissions, penalties, and any other compensation that
25    may be received by the investment adviser, including
26    reimbursement for expenses; and

 

 

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1        (4) a requirement that the investment adviser submit
2    periodic written reports, on at least a quarterly basis,
3    for the board's review at its regularly scheduled meetings.
4    All returns on investment shall be reported as net returns
5    after payment of all fees, commissions, and any other
6    compensation.
7    (b-5) Each contract described in subsection (b) shall also
8include (i) full disclosure of direct and indirect fees,
9commissions, penalties, and other compensation, including
10reimbursement for expenses, that may be paid by or on behalf of
11the investment adviser or consultant in connection with the
12provision of services to the pension fund and (ii) a
13requirement that the investment adviser or consultant update
14the disclosure promptly after a modification of those payments
15or an additional payment.
16    Within 30 days after the effective date of this amendatory
17Act of the 95th General Assembly, each investment adviser and
18consultant providing services on the effective date or subject
19to an existing contract for the provision of services must
20disclose to the board of trustees all direct and indirect fees,
21commissions, penalties, and other compensation paid by or on
22behalf of the investment adviser or consultant in connection
23with the provision of those services and shall update that
24disclosure promptly after a modification of those payments or
25an additional payment.
26    A person required to make a disclosure under subsection (d)

 

 

SB3455- 18 -LRB099 23881 RPS 51407 b

1is also required to disclose direct and indirect fees,
2commissions, penalties, or other compensation that shall or may
3be paid by or on behalf of the person in connection with the
4rendering of those services. The person shall update the
5disclosure promptly after a modification of those payments or
6an additional payment.
7    The disclosures required by this subsection shall be in
8writing and shall include the date and amount of each payment
9and the name and address of each recipient of a payment.
10    (c) Within 30 days after appointing an investment adviser
11or consultant, the board shall submit a copy of the contract to
12the Division of Insurance of the Department of Financial and
13Professional Regulation.
14    (d) Investment services provided by a person other than an
15investment adviser appointed under this Section, including but
16not limited to services provided by the kinds of persons listed
17in items (1) through (4) of subsection (a), shall be rendered
18only after full written disclosure of direct and indirect fees,
19commissions, penalties, and any other compensation that shall
20or may be received by the person rendering those services.
21    (e) The board of trustees of each pension fund shall retain
22records of investment transactions in accordance with the rules
23of the Department of Financial and Professional Regulation.
24    (f) Upon the initial transfer of assets and investment
25authority of an eligible pension fund under subsection (b) of
26Section 3-135 or subsection (b) of Section 4-128 of this Code,

 

 

SB3455- 19 -LRB099 23881 RPS 51407 b

1and thereafter in perpetuity, the Board of Trustees of the
2Illinois Municipal Retirement Fund shall provide all
3investment services for that eligible pension fund.
4    The Board of Trustees of the Illinois Municipal Retirement
5Fund shall not be held liable by or indemnify any individual
6annuitant or beneficiary of any eligible pension fund
7established under Article 3 or Article 4 of this Code for
8nonpayment of benefits by the eligible pension fund.
9(Source: P.A. 95-950, eff. 8-29-08; 96-6, eff. 4-3-09.)
 
10    (40 ILCS 5/1-113.6)
11    Sec. 1-113.6. Investment policies.
12    (a) Except as provided in subsection (b), every Every board
13of trustees of a pension fund shall adopt a written investment
14policy and file a copy of that policy with the Department of
15Insurance within 30 days after its adoption. Whenever a board
16changes its investment policy, it shall file a copy of the new
17policy with the Department within 30 days.
18    (b) Beginning 18 months after the effective date of this
19amendatory Act of the 99th General Assembly, or upon the
20transfer of its investment authority under Section 1-113.05,
21whichever occurs first, the requirement to maintain and file an
22investment policy under subsection (a) ceases to apply to the
23board of trustees of an eligible pension fund established under
24Article 3 or Article 4 of this Code.
25(Source: P.A. 90-507, eff. 8-22-97.)
 

 

 

SB3455- 20 -LRB099 23881 RPS 51407 b

1    (40 ILCS 5/1-113.7)
2    Sec. 1-113.7. Registration of investments; custody and
3safekeeping.
4    This Section does not apply to investments that have been
5transferred under Section 1-113.05.
6    The board of trustees may register the investments of its
7pension fund in the name of the pension fund, in the nominee
8name of a bank or trust company authorized to conduct a trust
9business in Illinois, or in the nominee name of the Illinois
10Public Treasurer's Investment Pool.
11    The assets of the pension fund and ownership of its
12investments shall be protected through third-party custodial
13safekeeping. The board of trustees may appoint as custodian of
14the investments of its pension fund the treasurer of the
15municipality, a bank or trust company authorized to conduct a
16trust business in Illinois, or the Illinois Public Treasurer's
17Investment Pool.
18    A dealer may not maintain possession of or control over
19securities of a pension fund subject to the provisions of this
20Section unless it is registered as a broker-dealer with the
21U.S. Securities and Exchange Commission and is a member in good
22standing of the National Association of Securities Dealers, and
23(1) with respect to securities that are not issued only in
24book-entry form, (A) all such securities of each fund are
25either held in safekeeping in a place reasonably free from risk

 

 

SB3455- 21 -LRB099 23881 RPS 51407 b

1of destruction or held in custody by a securities depository
2that is a "clearing agency" registered with the U.S. Securities
3and Exchange Commission, (B) the dealer is a member of the
4Securities Investor Protection Corporation, (C) the dealer
5sends to each fund, no less frequently than each calendar
6quarter, an itemized statement showing the moneys and
7securities in the custody or possession of the dealer at the
8end of such period, and (D) an independent certified public
9accountant conducts an audit, no less frequently than each
10calendar year, that reviews the dealer's internal accounting
11controls and procedures for safeguarding securities; and (2)
12with respect to securities that are issued only in book-entry
13form, (A) all such securities of each fund are held either in a
14securities depository that is a "clearing agency" registered
15with the U.S. Securities and Exchange Commission or in a bank
16that is a member of the Federal Reserve System, (B) the dealer
17records the ownership interest of the funds in such securities
18on the dealer's books and records, (C) the dealer is a member
19of the Securities Investor Protection Corporation, (D) the
20dealer sends to each fund, no less frequently than each
21calendar quarter, an itemized statement showing the moneys and
22securities in the custody or possession of the dealer at the
23end of such period, and (E) the dealer's financial statement
24(which shall contain among other things a statement of the
25dealer's net capital and its required net capital computed in
26accordance with Rule 15c3-1 under the Securities Exchange Act

 

 

SB3455- 22 -LRB099 23881 RPS 51407 b

1of 1934) is audited annually by an independent certified public
2accountant, and the dealer's most recent audited financial
3statement is furnished to the fund. No broker-dealer serving as
4a custodian for any public pension fund as provided by this Act
5shall be authorized to serve as an investment advisor for that
6same public pension fund as described in Section 1-101.4 of
7this Code, to the extent that the investment advisor acquires
8or disposes of any asset of that same public pension fund.
9Notwithstanding the foregoing, in no event may a broker or
10dealer that is a natural person maintain possession of or
11control over securities or other assets of a pension fund
12subject to the provisions of this Section. In maintaining
13securities of a pension fund subject to the provisions of this
14Section, each dealer must maintain those securities in
15conformity with the provisions of Rule 15c3-3(b) of the
16Securities Exchange Act of 1934 (Physical Possession or Control
17of Securities). The Director of the Department of Insurance may
18adopt such rules and regulations as shall be necessary and
19appropriate in his or her judgment to effectuate the purposes
20of this Section.
21    A bank or trust company authorized to conduct a trust
22business in Illinois shall register, deposit, or hold
23investments for safekeeping, all in accordance with the
24obligations and subject to the limitations of the Securities in
25Fiduciary Accounts Act.
26(Source: P.A. 92-651, eff. 7-11-02.)
 

 

 

SB3455- 23 -LRB099 23881 RPS 51407 b

1    (40 ILCS 5/3-127)  (from Ch. 108 1/2, par. 3-127)
2    Sec. 3-127. Reserves.
3    (a) The board shall establish and maintain a reserve to
4insure the payment of all obligations incurred under this
5Article excluding retirement annuities established under
6Section 3-109.3. The reserve to be accumulated shall be equal
7to the estimated total actuarial requirements of the fund.
8    (b) In the case of an eligible pension fund that has
9transferred its investment authority to the Board of Trustees
10of the Illinois Municipal Retirement Fund under Section
111-113.05 of this Code, the assets invested by the Board of
12Trustees of the Illinois Municipal Retirement Fund on behalf of
13the pension fund, and the dividends and other investment
14earnings attributable thereto, shall be considered as part of
15the reserve for the purposes of this Section.
16    The Board of Trustees of the Illinois Municipal Retirement
17Fund shall report to the board of each such fund at least
18annually the financial information on the invested assets and
19earnings attributable to that pension fund so that the board
20may make the determinations required under this Article.
21    (c) If a pension fund has a reserve of less than the
22accrued liabilities of the fund, the board of the pension fund,
23in making its annual report to the city council or board of
24trustees of the municipality, shall designate the amount,
25calculated as a level percentage of payroll, needed annually to

 

 

SB3455- 24 -LRB099 23881 RPS 51407 b

1insure the accumulation of the reserve to the level of the
2fund's accrued liabilities over a period of 40 years from July
31, 1993 for pension funds then in operation, or from the date
4of establishment in the case of a fund created thereafter, so
5that the necessary reserves will be attained over such a
6period.
7(Source: P.A. 91-939, eff. 2-1-01.)
 
8    (40 ILCS 5/3-132)  (from Ch. 108 1/2, par. 3-132)
9    Sec. 3-132. To control and manage the Pension Fund.
10    (a) In accordance with the applicable provisions of
11Articles 1 and 1A and this Article, the board of trustees of
12the pension fund shall have the authority to control and
13manage, exclusively, the following:
14        (1) the pension fund, and
15        (2) investment expenditures and income, including
16    interest dividends, capital gains and other distributions
17    on the investments, and
18        (2) (3) all money donated, paid, assessed, or provided
19    by law for the pensioning of disabled and retired police
20    officers, their surviving spouses, minor children, and
21    dependent parents.
22    All such money received or collected shall be credited by
23the treasurer of the municipality to the Illinois Municipal
24Retirement Fund's account of the pension fund and held by the
25Illinois Municipal Retirement Fund for purposes of investment

 

 

SB3455- 25 -LRB099 23881 RPS 51407 b

1pursuant to Article 7 of this Code.
2    (b) Pursuant to rules adopted under Article 7 of this Code,
3the board of trustees of an eligible pension fund shall make
4periodic written application to the Board of Trustees of the
5Illinois Municipal Retirement Fund for receipt and deposit of
6reserves into the pension fund. Reserves in the amount of 3
7months' current liabilities, including annuity and benefit
8payments and operational expenses owed by the fund, shall be
9held by the treasurer of the municipality subject to the order
10and control of the board. The treasurer of the municipality
11shall maintain a record of all money received, transferred, and
12held for the account of the board.
13    (c) In case of any dispute that may arise between the board
14of trustees of the eligible pension fund and the Illinois
15Municipal Retirement Fund pursuant to subsection (b) of this
16Section, the board of trustees of the eligible pension fund
17shall appeal the dispute to the Director of the Illinois
18Department of Insurance. If the Director finds that there
19exists a good faith dispute between the parties, the Director
20may hold a hearing in accordance with the rules of the Illinois
21Department of Insurance.
22(Source: P.A. 90-507, eff. 8-22-97.)
 
23    (40 ILCS 5/3-135)  (from Ch. 108 1/2, par. 3-135)
24    Sec. 3-135. To invest, manage, and transfer funds.
25    (a) Except as provided in subsection (b), Beginning January

 

 

SB3455- 26 -LRB099 23881 RPS 51407 b

11, 1998, the board shall invest funds in accordance with
2Sections 1-113.1 through 1-113.10 of this Code.
3    Any pension fund that does not meet the definition of
4eligible pension fund under Section 1-101.6 of this Code shall
5retain the authority to control and manage investment
6expenditures and income, including interest, dividends,
7capital gains, and other distributions on the investments.
8    (b) The board of an eligible pension fund that receives a
9certified investment asset list under Section 3-135.1 shall
10cease investment activities upon receiving the certified
11investment asset list and shall transfer all investment assets,
12minus assets needed to comply with subsection (b) of Section
133-132, to the Board of Trustees of the Illinois Municipal
14Retirement Fund in the manner prescribed by rules adopted by
15the Board of Trustees of the Illinois Municipal Retirement Fund
16under Article 7. Upon completion of the transfer described in
17this subsection, the investment authority of the board shall
18terminate.
19(Source: P.A. 90-507, eff. 8-22-97.)
 
20    (40 ILCS 5/3-135.1 new)
21    Sec. 3-135.1. Certified investment asset list.
22    (a) Within 18 months of the effective date of this
23amendatory Act of the 99th General Assembly, the Department of
24Insurance shall audit the investment assets of each eligible
25pension fund established under this Article to determine a

 

 

SB3455- 27 -LRB099 23881 RPS 51407 b

1certified investment asset list. The audit shall be performed
2by a certified public accountant. The board of the pension fund
3shall defray the expense of the audit.
4    (b) Upon completion of the audit, the Department shall
5provide the certified investment asset list to the eligible
6pension fund and the Board of Trustees of the Illinois
7Municipal Retirement Fund. The Department may adopt rules
8governing the creation and distribution of the certified
9investment asset list.
 
10    (40 ILCS 5/3-135.2 new)
11    Sec. 3-135.2. To transfer investment funds. At each
12quarterly meeting of the Board, the Board of trustees of any
13eligible pension fund shall transfer any available funds for
14investment to the Board of Trustees of the Illinois Municipal
15Retirement Fund in accordance with provisions of Article 7 of
16this Code. Each transfer shall be made within 30 days of the
17end of the fiscal year quarter and written notice of the
18transfer shall be given to the Board of Trustees of the
19Illinois Municipal Retirement Fund.
 
20    (40 ILCS 5/4-120)  (from Ch. 108 1/2, par. 4-120)
21    Sec. 4-120. Reserves.
22    (a) The board shall establish and maintain a reserve to
23insure the payment of all obligations incurred under this
24Article. The reserve to be accumulated shall be equal to the

 

 

SB3455- 28 -LRB099 23881 RPS 51407 b

1estimated total actuarial requirements of the Fund.
2    (b) In the case of an eligible pension fund that has
3transferred its investment authority to the Board of Trustees
4of the Illinois Municipal Retirement Fund under Section
51-113.05 of this Code, the assets invested by the Board of
6Trustees of the Illinois Municipal Retirement Fund on behalf of
7the pension fund, and the dividends and other investment
8earnings attributable thereto, shall be considered as part of
9the reserve for the purposes of this Section.
10    The Board of Trustees of the Illinois Municipal Retirement
11Fund shall report to the board of each such fund at least
12annually the financial information on the invested assets and
13earnings to that pension fund so that the board may make the
14determinations required under this Article.
15(Source: P.A. 83-1440.)
 
16    (40 ILCS 5/4-123)  (from Ch. 108 1/2, par. 4-123)
17    Sec. 4-123. To control and manage the Pension Fund.
18    (a) In accordance with the applicable provisions of
19Articles 1 and 1A and this Article the board of trustees of the
20pension fund shall have the authority, to control and manage,
21exclusively, the following:
22        (1) the pension fund, and
23        (2) investment expenditures and income, including
24    interest dividends, capital gains, and other distributions
25    on the investments, and

 

 

SB3455- 29 -LRB099 23881 RPS 51407 b

1        (2) (3) all money donated, paid, assessed, or provided
2    by law for the pensioning of disabled and retired
3    firefighters, their surviving spouses, minor children, and
4    dependent parents. All such money received or collected
5    shall be credited by the treasurer of the municipality to
6    the Illinois Municipal Retirement Fund's account of the
7    pension fund and held by the Fund for purposes of
8    investment pursuant to Article 7 of this Code.
9    (b) Pursuant to rules adopted under Article 7 of this Code,
10the board of trustees of an eligible pension fund shall make
11periodic written application to the Board of Trustees of the
12Illinois Municipal Retirement Fund for receipt and deposit of
13reserves into the pension fund. Reserves in the amount of 3
14months' current liabilities, including annuity and benefit
15payments and operational expenses owed by the fund, shall be
16held by the treasurer of the municipality subject to the order
17and control of the board. The treasurer of the municipality
18shall maintain a record of all money received, transferred, and
19held for the account of the board.
20    (c) In case of any dispute that may arise between the board
21of trustees of any eligible pension fund and the Illinois
22Municipal Retirement Fund pursuant to subsection (b) of this
23Section, the board of trustees of the pension fund shall appeal
24the dispute to the Director of the Illinois Department of
25Insurance. If the Director finds good faith dispute between the
26parties, the Director may hold a hearing in accordance with the

 

 

SB3455- 30 -LRB099 23881 RPS 51407 b

1rules of the Illinois Department of Insurance.
2(Source: P.A. 90-507, eff. 8-22-97.)
 
3    (40 ILCS 5/4-128)  (from Ch. 108 1/2, par. 4-128)
4    Sec. 4-128. To invest and transfer funds.
5    (a) Except as provided in subsection (b), Beginning January
61, 1998, the board shall invest funds in accordance with
7Sections 1-113.1 through 1-113.10 of this Code.
8    Any pension fund that does not meet the definition of
9eligible pension fund under Section 1-101.6 of this Code shall
10retain the authority to control and manage investment
11expenditures and income, including interest, dividends,
12capital gains, and other distributions on the investments.
13    (b) The board of an eligible pension fund that receives a
14certified investment asset list under Section 4-128.1 shall
15cease investment activities upon receiving the certified
16investment asset list and shall transfer all investment assets,
17minus assets needed to comply with subsection (b) of Section
184-123, to the Board of Trustees of the Illinois Municipal
19Retirement Fund in the manner prescribed by rules adopted by
20the Board of Trustees of the Illinois Municipal Retirement Fund
21under Article 7. Upon completion of the transfer described in
22this subsection, the investment authority of the board shall
23terminate.
24(Source: P.A. 90-507, eff. 8-22-97.)
 

 

 

SB3455- 31 -LRB099 23881 RPS 51407 b

1    (40 ILCS 5/4-128.1 new)
2    Sec. 4-128.1. Certified investment asset list.
3    (a) Within 18 months of the effective date of this
4amendatory Act of the 99th General Assembly, the Department of
5Insurance shall audit the investment assets of each eligible
6pension fund established under this Article to determine a
7certified investment asset list. The audit shall be performed
8by a certified public accountant. The board of the pension fund
9shall defray the expense of the audit.
10    (b) Upon completion of the audit, the Department shall
11provide the certified investment asset list to the eligible
12pension fund and the Board of Trustees of the Illinois
13Municipal Retirement Fund. The Department may adopt rules
14governing the creation and distribution of the certified
15investment asset list.
 
16    (40 ILCS 5/4-128.2 new)
17    Sec. 4-128.2. To transfer investment funds. At each
18quarterly meeting of the Board, the Board of trustees of any
19eligible pension fund shall transfer any available funds for
20investment to the Board of Trustees of the Illinois Municipal
21Retirement Fund in accordance with provisions of Article 7 of
22this Code. Each transfer shall be made within 30 days of the
23end of the fiscal year quarter and written notice of the
24transfer shall be given to the Board of Trustees of the
25Illinois Municipal Retirement Fund.
 

 

 

SB3455- 32 -LRB099 23881 RPS 51407 b

1    (40 ILCS 5/7-226 new)
2    Sec. 7-226. Transfer from Article 3 or 4 fund.
3    (a) Upon receipt of a certified investment asset list
4provided under Section 3-135.1 or 4-128.1 of this Code for an
5eligible pension fund, the Board of the Illinois Municipal
6Retirement Fund shall, as soon as practicable, initiate the
7transfer of assets from the board of trustees of the eligible
8fund, and the board of trustees of the eligible fund shall
9transfer to the Board of Trustees of the Illinois Municipal
10Retirement Fund for management and investment all of its
11securities including securities for which commitments have
12been made, and all funds, assets, or money representing
13permanent or temporary investments, and cash reserves
14maintained for the purpose of obtaining income thereon.
15    (b) Upon the transfer of securities and assets from a board
16of trustees under this Section, the custody and control of the
17Board of Trustees of the Illinois Municipal Retirement Fund
18over the present and future assets of the pension fund shall
19take effect. The transfer shall be receipted for in detail by
20the Board of the Illinois Municipal Retirement Fund and the
21receipt shall be provided to the board of trustees of the
22pension fund within 30 days of the effective date of the
23transfer.
24    (c) Each pension fund established under Article 3 and 4 of
25this Code that is under the investment authority of the Board

 

 

SB3455- 33 -LRB099 23881 RPS 51407 b

1of Trustees of the Illinois Municipal Retirement Fund shall
2report to the Board of Trustees of the Illinois Municipal
3Retirement Fund, at the end of each quarter of the pension
4fund's fiscal year, the amount of funds available for
5investment. These amounts shall be transferred within 30 days
6of the end of the quarter to the Board of Trustees of the
7Illinois Municipal Retirement Fund in a manner prescribed by
8the Board. Notice to the Board of Trustees of the Illinois
9Municipal Retirement Fund of each such transfer shall be given
10by the pension fund as the transfer occurs.
 
11    (40 ILCS 5/7-227 new)
12    Sec. 7-227. Audit of transition. Within 6 months of the
13transfer of investment assets from an eligible pension fund
14established under Article 3 or 4 of this Code to the control of
15the Board, the books, records, accounts, and securities of the
16board shall be audited by a certified public accountant
17designated by the Illinois Auditor General. The audit shall
18include, but is not limited to, the following: (i) a full
19description of the investments acquired, showing average
20costs; (ii) a full description of the securities sold or
21exchanged, showing average proceeds or other conditions of an
22exchange; (iii) gains or losses realized during the period;
23(iv) income from investments; (v) administrative expenses of
24the board; and (vi) the proportion of administrative expenses
25allocable to each pension fund. The audit report shall be

 

 

SB3455- 34 -LRB099 23881 RPS 51407 b

1published on the Board's website and filed with the Illinois
2Department of Insurance.
 
3    Section 90. The State Mandates Act is amended by adding
4Section 8.40 as follows:
 
5    (30 ILCS 805/8.40 new)
6    Sec. 8.40. Exempt mandate. Notwithstanding Sections 6 and 8
7of this Act, no reimbursement by the State is required for the
8implementation of any mandate created by this amendatory Act of
9the 99th General Assembly.

 

 

SB3455- 35 -LRB099 23881 RPS 51407 b

1 INDEX
2 Statutes amended in order of appearance
3    40 ILCS 5/1-101.6 new
4    40 ILCS 5/1-101.7 new
5    40 ILCS 5/1-113.05 new
6    40 ILCS 5/1-113.1
7    40 ILCS 5/1-113.2
8    40 ILCS 5/1-113.3
9    40 ILCS 5/1-113.4
10    40 ILCS 5/1-113.4a
11    40 ILCS 5/1-113.5
12    40 ILCS 5/1-113.6
13    40 ILCS 5/1-113.7
14    40 ILCS 5/3-127from Ch. 108 1/2, par. 3-127
15    40 ILCS 5/3-132from Ch. 108 1/2, par. 3-132
16    40 ILCS 5/3-135from Ch. 108 1/2, par. 3-135
17    40 ILCS 5/3-135.1 new
18    40 ILCS 5/3-135.2 new
19    40 ILCS 5/4-120from Ch. 108 1/2, par. 4-120
20    40 ILCS 5/4-123from Ch. 108 1/2, par. 4-123
21    40 ILCS 5/4-128from Ch. 108 1/2, par. 4-128
22    40 ILCS 5/4-128.1 new
23    40 ILCS 5/4-128.2 new
24    40 ILCS 5/7-226 new
25    40 ILCS 5/7-227 new

 

 

SB3455- 36 -LRB099 23881 RPS 51407 b

1    30 ILCS 805/8.40 new