96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
HB0924

 

Introduced 2/10/2009, by Rep. Daniel J. Burke

 

SYNOPSIS AS INTRODUCED:
 
40 ILCS 5/14-110.5 new

    Amends the State Employee Article of the Illinois Pension Code. Provides a Deferred Retirement Option Plan to members of the State Employees' Retirement System of Illinois who are eligible to receive the alternative formula under which members effectively retire and have their retirement accumulate, after applicable taxes, in the System while they continue covered employment for up to 5 years. Effective immediately.


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FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB0924 LRB096 04651 AMC 14710 b

1     AN ACT concerning public employee benefits.
 
2     Be it enacted by the People of the State of Illinois,
3 represented in the General Assembly:
 
4     Section 5. The Illinois Pension Code is amended by adding
5 Section 14-110.5 as follows:
 
6     (40 ILCS 5/14-110.5 new)
7     Sec. 14-110.5. Deferred Retirement Option Plan.
8     (a) As used in this Section:
9     "Deferred eligibility date" means the first day of any
10 month to which a vested member is eligible to defer his
11 election to participate in DROP. A vested member who has
12 reached 26 years and 8 months of actual service and has not
13 reached the age of 50 may enter the DROP and be eligible for
14 contributions to this fund. If the member resigns or dies prior
15 to age 50 he or his designee is not eligible to collect any of
16 the DROP contributions. For a member with dual normal
17 retirement dates, the DROP eligibility date may be determined
18 by the member as the first day of the month in which normal
19 retirement is achieved in either class. For an elected officer
20 member who has reached normal retirement date during a term of
21 office, the DROP initial eligibility date may be deferred to
22 the first day of the month after the beginning date of the next
23 succeeding term of office.

 

 

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1     "Deferred Retirement Option Plan" or "DROP" means a program
2 available to certain members who are eligible to receive
3 benefits under Section 14-110 of this Code under which members
4 effectively retire and have their retirement accumulate, after
5 applicable taxes, in the System while they continue covered
6 employment for up to 5 years.
7     "DROP begin date" means the first day of the month in which
8 the member's DROP participation period begins and is always the
9 same date as the member's effective date of retirement. Such
10 date shall be the first day of the month in which the eligible
11 member submits a DROP application, or any future month after
12 the member reaches his or her DROP eligibility date, as
13 selected by the member. However, a member's DROP begin date
14 cannot precede the month the Board receives the DROP
15 application.
16     "DROP break in service" means a period for which no
17 compensation is reported for a DROP participant during one full
18 month of the participant's work year and there is no continuing
19 employer-employee relationship. A member who is on leave of
20 absence without pay or on a workers' compensation leave has an
21 employer-employee relationship.
22     "DROP eligibility date" means the first day of the month in
23 which a vested member becomes eligible to elect to participate
24 in DROP by virtue of reaching either his normal retirement date
25 or a deferred eligibility date, if a deferred eligibility date
26 is applicable and elected by the member. Both the 12-month

 

 

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1 period during which the member may elect to participate in the
2 DROP and the 60-month period that a member is allowed to
3 participate in DROP begin on the member's DROP eligibility
4 date.
5     "DROP end date" means the date DROP participation ceases
6 and shall be the date termination of all employment occurs. The
7 DROP end date shall be effective as of the date of the
8 participant's designated deferred resignation or earlier if
9 the participant terminates prior to the designated resignation
10 date.
11     "DROP participation period" means the period of time a
12 member participates in DROP, not to exceed 60 months.
13     "Initial eligibility date" means the first day of the month
14 in which a vested member first becomes eligible to elect to
15 participate in DROP by virtue of reaching his or her normal
16 retirement date.
17     "Normal retirement date" means when the member becomes age
18 50 or when the member completes 26 years and 8 months of
19 service. The member may either include or exclude optional
20 service credit in determining the date on which 26 years and 8
21 months of service has been attained.
22     "Optional service credit" includes credit for prior
23 service, past service purchased by the member, and military
24 service. "Optional service credit" does not include workers'
25 compensation credit or past service credit paid for by the
26 employer.

 

 

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1     (b) A member who is eligible for benefits under Section
2 14-110 of this Code is eligible to participate in the DROP
3 provided the member attains a normal retirement date and is
4 employed in a regularly established position within their
5 Department.
6     An eligible member must elect to participate in DROP no
7 less than 3 months prior to the member's DROP eligibility date,
8 subject to the following conditions:
9         (1) A member who reaches age 50 with 25 years of
10     service or 26 years and 8 months at any age in accordance
11     with section (b)1.
12         (2) A member may elect to include or exclude any
13     optional service credit from the total service used to
14     establish the DROP begin date when determining the DROP
15     eligibility date.
16         (3) A member with dual normal retirement dates, due to
17     an employment history in 2 different classes of membership
18     with different normal retirement date and age
19     requirements, may elect to participate in DROP within 12
20     months of attaining normal retirement date in either
21     membership class.
22         (4) An elected officer who reaches his or her DROP
23     eligibility date during a term of office may defer DROP
24     participation until the next term in such office. The
25     officer must elect to participate in DROP within 12 months
26     of the first day of the month following the first month of

 

 

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1     such succeeding term and may participate for no more than
2     60 months after such day or until the end of the term,
3     whichever occurs first.
4     (c) It is the responsibility of the eligible member to make
5 proper application to the System to participate in DROP. To
6 qualify for DROP, the member shall submit a notice of election
7 to participate that shall specify the DROP begin date and the
8 DROP termination and resignation date and is acknowledged by
9 the employer, and the notice of election to participate shall
10 be received by the System no later than the end of the last
11 month of the member's election period described in subsection
12 (b) of this Section or a later date, if authorized in
13 subsection (b). Such termination and resignation date shall
14 constitute a binding letter of resignation with the employer.
15 Failure to complete the notice of election to participate
16 within the limitations of subsection (b) of this Section shall
17 result in the member being ineligible for DROP participation.
18     An application for service retirement and the DROP shall be
19 accepted by the System up to 6 months, but no later than 3
20 months, in advance of the intended DROP begin date and shall
21 establish the member's effective date of retirement and DROP
22 begin date. The effective date of retirement and the DROP begin
23 date shall both be the first day of the month that the member
24 indicates on his or her application as the date he or she
25 wishes his or her DROP participation to begin, provided the
26 System receives the member's application no later than the

 

 

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1 close of business on the last day 3 months prior to when the
2 DROP begin date occurs. If a member fails to apply for DROP by
3 the last day of the month in which his or her intended DROP
4 begin date occurs, the effective date of retirement and the
5 DROP begin date shall be the first day of the month in which
6 the System receives the member's application, provided the
7 application is received within the 3-month election period.
8     (d) When the System receives a member's application for
9 DROP, the System must:
10         (1) acknowledge receipt of the member's application
11     and advise him or her of any required information or
12     documents that have not yet been received; such information
13     may include, but is not limited to, birth date, beneficiary
14     designation, option selection, any payments due the
15     member's account for purchase of additional service credit
16     or a written statement from the member that the member does
17     not wish to claim such service credit, and certification of
18     final salary and accumulated annual leave payments;
19         (2) establish the DROP begin date; and
20         (3) send a follow-up notice, reminding the member of
21     any required information or documents that have not yet
22     been received.
23     (e) Subject to timely submission of all required documents,
24 the effective date of DROP participation shall be the effective
25 date of retirement. The DROP participant may not modify or
26 cancel his or her retirement benefit after the last day of the

 

 

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1 month of the DROP begin date. The DROP benefit shall be deemed
2 cashed or deposited as of the last day of the month following
3 the DROP begin date.
4     (f) If all the required information and documents have not
5 been received by the System after 3 follow-up notices have been
6 sent to the member, the System must send the member a certified
7 letter, advising the member that he has 21 days to provide such
8 information or documents without loss of his DROP begin date.
9 If the System has not received all of the required information
10 and documents after the 21 days specified in the certified
11 letter, the System must send a final agency action letter to
12 the member advising the member that his or her application is
13 canceled and that he or she must reapply to join DROP, if
14 eligible, with a new effective DROP begin date to be
15 established upon application.
16     (g) All employers paying the salary of a DROP participant
17 shall contribute the required percentage of such participant's
18 gross compensation. In addition, health insurance benefits
19 continue in accordance with the State Employees Group Insurance
20 Act of 1971.
21     (h) The retirement benefit of a member who has elected to
22 participate in the DROP shall be calculated as provided in this
23 Section.
24     A member may choose to receive his accumulated annual leave
25 and applicable sick time payments and earned in accordance with
26 agency policy, either upon beginning or terminating DROP. This

 

 

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1 early annual leave payment shall be based on the hourly wage of
2 the member at the time he or she begins participation in DROP.
3 Any additional annual leave payment made at the DROP end date
4 according to the employer's leave policy cannot be included in
5 the retirement benefit, which was determined and fixed by law
6 when the member elected to participate in DROP. If the member
7 elects to receive the annual leave payment upon termination of
8 DROP and termination of employment with his or her employer,
9 any accumulated annual leave payment made at that time cannot
10 be included in the retirement benefit, which was determined and
11 fixed by law when the member elected to participate in DROP.
12     (i) The beneficiary eligible to receive any accrued DROP
13 benefits payable if the DROP participant dies before the
14 completion of the DROP participation period is the most recent
15 joint annuitant or beneficiary designated to receive
16 retirement benefits upon the death of the participant, as
17 directed by the participant on his or her beneficiary forms.
18 However, if the beneficiary or joint annuitant dies during the
19 DROP participation period, the participant may designate a new
20 beneficiary as follows:
21         (1) If the participant retired under option 1 or 2, he
22     or she may name a new beneficiary. Such beneficiary is
23     eligible for both the DROP benefits and any benefits
24     provided by the option selected.
25         (2) If the participant retired under option 3 or 4, he
26     or she may name a new qualified joint annuitant or spouse.

 

 

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1     Such beneficiary is eligible for both the accrued DROP
2     benefits and any continuing benefits.
3         (3) If the participant retired under option 3 or 4, he
4     or she may name a new beneficiary who will receive only the
5     accrued DROP benefits. Such beneficiary shall not replace
6     the joint annuitant or spouse or be eligible for any
7     continuing benefits.
8         (4) The participant may not name a beneficiary to
9     receive DROP benefits who is different from the beneficiary
10     designated to receive the retirement benefits.
11     (j) Effective with the DROP begin date, the member's
12 initial normal monthly benefit shall be fixed and shall accrue
13 monthly in the System Trust Fund. Interest shall accrue at an
14 effective annual rate of 6.5% compounded monthly, on the prior
15 month's accumulated ending balance, up to the month of the DROP
16 participant's termination or death. The DROP benefit is
17 increased by the annual cost-of-living adjustment as otherwise
18 provided in this Article.
19     (k) A DROP participant is not eligible to apply for or
20 receive retiree health insurance subsidy payments until such
21 participant has terminated employment and DROP participation.
22 A member shall not earn creditable service applicable to the
23 health insurance subsidy while participating in DROP.
24     (l) A DROP participant is considered an annuitant; however,
25 participation in DROP does not alter the participant's
26 employment status. Terms and conditions of employment,

 

 

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1 including, but not limited to, salary, insurance coverage,
2 leave accrual and seniority status, do not change as a result
3 of DROP participation. However, employment is not guaranteed
4 during the DROP participation period.
5     Employment continues during participation in DROP through
6 the date the member preselected to stop participation in DROP,
7 except that elected officers may continue in office after the
8 DROP end date. A DROP participant may change jobs or have more
9 than one employer under this Article, as long as the
10 participant does not have a break in service. If a break in
11 service occurs, DROP participation ceases as of the end of the
12 month in which no compensation is received for covered
13 employment. All employers are required to acknowledge the
14 participant's DROP termination date and to acknowledge
15 potential liability for any additional retirement
16 contributions and interest required if the participant fails to
17 timely terminate employment.
18     (m) DROP participants shall not be eligible for disability
19 benefits under this Article.
20     (n) If a participant continues employment beyond the
21 preselected DROP end date and prior to completion of the
22 maximum 60 months allowed, a new form must be submitted with a
23 new DROP end date acknowledged by both the participant and any
24 affected employer.
25     (o) DROP benefits shall be subject to the provisions of
26 this Article pertaining to assignment, execution, or

 

 

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1 attachment of benefits, and forfeiture of benefits,
2 respectively.
3     (p) Eligibility to participate in the DROP ends upon the
4 death of the participant. A DROP participant's survivors shall
5 not be eligible to receive the participant's line-of-duty death
6 benefits. If the participant dies on or after the DROP begin
7 date, but prior to the first monthly benefit being credited to
8 his or her DROP account, benefits shall be paid as follows:
9         (1) according to the option selected by the participant
10     at the time he or she entered DROP;
11         (2) if the beneficiary qualifies as a joint annuitant
12     and the participant had selected an option other than
13     option 3, the beneficiary may choose to receive a benefit
14     payable under option 3 with no payout of DROP accrual, as
15     though the participant had not applied for DROP and had
16     retired on the date of death; or
17         (3) if no option had been selected by the participant,
18     benefits shall be paid in accordance with System rules.
19     Upon the death of a DROP participant, the designated
20 beneficiary shall be entitled to apply for and receive the
21 accrued benefits in the DROP.
22     (q) A DROP participant not in the Elected Officers' Class
23 must terminate employment on or before the preselected
24 resignation date. If a participant fails to terminate on or
25 before the DROP termination and resignation date: (1)
26 retirement and DROP participation are voided; (2) the DROP

 

 

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1 accumulation and any monthly retirement benefits received are
2 forfeited; (3) membership in the System is retroactively
3 reestablished to the date the member initiated DROP
4 participation; (4) each employer is liable for payment of or
5 eligible for a refund of, as applicable, the difference between
6 the DROP contributions paid and the required retirement
7 contributions for the applicable class of membership during the
8 period of DROP participation, plus 6.5% interest compounded
9 annually; no interest is payable on refunds to employers; and
10 (5) the designated beneficiary shall remain the named
11 beneficiary, unless revised.
12     (r) A member of the Elected Officers' Class participating
13 in the DROP may continue to serve in elected office upon
14 reaching the DROP end date. No additional DROP benefits shall
15 accrue on behalf of the officer after the officer's DROP end
16 date, however, cost-of-living adjustments and interest shall
17 continue to accrue until the officer ceases holding office and
18 satisfies the definition of termination provided in this
19 Section. The officer shall not be a renewed member in the
20 Elected Officers' Class and the employer shall not make
21 retirement contributions on the officer's behalf after the
22 officer's DROP end date, however, the employer shall submit
23 health insurance subsidy contributions until the officer
24 ceases holding elective office. Monthly retirement benefit
25 payments shall be paid to the officer beginning the first month
26 after the officer ceases holding office and satisfies the

 

 

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1 definition of termination provided in this Section. After
2 satisfying the definition of termination, such officer who is
3 reemployed or reelected shall be subject to the reemployment
4 limitations provided in this Article.
5     (s) Upon the participant's termination of all employment,
6 the deferred resignation becoming effective, and the
7 conclusion of the DROP participation period, or upon the death
8 of the participant, or for an elected officer as provided in
9 this Section, benefits shall be paid or distributed as follows:
10         (1) The previously determined normal monthly
11     retirement benefits, plus applicable cost-of-living
12     increases, commence in accordance with the method of
13     payment chosen by the participant at the time he or she
14     began DROP participation.
15         (2) The total accumulated DROP benefits are
16     distributed to the participant, or, if deceased, to the
17     participant's joint annuitant or beneficiary as
18     appropriate, provided the System receives the proper forms
19     signed by both the participant and employer verifying
20     termination of employment and notifying the System as to
21     which of the following methods of payment he or she has
22     chosen: (i) lump sum (if the participant is deceased, a
23     beneficiary, other than a spouse, must receive the lump sum
24     distribution only), (ii) direct rollover, or (iii)
25     combined partial lump sum and rollover.
26     A DROP participant or beneficiary who submits all required

 

 

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1 forms, but fails to elect a method of payment within 60 days of
2 termination of DROP, automatically receives a lump sum
3 distribution, less applicable withheld taxes.
4     A participant who elects a rollover must have the rollover
5 paid directly to the custodian of an eligible retirement plan.
6 Eligible retirement plans include an individual retirement
7 account as described in Section 408(a) of the Internal Revenue
8 Code, an Individual Retirement Annuity as described in Section
9 408(b) of the Internal Revenue Code, excluding an endowment
10 contract, a qualified trust established in accordance with
11 Section 401(a) of the Internal Revenue Code, for the sole and
12 exclusive benefit of employees or their beneficiaries, an
13 annuity plan as described in Section 403(a) of the Internal
14 Revenue Code, excluding a plan described in Sections 403(b) and
15 457 of in the Internal Revenue Code, an eligible deferred
16 compensation plan described in Section 457(B) of the Internal
17 Revenue Code that is maintained by an eligible employer as
18 described in Section 457(e)(1)(A) of the Internal Revenue Code,
19 and an annuity contract as described in Section 403(b) of the
20 Internal Revenue Code. If the DROP participant dies and the
21 surviving spouse wishes to roll over the DROP account, it can
22 only be rolled over into an individual retirement account, an
23 individual retirement annuity, an eligible deferred
24 compensation plan, or an annuity contract.
25     (t) Benefits accumulating in the DROP are not subject to
26 federal benefit limitations specified in Section 415 of the

 

 

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1 Internal Revenue Code until DROP participation ends and the
2 participant begins receiving his monthly retirement benefits.
3 The amount of the accumulated DROP at the time the member
4 ceases DROP is amortized over the member's expected lifetime,
5 in the manner required by the Internal Revenue Code, and the
6 annualized value of the DROP account reduces the federal
7 maximum annual benefit the member is entitled to receive.
8     (u) Reemployment with an employer during the first calendar
9 month after concluding DROP shall result in cancellation of
10 DROP and retirement. The member's DROP application shall be
11 void, and he or she shall be required to repay all DROP and
12 monthly retirement benefits received. The employer who
13 re-employs such member is liable for payment of or eligible for
14 a refund of, as applicable, the difference between the DROP
15 contributions paid and the required SERS retirement
16 contributions for the applicable class of membership during the
17 period of DROP participation. Payment of additional
18 contributions for the applicable class of membership during the
19 period of DROP participation. Payment of additional
20 contributions shall include 6.5% interest compounded annually.
21 No interest will be paid on refunds to employers.
 
22     Section 99. Effective date. This Act takes effect upon
23 becoming law.