Illinois General Assembly - Full Text of HB5666
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Full Text of HB5666  97th General Assembly




State of Illinois
2011 and 2012


Introduced 2/16/2012, by Rep. Mike Fortner


40 ILCS 5/7-130.1 new
40 ILCS 5/7-130.2 new
40 ILCS 5/7-140.5 new
40 ILCS 5/7-173  from Ch. 108 1/2, par. 7-173
40 ILCS 5/7-173.3 new
30 ILCS 805/8.36 new
40 ILCS 5/7-173  from Ch. 108 1/2, par. 7-173

    Amends the Illinois Municipal Retirement Fund (IMRF) Article of the Illinois Pension Code. Allows persons who first become participants on or after January 1, 2011 to elect to participate in a self-managed program of retirement benefits instead of the program of reformed retirement benefits currently offered. Provides that a self-managed plan shall authorize a participant to accumulate assets for retirement through a combination of employer and employee contributions that may be invested at the participant's direction in mutual funds, collective investment funds, or other investment products and used to purchase annuity contracts. Requires the Fund to make the self-managed plan available within 6 months after the effective date of the amendatory Act. Amends the State Mandates Act to require implementation without reimbursement. Effective immediately.

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HB5666LRB097 20429 EFG 65918 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
5Sections 7-130.1, 7-130.2, 7-140.5, and 7-173.3 and changing
6Section 7-173 as follows:
7    (40 ILCS 5/7-130.1 new)
8    Sec. 7-130.1. Reformed benefit package. "Reformed benefit
9package" means the benefit retirement program maintained by the
10Fund for persons who first become participants of the Fund on
11or after January 1, 2011. It includes the following benefits
12for those persons: retirement annuities payable directly from
13the Fund; surviving spouse annuities payable directly from the
14Fund; child annuities payable directly from the Fund;
15contribution refunds; and separation benefits.
16    (40 ILCS 5/7-130.2 new)
17    Sec. 7-130.2. Self-managed plan. "Self-managed plan" means
18the defined contribution retirement program maintained by the
19Fund, as described in Section 7-173.3. The self-managed plan
20does not include retirement, surviving spouse, or child
21annuities payable directly from the Fund, contribution
22refunds, or separation benefits.



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1    (40 ILCS 5/7-140.5 new)
2    Sec. 7-140.5. Retirement program elections.
3    (a) For the purposes of this Article:
4    "Currently eligible participant" means a person who first
5became or becomes a participant under this Article on or after
6January 1, 2011 and is a participant under this Article before
7the day on which the Fund first offers the self-managed plan as
8an alternative to the reformed benefit package.
9    "Eligible participant" means either a currently eligible
10participant or a newly eligible participant of the Fund
11    "Newly eligible participant" means a person who first
12becomes a participant under this Article on or after the date
13on which the Fund first offers the self-managed plan as an
14alternative to the reformed benefit package.
15    (b) When the Fund offers to participants under this Article
16a self-managed plan as an alternative to the reformed benefit
17package, each eligible participant shall be given the choice to
18elect which retirement program he or she wishes to participate
19in with respect to all periods of covered employment occurring
20on, before, and after the effective date of the participant's
21election. The retirement program election made by an eligible
22participant must be made in writing, in the manner prescribed
23by the Fund, and within the time period described in this
25    If an eligible participant elects the self-managed plan,



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1then that election is irrevocable. If an eligible participant
2who elected to participate or participated by default in the
3reformed benefit plan terminates employment under this
4Article, then the participant, upon his or her subsequent
5re-employment under this Article, may make an election under
6this Section.
7    An eligible participant who fails to make an election under
8this Section shall, by default, participate in the reformed
9benefit package.
10    (c) An eligible participant may elect to participate in the
11reformed benefit package or the self-managed plan. An eligible
12participant must make this election within one year after the
13effective date of the adoption of the self-managed plan under
14Section 7-173.3 or 60 days after first becoming a participant
15under this Article, whichever is later, or, in the case of a
16currently eligible participant who terminates employment under
17this Article, within one year after his or her re-employment
18under this Article.
19    (d) If the eligible participant elects to participate in
20the self-managed plan, the Fund shall fund his or her account
21as stated in subsection (f) of Section 7-173.3.
22    (e) An eligible participant shall be provided with written
23information prepared or prescribed by the Fund that describes
24the participant's retirement program choices. The eligible
25participant shall be offered an opportunity to receive
26counseling from the Fund before making his or her election.



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1This counseling may consist of videotaped materials, group
2presentations, individual consultation with an employee or
3authorized representative of the Fund in person or by telephone
4or other electronic means, or any combination of these methods.
5    (40 ILCS 5/7-173)  (from Ch. 108 1/2, par. 7-173)
6    Sec. 7-173. Contributions by employees.
7    (a) Each participating employee shall make contributions
8to the fund as follows:
9        1. For retirement annuity purposes, normal
10    contributions of 3 3/4% of earnings.
11        2. Additional contributions of such percentages of
12    each payment of earnings, as shall be elected by the
13    employee for retirement annuity purposes, but not in excess
14    of 10%. The selected rate shall be applicable to all
15    earnings paid following receipt by the Board of written
16    notice of election to make such contributions. Additional
17    contributions at the selected rate shall be made
18    concurrently with normal contributions.
19        3. Survivor contributions, by each participating
20    employee, of 3/4% of each payment of earnings.
21    Notwithstanding this item 3, in the case of an employee who
22    participates in the self-managed plan under Section
23    7-173.3, contributions for a survivor's annuity shall
24    instead be used to finance the benefits available under
25    Section 1-173.3.



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1    (b) Each employee shall make contributions for Federal
2Social Security taxes, for periods during which he is a covered
3employee, as required by the Social Security Enabling Act and
4State and federal law. For participating employees, such
5contributions shall be in addition to those required under
6paragraph (a) of this Section.
7    (c) Contributions shall be deducted from each
8corresponding payment of earnings paid to each employee and
9shall be remitted to the board by the participating
10municipality or participating instrumentality making such
11payment. The remittance, together with a report of the earnings
12and contributions shall be made as directed by the board. For
13township treasurers and employees of township treasurers
14qualifying as employees hereunder, the contributions herein
15required as deductions from salary shall be withheld by the
16school township trustees from funds available for the payment
17of the compensation of such treasurers and employees as
18provided in the School Code and remitted to the board.
19    (d) An employee who has made additional contributions under
20paragraph (a)2 of this Section may upon retirement or at any
21time prior thereto, elect to withdraw the total of such
22additional contributions including interest credited thereon
23to the end of the preceding calendar year.
24    (e) Failure to make the deductions for employee
25contributions provided in paragraph (c) of this Section shall
26not relieve the employee from liability for such contributions.



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1The amount of such liability may be deducted, with interest
2charged under Section 7-209, from any annuities or benefits
3payable hereunder to the employee or any other person receiving
4an annuity or benefit by reason of such employee's
6    (f) A participating employee who has at least 40 years of
7creditable service in the Fund may elect to cease making the
8contributions required under this Section. The status of the
9employee under this Article shall be unaffected by this
10election, except that the employee shall not receive any
11additional creditable service for the periods of employment
12following the election. An election under this subsection
13relieves the employer from making additional employer
14contributions in relation to that employee.
15(Source: P.A. 96-1084, eff. 7-16-10; 96-1258, eff. 7-23-10;
1697-333, eff. 8-12-11.)
17    (40 ILCS 5/7-173.3 new)
18    Sec. 7-173.3. Self-managed plan.
19    (a) The General Assembly finds that the Illinois Municipal
20Retirement Fund should have the flexibility to provide a
21defined contribution (self-managed) plan for eligible
22participants. Accordingly, the Illinois Municipal Retirement
23Fund is hereby authorized to establish and administer a
24self-managed plan, which shall offer participants the
25opportunity to accumulate assets for retirement through a



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1combination of participant and employer contributions that may
2be invested in mutual funds, collective investment funds, or
3other investment products and used to purchase annuity
4contracts that are fixed, variable, or a combination of fixed
5and variable. The plan must be qualified under the Internal
6Revenue Code of 1986.
7    (b) The Board shall adopt the self-managed plan established
8under this Section for eligible participants under this
9Article. The adoption of the self-managed plan makes available
10to the eligible participants under this Article the elections
11described in Section 7-140.5.
12    The Illinois Municipal Retirement Fund shall be the plan
13sponsor for the self-managed plan and shall prepare a plan
14document and adopt any rules and procedures that are considered
15necessary or desirable for the administration of the
16self-managed plan. Consistent with its fiduciary duty to the
17participants and beneficiaries of the self-managed plan, the
18Board of Trustees of the Fund may delegate aspects of plan
19administration as it sees fit to companies authorized to do
20business in this State.
21    (c) The Fund shall solicit proposals to provide
22administrative services and funding vehicles for the
23self-managed plan from insurance and annuity companies and
24mutual fund companies, banks, trust companies, or other
25financial institutions authorized to do business in this State.
26In reviewing the proposals received and approving and



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1contracting with no fewer than 2 and no more than 7 companies,
2the Board of Trustees of the Fund shall consider, among other
3things, the following criteria:
4        (1) the nature and extent of the benefits that would be
5    provided to the participants;
6        (2) the reasonableness of the benefits in relation to
7    the premium charged;
8        (3) the suitability of the benefits to the needs and
9    interests of the participants and the employers; and
10        (4) the ability of the company to provide benefits
11    under the contract and the financial stability of the
12    company.
13    The System shall periodically review each approved
14company. A company may continue to provide administrative
15services and funding vehicles for the self-managed plan only so
16long as it continues to be an approved company under contract
17with the Board.
18    In addition to the companies approved by the Fund under
19this subsection (c), the Fund may offer its participants an
20investment fund managed by the Illinois State Board of
22    (d) Participants in the program must be allowed to direct
23the transfer of their account balances among the various
24investment options offered, subject to applicable contractual
25provisions. The participant shall not be deemed a fiduciary by
26reason of providing such investment direction. A person who is



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1a fiduciary shall not be liable for any loss resulting from
2that investment direction and shall not be deemed to have
3breached any fiduciary duty by acting in accordance with that
4direction. Neither the Fund nor the employer shall guarantee
5any of the investments in the participant's account balances.
6    (e) Eligible participants, as defined in Section 7-140.5,
7must make a written election to participate in the self-managed
8plan in accordance with the provisions of Section 7-140.5 and
9the procedures established by the Fund. Participation in the
10self-managed plan shall begin on the first day of the month
11immediately following the month in which the participant's
12election is filed with the Fund, but not sooner than the
13effective date of the self-managed plan. The Fund shall make
14the self-managed plan available under this Article within 6
15months after the effective date of this amendatory Act of the
1697th General Assembly. A member's participation in the reformed
17benefit package under this Article shall terminate on the date
18that participation in the self-managed plan begins.
19    A member who has elected to participate in the self-managed
20plan under this Section must continue participation while he or
21she remains a participant under this Article, and may not
22participate in the reformed benefit package.
23    Participation in the self-managed plan under this Section
24shall constitute participation in the Illinois Municipal
25Retirement Fund.
26    A participant under this Section shall be entitled to the



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1benefits of Article 20 of this Code.
2    (f) If, at the time a participant elects to participate in
3the self-managed plan, the participant has rights and credits
4in the Fund due to previous participation in the reformed
5benefit package, the Fund shall establish for the participant
6an opening account balance in the self-managed plan, equal to
7(1) the amount of the separation benefit that the participant
8would be eligible to receive if the participant terminated
9employment on that date and elected a separation benefit and
10(2) an amount, representing employer contributions, equal to
11the amount of employee contributions, plus interest. The
12interest used in this subsection (f) shall be calculated using
13the actual annual rates of return that the Fund has earned
14during the time period corresponding to the actual investment
15of the contributions being transferred. The Fund shall transfer
16assets from the reformed benefit package to the self-managed
17plan, as a tax-free transfer in accordance with Internal
18Revenue Service guidelines, for purposes of funding the
19participant's opening account balance.
20    (g) Notwithstanding any other provision of this Article, a
21participant may not purchase or receive service or service
22credit applicable to the reformed benefit package under this
23Article for any period during which the employee was a
24participant in the self-managed plan established under this
26    (h) The self-managed plan shall be funded by contributions



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1from participants in the self-managed plan and employer
2contributions as provided in this Section.
3    The contribution rate for participants in the self-managed
4plan under this Section shall be equal to the member
5contribution rate for other participants in the Fund, as
6provided in Section 7-173. This required contribution shall be
7made as an employer pick-up under Section 414(h) of the
8Internal Revenue Code of 1986 or any successor Section thereof.
9Any participant in the Fund's reformed benefit package before
10his or her election to participate in the self-managed plan
11shall continue to have the employer pick up the contributions
12required under Section 7-173. However, the amounts picked up
13after the election of the self-managed plan shall be remitted
14to and treated as assets of the self-managed plan. In no event
15shall a participant have the option of receiving these amounts
16in cash. Participants may make additional contributions to the
17self-managed plan in accordance with procedures prescribed by
18the Fund, to the extent permitted under rules adopted by the
20    The program shall provide for employer contributions to be
21credited to each self-managed plan participant in an amount
22equal to the employee contributions, notwithstanding Section
24    Each employer shall make contributions by appropriations
25to the Fund for participants in the self-managed plan under
26this Section. The amount required shall be certified by the



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1Board of Trustees of the Fund and paid by the employer in
2accordance with Section 7-172. The Fund shall not be obligated
3to remit the required employer contributions to any of the
4insurance and annuity companies, mutual fund companies, banks,
5trust companies, financial institutions, or other sponsors of
6any of the funding vehicles offered under the self-managed plan
7until it has received the required employer contributions from
8the employer
9    (i) A participant in the self-managed plan becomes vested
10in the employer contributions credited to his or her accounts
11in the self-managed plan on the earliest to occur of the
12following: (1) attainment of 5 years of service credit; (2) the
13death of the participating member while employed under this
14Article, if the member has completed at least 1.5 years of
15service; or (3) the member's election to retire and apply the
16reciprocal provisions of Article 20 of this Code.
17    A participant in the self-managed plan who receives a
18distribution of his or her vested amounts from the self-managed
19plan while not yet eligible for retirement under this Article
20(and Article 20, if applicable) shall forfeit all service
21credit and accrued rights in the Fund; if he or she
22subsequently becomes a participant under this Article again, he
23or she shall be considered a new participant. If a former
24participant again becomes a participant (or becomes employed by
25a participating system under Article 20 of this Code) and
26continues as such for at least 2 years, all rights, service



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1credits, and previous status as a participant shall be restored
2upon repayment of the amount of the distribution, with interest
3at the actuarially assumed rate from the date of distribution
4until the date of payment.
5    (j) If a participant in the self-managed plan who is vested
6in employer contributions terminates employment, the
7participant shall be entitled to a benefit that is based on the
8account values attributable to both employer and employee
9contributions and any investment return thereon.
10    If a participant in the self-managed plan who is not vested
11in employer contributions terminates employment, the
12participant shall be entitled to a benefit based solely on the
13account values attributable to the participant's contributions
14and any investment return thereon, and the employer
15contributions and any investment return thereon shall be
16forfeited. Any employer contributions that are forfeited shall
17be held in escrow by the company investing those contributions
18and shall be used, as directed by the Fund, for future
19allocations of employer contributions or for the restoration of
20amounts previously forfeited by former participants who again
21become participating members.
22    Section 90. The State Mandates Act is amended by adding
23Section 8.36 as follows:
24    (30 ILCS 805/8.36 new)



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1    Sec. 8.36. Exempt mandate. Notwithstanding Sections 6 and 8
2of this Act, no reimbursement by the State is required for the
3implementation of any mandate created by this amendatory Act of
4the 97th General Assembly.
5    Section 99. Effective date. This Act takes effect upon
6becoming law.