103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB5498

 

Introduced 2/9/2024, by Rep. Jackie Haas

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/16-207 new
40 ILCS 5/Art. 25 heading new
40 ILCS 5/25-5 new
40 ILCS 5/25-10 new

    Amends the Illinois Pension Code. Creates the Deferred Retirement Option Article. Provides a deferred retirement option plan (DROP) for certain participants under the Downstate Teacher Article who are eligible to retire and meet other criteria. Provides that a participant in the DROP may elect to participate for up to 5 years. Provides that on the effective date of the member's election, the System shall credit the member's account on a monthly basis, for as long as the member participates in the DROP, an amount equal to the monthly amount of retirement annuity the member would otherwise be eligible to receive had the member retired on the date of the election. Provides that the DROP member shall be considered in active service for purposes of participation in a collective bargaining agreement, for health care benefits, and for other purposes. Establishes a DROP administered by the State Treasurer for pension funds or retirement systems that are required to establish a DROP and elect to transfer administrative responsibility for the DROP to the State Treasurer. Sets forth provisions concerning interest on the account; termination of the DROP; contributions; administrative costs; and a DROP advisory board. Effective immediately.


LRB103 36931 RPS 67045 b

 

 

A BILL FOR

 

HB5498LRB103 36931 RPS 67045 b

1    AN ACT concerning public employee benefits.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Pension Code is amended by adding
5Section 16-207 and Article 25 as follows:
 
6    (40 ILCS 5/16-207 new)
7    Sec. 16-207. Deferred retirement option plan. The System
8shall provide a deferred retirement option plan in accordance
9with Article 25.
 
10    (40 ILCS 5/Art. 25 heading new)
11
ARTICLE 25. DEFERRED RETIREMENT OPTION.

 
12    (40 ILCS 5/25-5 new)
13    Sec. 25-5. Deferred retirement option plan administered by
14a retirement system.
15    (a) As used in this Section:
16    "Board" means the board of trustees of the retirement
17system.
18    "Deferred retirement option plan" or "DROP" means the plan
19created under this Section that provides an alternative method
20of benefit accrual in the retirement system.
21    "Eligible member" means a participating employee of the

 

 

HB5498- 2 -LRB103 36931 RPS 67045 b

1retirement system who, at the time of election in the DROP:
2        (1) is otherwise eligible to retire under the
3    applicable Article with an unreduced retirement annuity;
4        (2) has never received a retirement annuity from the
5    retirement system;
6        (3) is an active participant in the retirement system;
7    and
8        (4) is not subject to mandatory retirement under law
9    and will not become subject to mandatory retirement under
10    law during the period of time covered by the DROP.
11    "DROP member" means an eligible member who makes an
12election to participate in the DROP no later than January 1,
132027.
14    "Retirement system" means the retirement system
15established under Article 16.
16    (b) The DROP shall be made available to eligible members
17no later than July 1, 2024.
18    (c) Eligible members must make their election to
19participate in the DROP in writing with the retirement system
20in a form acceptable to the retirement system. The retirement
21system must process the election and begin crediting an
22account on behalf of the DROP member as soon as is practicable
23after the election has been received by the retirement system.
24    (d) An eligible member may elect to participate in the
25DROP for a period not to exceed 5 years from the date of
26election.

 

 

HB5498- 3 -LRB103 36931 RPS 67045 b

1    (e) During the period of the DROP, the retirement system
2shall credit into a notional account on behalf of the DROP
3member an amount equal to the monthly amount of retirement
4annuity the DROP member would otherwise be eligible to receive
5had the DROP member retired on the date of the election under
6this Section, less any amounts required to be deducted under
7State or federal law, including, but not limited to, payments
8required under a Qualified Illinois Domestic Relations Order
9under Section 1-119. Any automatic annual increases that would
10have otherwise been applied to the DROP member's benefit had
11the DROP member elected to retire instead of participating in
12the DROP shall accrue to the DROP member's monthly payment
13placed into the account prior to the expiration of the DROP and
14shall otherwise apply to the DROP member's annuity upon
15expiration of the DROP. The account shall be held on behalf of
16the DROP member.
17    (f) DROP members shall make contributions to the
18retirement system during their participation in the DROP in an
19amount equal to the employee contributions that would
20otherwise be required if the DROP member were an active
21participant of the retirement system. Those amounts shall be
22credited to DROP account.
23    (g) The amounts credited to the DROP account shall be held
24in notional accounts by the retirement system and shall be
25credited interest annually on January 1. Interest shall be
26calculated at a rate equal to the 10-year Treasury rate in

 

 

HB5498- 4 -LRB103 36931 RPS 67045 b

1effect at that time and will be based on the amount in the
2notional account on December 31 of the preceding year.
3    (h) Upon expiration or termination of the DROP member's
4participation in the DROP, the account balance shall be paid
5to the DROP member as a lump sum. The retirement system shall
6provide options for the transfer of the account consistent
7with its fiduciary duty and any applicable State or federal
8law. An expiration or termination of a DROP member's
9participation in the DROP may not occur after January 1, 2032.
10    (i) The DROP election is irrevocable and the DROP member
11may not access the account prior to termination or expiration
12of the DROP member's participation in the DROP. The DROP
13member must terminate employment with the employer upon
14expiration of their participation in the DROP. The DROP
15member's participation in the DROP shall terminate prior to
16the expiration date:
17        (1) if the DROP member terminates employment with the
18    employer prior to the expiration of the designated DROP
19    period;
20        (2) if the DROP member becomes eligible for and begins
21    collecting a disability benefit from the retirement
22    system; or
23        (3) upon the death of the DROP member.
24    Upon termination or expiration of the DROP period, the
25DROP member shall commence his or her retirement annuity from
26the retirement system.

 

 

HB5498- 5 -LRB103 36931 RPS 67045 b

1    (j) The DROP member shall be considered in active service
2for purposes of eligibility for death and disability benefits
3and any health care benefits provided for by the employer.
4    The DROP member shall not accrue additional service credit
5in the retirement system while participating in the DROP,
6whether service accruals, future pay increases, active cost of
7living adjustments or promotions. Additionally, the DROP
8member shall not be eligible to purchase service credit under
9the applicable Article. Any amounts due to an alternate payee
10under a Qualified Illinois Domestic Relations Order under
11Section 1-119 shall be calculated at the time of the DROP
12election and such amounts shall be payable at the time of
13election. If the DROP member's designated beneficiary
14predeceases the DROP member, and the DROP member dies before
15designating a new beneficiary, the DROP member's DROP account
16shall be paid to the DROP member's estate.
17    (k) It is intended that the DROP shall not jeopardize the
18tax qualified status of the pension fund or retirement system.
19The board of the pension fund or retirement system may adopt
20rules necessary or appropriate for the DROP to maintain
21compliance with applicable federal laws and regulations.
22Notwithstanding any other provision in the Article, all
23benefits provided under the DROP shall be subject to the
24requirements and limits of the Internal Revenue Code of 1986,
25as amended.
26    (l) The board of trustees of the retirement system may

 

 

HB5498- 6 -LRB103 36931 RPS 67045 b

1transfer the administrative responsibility for the DROP
2program to the State Treasurer under Section 25-10 after an
3affirmative vote of the board.
 
4    (40 ILCS 5/25-10 new)
5    Sec. 25-10. Deferred retirement option plan administered
6by the State Treasurer.
7    (a) This Section applies only if a pension fund or
8retirement system transfers administrative responsibility for
9a deferred retirement option plan to the State Treasurer.
10    (a) "Deferred retirement option plan" or "DROP" means the
11plan created under this Section that provides an alternative
12method of benefit accrual in the pension fund or retirement
13system.
14    "Eligible member" means a participating member under a
15pension fund or retirement system established who, at the time
16of election in the DROP:
17        (1) is otherwise eligible to retire under the
18    applicable Article with a full and unreduced pension as
19    determined by the pension fund or retirement system;
20        (2) is an active member of the pension fund or
21    retirement system;
22        (3) is not in receipt of a disability or retirement
23    annuity; and
24        (4) is actively employed in a position that is covered
25    under a collective bargaining agreement.

 

 

HB5498- 7 -LRB103 36931 RPS 67045 b

1    "DROP member" means an eligible member who makes an
2election to participate in the DROP no later than January 1,
32027.
4    "Pension fund or retirement system" means a pension fund
5or retirement system established under this Code that has been
6required by law to establish a DROP and has elected to transfer
7administrative responsibility for the DROP to the State
8Treasurer to be administered in accordance with this Section.
9    (b) The DROP shall be made available to eligible members
10no later than July 1, 2024.
11    (c) Eligible members must make their election to
12participate in the DROP in writing with the State Treasurer in
13a form acceptable to the State Treasurer. The State Treasurer
14must process the election and begin crediting an account on
15behalf of the DROP member as soon as is practicable after the
16election has been received.
17    (d) An eligible member may elect to participate in the
18DROP for a period not to exceed 5 years from the date of
19election.
20    (e) During the period of the DROP, the applicable pension
21fund or retirement system shall transfer, and the State
22Treasurer shall credit into a notional account on behalf of
23the DROP member, an amount equal to the monthly amount of
24retirement annuity the DROP member would otherwise be eligible
25to receive had the DROP member retired on the date of the
26election under this Section. The pension fund or retirement

 

 

HB5498- 8 -LRB103 36931 RPS 67045 b

1system, prior to forwarding any funds to the State Treasurer
2shall deduct any amounts required to be deducted under State
3or federal law, including, but not limited to, payments
4required under a Qualified Illinois Domestic Relations Order
5in Section 1-119. Any automatic annual increases that would
6have otherwise been applied to the DROP member's benefit had
7the DROP member elected to retire instead of participating in
8the DROP shall accrue to the DROP member's monthly payment
9placed into the account prior to the expiration of the DROP and
10shall otherwise apply to the DROP member's annuity upon
11expiration of the DROP. The account shall be held on behalf of
12the DROP member.
13    (f) DROP members shall make contributions to pension fund
14or retirement system during their participation in the DROP in
15an amount equal to the employee contributions under the
16applicable Article that would otherwise be required if the
17DROP member were an active participant of pension fund or
18retirement system. Those amounts shall be forwarded to the
19State Treasurer and credited to the DROP member's DROP
20account, less any administrative costs determined by the
21pension fund or retirement system to be attributable to the
22administration of the DROP benefits experienced by pension
23fund or retirement system.
24    (g) The amounts credited to the DROP account shall be held
25in notional accounts by the State Treasurer and shall be
26credited interest annually on January 1. Interest shall be

 

 

HB5498- 9 -LRB103 36931 RPS 67045 b

1determined by the State Treasurer. The State Treasurer shall
2reduce the DROP account on a schedule set by the State
3Treasurer to cover all of the administrative costs of the
4State Treasurer deemed to be attributable to the
5administration of the DROP account and any duties required
6under this Article.
7    (h) Upon expiration or termination of the DROP member's
8participation in the DROP, the account balance shall be paid
9to the DROP member as a lump sum. The State Treasurer shall
10provide options for the transfer of the account consistent
11with its fiduciary duty and any applicable State or federal
12law. An expiration or termination of a DROP member's
13participation in the DROP may not occur after January 1, 2032.
14    (i) The DROP election is irrevocable and the DROP member
15may not access the account prior to the date established as the
16last day of the DROP when the DROP member made the initial
17election to participate in the DROP. The DROP member must
18terminate employment with the employer upon expiration of
19their participation in the DROP. The DROP member's
20participation in the DROP shall terminate prior to the
21expiration date:
22        (1) if the DROP member terminates employment with the
23    employer prior to the expiration of the designated DROP
24    period;
25        (2) if the DROP member becomes eligible for and begins
26    collecting a disability benefit from the pension fund or

 

 

HB5498- 10 -LRB103 36931 RPS 67045 b

1    retirement system; or
2        (3) upon the death of the DROP member.
3    Upon termination or expiration of the DROP member's
4participation in the DROP, the DROP member shall commence his
5or her retirement annuity from the pension fund or retirement
6system.
7    The State Treasurer may allow for the payment of the
8balance of the DROP prior to the last date of participation in
9the DROP established by the DROP member when the DROP member
10made the initial election to participate in the DROP if (i) the
11DROP member's participation in the DROP terminated and (ii)
12the State Treasurer determines that the DROP member should
13have access to the DROP balance due to hardship or necessity,
14as determined by the State Treasurer.
15    (j) The DROP member shall be considered in active service
16for purposes of eligibility for death and disability benefits
17and any health care benefits provided for by the employer.
18    The DROP member shall not accrue additional service credit
19in the pension fund or retirement system while participating
20in the DROP, whether service accruals, future pay increases,
21active cost of living adjustments, or promotions.
22Additionally, the DROP member shall not be eligible to
23purchase any optional service credit or to repay any refunds.
24    (k) Eligibility for a surviving spouse benefit shall be
25determined at the time of the DROP election.
26    Any amounts due to an alternate payee under a Qualified

 

 

HB5498- 11 -LRB103 36931 RPS 67045 b

1Illinois Domestic Relations Order under Section 1-119 shall be
2calculated at the time of the DROP election and such amounts
3shall be payable at the time of election.
4    If the DROP member's designated beneficiary predeceases
5the DROP member, and the DROP member dies before designating a
6new beneficiary, the DROP member's DROP account shall be paid
7to the DROP member's estate.
8    (l) It is intended that the DROP shall not jeopardize the
9tax qualified status of the pension fund or retirement system.
10The board of the pension fund or retirement system may adopt
11rules necessary or appropriate for the DROP to maintain
12compliance with applicable federal laws and regulations.
13Notwithstanding any other provision in the Article, all
14benefits provided under the DROP shall be subject to the
15requirements and limits of the Internal Revenue Code of 1986,
16as amended.
17    (m) The State Treasurer shall be the administrator of the
18DROP created in this Section. The administration shall be
19subject to any applicable laws, and the State Treasurer shall
20administer the program in the best interest of the
21participating members in a way that a prudent person in a
22similar circumstance would. The executive director of each
23pension fund or retirement system, or the executive director's
24designee, shall participate in the DROP Advisory Board, that
25shall meet quarterly. The State Treasurer, or the State
26Treasurer's designee, shall chair the DROP Advisory Board. The

 

 

HB5498- 12 -LRB103 36931 RPS 67045 b

1State Treasurer may solicit advice and information from the
2members of the DROP Advisory Board or from the board as a whole
3while administering the DROP program. Except as otherwise
4provided by law, the State Treasurer shall be the sole
5decision maker governing the DROP.
 
6    Section 99. Effective date. This Act takes effect upon
7becoming law.