HB1325 97TH GENERAL ASSEMBLY

LRB097 08190 JDS 48315 b

97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
HB1325

Introduced 2/9/2011, by Rep. Greg Harris

SYNOPSIS AS INTRODUCED:

40 ILCS 5/Art. 25 heading new
40 ILCS 5/25-101 new
40 ILCS 5/25-102 new
30 ILCS 805/8.35 new

Amends the Illinois Pension Code. Authorizes each pension fund and retirement system to establish and administer an optional retirement plan. Sets forth requirements for the plans. Authorizes each employer that is subject to the Code to make an irrevocable election to participate in the plan. Requires each fund to solicit proposals to provide administrative services and funding vehicles for the plan. Requires those proposals to be assessed using specified criteria. Authorizes employees to direct the investment of their plan balances. Indemnifies fund fiduciaries. Also contains provisions concerning: participation in the plan; establishment of an initial account balance; duplication of service credit; required contributions; termination; vesting; withdrawal; return to service; benefit amounts; and the making of plan elections. Amends the State Mandates Act to require implementation without reimbursement.

FISCAL NOTE ACT MAY APPLY

PENSION IMPACT NOTE ACT MAY APPLY

STATE MANDATES ACT MAY REQUIRE REIMBURSEMENT

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 Article 25 as follows:

(40 ILCS 5/Art. 25 heading new)

ARTICLE 25. OPTIONAL RETIREMENT PLANS

(40 ILCS 5/25-101 new)

Sec. 25-101. Authorization.

(a) The General Assembly finds that it is important for every public pension fund to have all of the tools that it requires to properly manage the retirement benefits of participants and that each fund should have the flexibility to provide a defined contribution plan as an alternative for eligible employees who elect not to participate in a defined benefit retirement program provided under this Code. Accordingly, each pension fund is hereby authorized to establish and administer an optional retirement 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, fixed, variable, or a combination thereof. The plan must be qualified under the Internal Revenue Code. For purposes of this Section, "pension fund" means any public pension fund, annuity and benefit fund, or retirement system established under this Code.

(b) Each employer subject to this Code may elect to adopt the optional retirement plan established under this Section; this election is irrevocable. An employer's election to adopt the optional retirement plan makes available to the eligible employees of that employer the elections described in Section 25-102.

Each pension fund electing to offer an optional retirement plan shall be the plan sponsor for the optional retirement plan and shall prepare a plan document and prescribe rules and procedures that are necessary or desirable for the administration of the optional retirement plan. Consistent with its fiduciary duty to the participants and beneficiaries of the optional retirement plan, the pension fund may delegate aspects of plan administration as it sees fit to one or more companies authorized to do business in this State, to the employers, or to a combination of both.

(c) The pension fund, in consultation with the employers, shall solicit proposals to provide administrative services and funding vehicles for the optional retirement 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, each pension fund shall consider, among other things, the following criteria:

(1) the proposed costs to participants, including, but not limited to, asset-based fees, sales loads, and surrender charges;

(2) the experience of the company in providing similar optional retirement plans in the public and private sectors;

(3) the ability of the company to provide lifetime income to participants in the optional retirement plan;

(4) the suitability of the benefits to the needs and interests of the participating employees and the employer; and

(5) the financial stability of the company.

The pension fund, in consultation with the employers, shall determine whether to approve a company to provide the services. Each service provider shall be approved periodically and may continue to provide administrative services and funding vehicles for the optional retirement plan only if it continues to be an approved company under contract with the pension fund.

(d) 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 investment direction. A person who is a fiduciary shall not be liable for any loss resulting from investment direction by the participant and shall not be deemed to have breached any fiduciary duty by acting in accordance with that direction. Neither the pension fund nor the employer guarantees any of the investments in the employee's account balances.

(e) An employee eligible to participate in the optional retirement plan must make a written election in accordance with the provisions of Section 25-102 and the procedures established by the pension fund. Participation in the optional retirement 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 pension fund or the effective date as of which the employee's employer begins to offer participation in the optional retirement plan. An employee's participation in any other retirement program administered by the pension fund shall terminate on the date that participation in the optional retirement plan begins.

An employee who has elected to participate in the optional retirement plan under this Section must continue participation while employed in an eligible position, and may not participate in any other retirement program administered by the pension fund while employed by that employer unless the optional retirement plan is terminated in accordance with subsection (i) of this Section.

Participation in the optional retirement plan under this Section shall constitute membership in the pension fund.

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

(f) If at the time an employee elects to participate in the optional retirement plan he or she has rights and credits in the pension fund due to previous participation in the traditional benefit package, the pension fund shall establish for the employee an opening account balance in the optional retirement plan, equal to the amount of contribution refund that the employee would be eligible to receive 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 pension fund shall transfer assets from the defined benefit retirement program to the optional retirement plan, as a tax-free transfer in accordance with Internal Revenue Service guidelines, for purposes of funding the employee's opening account balance.

(g) Notwithstanding any other provision of this Code, an employee may not purchase or receive service or service credit applicable to any other retirement program administered by the pension fund for any period during which the employee was a participant in the optional retirement plan established under this Section.

(h) The optional retirement plan shall be funded by contributions from employees participating in the optional retirement plan and employer contributions as provided in this Section.

The contribution rate for employees participating in the optional retirement plan under this Section shall be equal to the employee contribution rate for other participants in the pension fund. 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 pension fund's traditional benefit package prior to his or her election to participate in the optional retirement plan shall continue to have the employer pick up the required contributions. However, the amounts picked up after the election of the optional retirement plan shall be remitted to and treated as assets of the optional retirement plan. In no event shall an employee have an option of receiving these amounts in cash. Employees may make additional contributions to the optional retirement plan in accordance with procedures prescribed by the pension fund, to the extent permitted under rules prescribed by the pension fund.

An amount of the employer's contribution, not exceeding 1% of the participating employee's salary, shall be used for the purpose of providing the disability benefits of the pension fund to the employee. Prior to the beginning of each plan year under the optional retirement plan, the pension fund 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 optional retirement plan.

(i) Any optional retirement plan authorized under this Section may be terminated by the pension fund, subject to the terms of any relevant contracts, and the pension fund shall have no obligation to reestablish the optional retirement plan under this Section. This Section does not create a right to continued participation in any optional retirement plan set up by the pension fund under this Section. If the optional retirement plan is terminated, the participants shall have the right to participate in one of the other retirement programs offered by the pension fund and receive service credit in the other retirement program for any years of employment following the termination.

(j) Every pension fund adopting an optional retirement plan shall establish when a participant in the optional retirement plan becomes vested in the employer contributions credited to his or her accounts in the optional retirement plan.

A participant in the optional retirement plan who receives a distribution of his or her vested amounts from the optional retirement 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 pension fund; 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 rights, service credits, and previous status as a participant shall be restored upon repayment of the amount of the distribution, without interest.

(k) If an employee who is vested in employer contributions terminates employment, the employee shall be entitled to a benefit that is based on the account values attributable to both employer and employee contributions and any investment return thereon.

If an employee 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 pension fund for future allocations of employer contributions or for the restoration of amounts previously forfeited by former participants who again become participating employees.

(40 ILCS 5/25-102 new)

Sec. 25-102. Retirement program elections.

(a) Effective as of the date that an employer elects, as described in Section 25-101, to offer to its employees the optional retirement plan as an alternative to the traditional benefit package, each of that employer's eligible employees (as defined in subsection (b) of this Section) 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 pension fund, and within the time period described in subsection (c) or (c-1) of this Section.

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 with an employer the original election shall automatically apply to him or her, provided that the employer is then a participating employer as described in Section 25-101.

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 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 an employer on the effective date on which the employer offers to its employees the optional retirement plan as an alternative to the traditional benefit package. A "newly eligible employee" is an employee who first becomes employed by an employer after the effective date on which the employer offers its employees the optional retirement plan. A newly eligible employee participates in the traditional benefit package until he or she makes an election to participate in the optional retirement plan. If an employee does not elect to participate in the optional retirement plan, he or she shall continue to participate in the traditional benefit package by default.

(c) A currently eligible employee must make this election within one year after the effective date of the employer's adoption of the optional retirement plan.

A newly eligible employee must make this election within 6 months after the date on which the pension fund receives the report of status certification from the employer. If an employee elects to participate in the optional retirement plan, no employer contributions shall be remitted to the optional retirement plan when the employee's account balance transfer is made. Employer contributions to the optional retirement plan shall commence as of the first pay period that begins after the pension fund receives the employee's election.

(c-1) A newly eligible employee who, prior to the effective date of this amendatory Act of the 97th General Assembly, fails to make the election within the period provided under subsection (c) and participates by default in the traditional benefit package may make a late election to participate in the optional retirement plan instead of the traditional benefit package at any time within 6 months after the effective date of this amendatory Act of the 97th General Assembly.

(d) An eligible employee shall be provided with written information prepared or prescribed by the pension fund which describes the employee's retirement program choices. The eligible employee shall be offered an opportunity to receive counseling from the pension fund 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 pension fund in person or by telephone or other electronic means, or any combination of these methods.

Section 90. The State Mandates Act is amended by adding Section 8.35 as follows:

(30 ILCS 805/8.35 new)

Sec. 8.35. Exempt mandate. Notwithstanding Sections 6 and 8 of this Act, no reimbursement by the State is required for the implementation of any mandate created by this amendatory Act of the 97th General Assembly.