HB1089 94TH GENERAL ASSEMBLY

LRB094 09895 EFG 40153 b

94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006
HB1089

Introduced 02/08/05, by Rep. Randall M. Hultgren

SYNOPSIS AS INTRODUCED:

40 ILCS 5/14-103.40 new
40 ILCS 5/14-103.41 new
40 ILCS 5/14-105.8 new
40 ILCS 5/14-133	from Ch. 108 1/2, par. 14-133
40 ILCS 5/14-133.2 new

Amends the State Employee Article of the Illinois Pension Code. Provides that the System may offer to employees the option to participate in a self-managed program of retirement benefits instead of the program of retirement benefits currently offered. Provides that a self-managed plan shall authorize a participating employee to accumulate assets for retirement through a combination of employer and employee contributions that may be invested at the employee's direction in mutual funds, collective investment funds, or other investment products and used to purchase annuity contracts. Effective immediately.

FISCAL NOTE ACT MAY APPLY

PENSION IMPACT NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning public employee benefits.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Pension Code is amended by adding 14-103.40, 14-103.41, 14-105.8 and 14-133.2 and changing Section 14-133 as follows:

(40 ILCS 5/14-103.40 new)

Sec. 14-103.40. Traditional Benefit Package. "Traditional benefit package": The defined benefit retirement program maintained by the System, which includes retirement annuities payable directly from the System as provided in Sections 14-107, 14-108, 14-108.3, 14-108.4, 14-109, 14-110, 14-112, 14-113, 14-114, and 14-115; disability benefits payable under Sections 14-123, 14-123.1, 14-124, 14-125, 14-125.1, and 14-126; death benefits payable directly from the System as provided in Sections 14-116, 14-117, and 14-128; widow's annuities and survivor's benefits payable directly from the System as provided in Sections 14-118, 14-119, 14-120, 14-121, 14-121.1, and 14-122; and contribution refunds as provided in Section 14-130.

(40 ILCS 5/14-103.41 new)

Sec. 14-103.41. Self-Managed Plan. "Self-managed plan": The defined contribution retirement program maintained under the System as described in Section 14-133.2. The self-managed plan also includes disability benefits as provided in Sections 14-123, 14-123.1, 14-124, 14-125, 14-125.1, and 14-126. The self-managed plan does not include retirement annuities, death benefits, or widow's or survivor's benefits payable directly from the System as provided in Sections 14-107, 14-108, 14-108.3, 14-108.4, 14-109, 14-110, 14-112, 14-113, 14-114, 14-115, 14-116, 14-117, 14-118, 14-119, 14-120, 14-121, 14-121.1, 14-122, and 14-128 or refunds determined under Section 14-130.

(40 ILCS 5/14-105.8 new)

Sec. 14-105.8. Retirement program elections.

(a) All participating employees are participants under the traditional benefit package prior to January 1, 2006.

If the System offers to employees under this Article the self-managed plan as an alternative to the traditional benefit package, each eligible employee (as defined in subsection (b)) shall be given the choice to elect which retirement program he or she wishes to participate in with respect to all periods of covered employment occurring on and after the effective date of the employee's election. The retirement program election made by an eligible employee must be made in writing, in the manner prescribed by the System, and within the time period described in subsection (d).

The employee election authorized by this Section is a one-time, irrevocable election. If an employee terminates employment after making the election provided under this subsection (a), then upon his or her subsequent re-employment under this Article the original election shall automatically apply to him or her, provided that the System is then offering the self-managed plan under Section 14-133.2.

An eligible employee who fails to make this election shall, by default, participate in the traditional benefit package.

(b) "Eligible employee" means an employee who does not have sufficient age and service to qualify for a retirement annuity under Section 14-107. An eligible employee is either a currently eligible employee or a newly eligible employee. For purposes of this Section, a "currently eligible employee" is an employee who is employed by the State on the date on which the System first offers the self-managed plan as an alternative to the traditional benefit package. A "newly eligible employee" is an employee who first becomes employed under this Article after the date on which the System first offers the self-managed plan as an alternative to the traditional benefit package. A newly eligible employee participates in the traditional benefit package until he or she makes an election to participate in the self-managed plan. If an employee does not elect to participate in the self-managed plan, he or she shall continue to participate in the traditional benefit package by default.

(c) An eligible employee may elect to participate in the traditional benefit package or the self-managed plan.

A currently eligible employee must make this election within one year after the effective date of the adoption of the self-managed plan under Section 14-133.2.

A newly eligible employee must make this election within 6 months after the date on which the System receives the report of status certification from the State.

(d) If an employee elects to participate in the self-managed plan, no State contributions shall be remitted to the self-managed plan when the employee's account balance transfer is made. Employer contributions to the self-managed plan shall commence as of the first pay period that begins after the System receives the employee's election.

(e) An eligible employee shall be provided with written information prepared or prescribed by the System that describes the employee's retirement program choices. Each eligible employee shall be offered an opportunity to receive counseling from the System prior to making his or her election. This counseling may consist of videotaped materials, group presentations, individual consultation with an employee or authorized representative of the System in person or by telephone or other electronic means, or any combination of these methods.

(40 ILCS 5/14-133) (from Ch. 108 1/2, par. 14-133)

Sec. 14-133. Contributions on behalf of members.

(a) Each participating employee shall make contributions to the System, based on the employee's compensation, as follows:

(1) Covered employees, except as indicated below, 3.5% for retirement annuity, and 0.5% for a widow or survivors annuity;

(2) Noncovered employees, except as indicated below, 7% for retirement annuity and 1% for a widow or survivors annuity;

(3) Noncovered employees serving in a position in which "eligible creditable service" as defined in Section 14-110 may be earned, 1% for a widow or survivors annuity plus the following amount for retirement annuity: 8.5% through December 31, 2001; 9.5% in 2002; 10.5% in 2003; and 11.5% in 2004 and thereafter;

(4) Covered employees serving in a position in which "eligible creditable service" as defined in Section 14-110 may be earned, 0.5% for a widow or survivors annuity plus the following amount for retirement annuity: 5% through December 31, 2001; 6% in 2002; 7% in 2003; and 8% in 2004 and thereafter;

(5) Each security employee of the Department of Corrections or of the Department of Human Services who is a covered employee, 0.5% for a widow or survivors annuity plus the following amount for retirement annuity: 5% through December 31, 2001; 6% in 2002; 7% in 2003; and 8% in 2004 and thereafter;

(6) Each security employee of the Department of Corrections or of the Department of Human Services who is not a covered employee, 1% for a widow or survivors annuity plus the following amount for retirement annuity: 8.5% through December 31, 2001; 9.5% in 2002; 10.5% in 2003; and 11.5% in 2004 and thereafter.

(a-1) Notwithstanding any provision in subsection (a) to the contrary, in the case of an employee who participates in the self-managed plan under Section 14-133.2, contributions for widow or survivors annuity shall instead be used to finance the benefits available under Section 14-133.2.

(b) Contributions shall be in the form of a deduction from compensation and shall be made notwithstanding that the compensation paid in cash to the employee shall be reduced thereby below the minimum prescribed by law or regulation. Each member is deemed to consent and agree to the deductions from compensation provided for in this Article, and shall receipt in full for salary or compensation.

(Source: P.A. 92-14, eff. 6-28-01.)

(40 ILCS 5/14-133.2 new)

Sec. 14-133.2. Self-managed plan.

(a) Purpose. The General Assembly finds that it is important for Illinois to be able to attract and retain the most qualified employees and that in order to attract and retain these employees, the State of Illinois should have the flexibility to provide the defined contribution plan as an alternative for eligible employees who elect not to participate in a defined benefit retirement program provided under this Article. Accordingly, the State Employees Retirement System of Illinois is hereby authorized to establish and administer a self-managed plan, which shall offer participating employees the opportunity to accumulate assets for retirement through a combination of employee and employer contributions that may be invested in mutual funds, collective investment funds, or other investment products and used to purchase annuity contracts, either fixed or variable or a combination thereof. The plan must be qualified under the Internal Revenue Code of 1986.

(b) Adoption of Plan. The Board may adopt the self-managed plan established under this Section for members under this Article. The State's election to adopt the self-managed plan makes available to the eligible employees of the State of Illinois the elections described in Section 14-105.8.

The State Employees Retirement System of Illinois shall be the plan sponsor for the self-managed plan and shall prepare a plan document and prescribe such rules and procedures as are considered necessary or desirable for the administration of the self-managed plan. Consistent with its fiduciary duty to the participants and beneficiaries of the self-managed plan, the Board of Trustees of the System may delegate aspects of plan administration as it sees fit to companies authorized to do business in this State.

(c) Selection of service providers and funding vehicles. The System shall solicit proposals to provide administrative services and funding vehicles for the self-managed plan from insurance and annuity companies and mutual fund companies, banks, trust companies, or other financial institutions authorized to do business in this State. In reviewing the proposals received and approving and contracting with no fewer than 2 and no more than 7 companies, the Board of Trustees of the System shall consider, among other things, the following criteria:

(1) the nature and extent of the benefits that would be provided to the participants;

(2) the reasonableness of the benefits in relation to the premium charged;

(3) the suitability of the benefits to the needs and interests of the participating employees and the State;

(4) the ability of the company to provide benefits under the contract and the financial stability of the company; and

(5) the efficacy of the contract in the recruitment and retention of employees.

The System shall periodically review each approved company. A company may continue to provide administrative services and funding vehicles for the self-managed plan only so long as it continues to be an approved company under contract with the Board.

(d) Employee Direction. Employees who are participating in the program must be allowed to direct the transfer of their account balances among the various investment options offered, subject to applicable contractual provisions. The participant shall not be deemed a fiduciary by reason of providing such investment direction. A person who is a fiduciary shall not be liable for any loss resulting from such investment direction and shall not be deemed to have breached any fiduciary duty by acting in accordance with that direction. Neither the System nor the employer guarantees any of the investments in the employee's account balances.

(e) Participation. An employee eligible to participate in the self-managed plan must make a written election in accordance with the provisions of Section 14-105.8 and the procedures established by the System. Participation in the self-managed plan by an electing employee shall begin on the first day of the first pay period following the later of the date the employee's election is filed with the System or the effective date of the self-managed plan. The System shall not make the self-managed plan available earlier than January 1, 2006. An employee's participation in the traditional benefit package under this Article shall terminate on the date that participation in the self-managed plan begins.

An employee who has elected to participate in the self-managed plan under this Section must continue participation while employed in an eligible position, and may not participate in the traditional benefit package administered by the System under this Article while employed by the State under this Article, unless the self-managed plan is terminated in accordance with subsection (i).

Participation in the self-managed plan under this Section shall constitute membership in the State Employees' Retirement System of Illinois.

A participant under this Section shall be entitled to the benefits of Article 20 of this Code.

(f) Establishment of Initial Account Balance. If at the time an employee elects to participate in the self-managed plan he or she has rights and credits in the System due to previous participation in the traditional benefit package, the System shall establish for the employee an opening account balance in the self-managed plan, equal to the amount of contribution refund that the employee would be eligible to receive under Section 14-130 if the employee terminated employment on that date and elected a refund of contributions, except that this hypothetical refund shall include interest at the effective rate for the respective years. The System shall transfer assets from the defined benefit retirement program to the self-managed plan, as a tax free transfer in accordance with Internal Revenue Service guidelines, for purposes of funding the employee's opening account balance.

(g) No Duplication of Service Credit. Notwithstanding any other provision of this Article, an employee may not purchase or receive service or service credit applicable to the traditional benefit package under this Article for any period during which the employee was a participant in the self-managed plan established under this Section.

(h) Contributions. The self-managed plan shall be funded by contributions from employees participating in the self-managed plan and State contributions as provided in this Section.

The contribution rate for employees participating in the self-managed plan under this Section shall be equal to the employee contribution rate applicable to participants of the same class under Section 14-133. This required contribution shall be made as an "employer pick-up" under Section 414(h) of the Internal Revenue Code of 1986 or any successor Section thereof. Any employee participating in the System's traditional benefit package prior to his or her election to participate in the self-managed plan shall continue to have the employer pick up the contributions required under Section 14-133. However, the amounts picked up after the election of the self-managed plan shall be remitted to and treated as assets of the self-managed plan. In no event shall an employee have an option of receiving these amounts in cash. Employees may make additional contributions to the self-managed plan in accordance with procedures prescribed by the System, to the extent permitted under rules prescribed by the System.

Employers shall make employer contributions to the System for employees who participate in the self-managed plan in the same manner as for employees who participate in the traditional benefit package.

The program shall provide for a portion of employer contributions to be credited to each self-managed plan participant at a rate to be determined by the Board, based on the amount of employer contribution received, less the amount used by the System to provide disability benefits for the employee and less the amount allocable to amortization of unfunded liability. The amounts so credited shall be paid into the participant's self-managed plan accounts in a manner to be prescribed by the System.

The System shall not be obligated to remit the required employer contributions to any of the insurance and annuity companies, mutual fund companies, banks, trust companies, financial institutions, or other sponsors of any of the funding vehicles offered under the self-managed plan until it has received the required employer contributions from the State. In the event of a deficiency in the amount of State contributions, the System shall implement any procedures to obtain the required funding from the General Revenue Fund.

An amount of employer contribution, not exceeding 1% of the participating employee's salary, shall be used for the purpose of providing the disability benefits of the System to the employee. Prior to the beginning of each plan year under the self-managed plan, the Board of Trustees shall determine, as a percentage of salary, the amount of employer contributions to be allocated during that plan year for providing disability benefits for employees in the self-managed plan.

(i) Termination. The self-managed plan authorized under this Section may be terminated by the System, subject to the terms of any relevant contracts, and the System shall have no obligation to reestablish the self-managed plan under this Section. This Section does not create a right to continued participation in any self-managed plan set up by the System under this Section. If the self-managed plan is terminated, the participants shall have the right to participate in the traditional benefit package and receive service credit in the traditional benefit package for any years of employment following the termination.

(j) Vesting; Withdrawal; Return to Service. A participant in the self-managed plan becomes vested in the employer contributions credited to his or her accounts in the self-managed plan on the earliest to occur of the following: (1) completion of 8 years of service credit under this Article; (2) the death of the participating employee while employed by an employer under this Article, if the participant has completed at least 1.5 years of service; or (3) the participant's election to retire and apply the reciprocal provisions of Article 20 of this Code.

A participant in the self-managed plan who receives a distribution of his or her vested amounts from the self-managed plan while not yet eligible for retirement under this Article (and Article 20, if applicable) shall forfeit all service credit and accrued rights in the System; if subsequently re-employed, the participant shall be considered a new employee. If a former participant again becomes a participating employee (or becomes employed by a participating system under Article 20 of this Code) and continues as such for at least 2 years, all such rights, service credits, and previous status as a participant shall be restored upon repayment of the amount of the distribution, without interest.

(k) Benefit amounts. If an employee participating in the self-managed plan who is vested in employer contributions terminates employment, the employee shall be entitled to a benefit which is based on the account values attributable to both employer and employee contributions and any investment return thereon.

If an employee participating in the self-managed plan who is not vested in employer contributions terminates employment, the employee shall be entitled to a benefit based solely on the account values attributable to the employee's contributions and any investment return thereon, and the employer contributions and any investment return thereon shall be forfeited. Any employer contributions which are forfeited shall be held in escrow by the company investing those contributions and shall be used as directed by the System for future allocations of employer contributions or for the restoration of amounts previously forfeited by former participants who again become participating employees.

Section 99. Effective date. This Act takes effect upon becoming law.