HB3937 96TH GENERAL ASSEMBLY

LRB096 11641 AMC 22203 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
HB3937

Introduced 2/26/2009, by Rep. Kevin A. McCarthy

SYNOPSIS AS INTRODUCED:

40 ILCS 5/18-105.1 new
40 ILCS 5/18-105.2 new
40 ILCS 5/18-123.3 new
40 ILCS 5/18-133	from Ch. 108 1/2, par. 18-133
40 ILCS 5/18-133.2 new
40 ILCS 5/18-169.1 new

Amends the Illinois Pension Code. Requires the Judges Retirement System of Illinois to automatically enroll its newly eligible employees in a self-managed program of retirement benefits instead of the program of retirement benefits currently offered and allows currently eligible employees to elect to participate in the self-managed program. 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. Provides that, to the extent that the changes made by the amendatory Act are determined to be a new benefit increase, the changes are exempt from the 5-year expiration provision. 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 Sections 18-105.1, 18-105.2, 18-123.3, 18-133.2, and 18-169.1 and changing Section 18-133 as follows:

(40 ILCS 5/18-105.1 new)

Sec. 18-105.1. Traditional benefit package. "Traditional benefit package" means the defined benefit retirement program maintained by the System, which includes retirement annuities payable directly from the System, as provided in Sections 18-124 through 18-125.1; disability retirement annuities payable under Sections 18-126 and 18-126.1; survivor's annuities payable directly from the System, as provided in Section 18-123 and Sections 18-128 through 18-128.1 and Section 18-128.3; and contribution refunds as provided in Section 18-129.

(40 ILCS 5/18-105.2 new)

Sec. 18-105.2. Self-managed plan. "Self-managed plan" means the defined contribution retirement program maintained by the System, as described in Section 18-133.2. The self-managed plan also includes disability benefits, as provided in Section 18-126.1. The self-managed plan does not include retirement annuities or survivor's annuities payable directly from the System, as provided in Section 18-123, Sections 18-124 through 18-126, Sections 18-128 through 18-128.1, and Section 18-128.3 or refunds determined under Section 18-129.

(40 ILCS 5/18-123.3 new)

Sec. 18-123.3. Retirement program elections.

(a) For the purposes of this Section:

"Eligible participant" means either a currently eligible participant or a newly eligible participant.

"Currently eligible participant" means a participant who is employed as a judge on the date on which the System first offers the self-managed plan as an alternative to the traditional benefit package.

"Newly eligible participant" means a participant who first becomes employed as a judge after the date on which the System first offers the self-managed plan as an alternative to the traditional benefit package.

(b) When the System offers to participants the self-managed plan as an alternative to the traditional benefit package, each currently eligible participant 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 or after the effective date of the participant's election. The retirement program election made by a currently eligible participant must be made in writing, in the manner prescribed by the System, and within the time period described in this Section.

If a currently eligible participant elects the self-managed plan, then that election is irrevocable. If a currently eligible participant who elected to participate or participated by default in the traditional benefit plan terminates employment under this Article, then the participant, upon his or her subsequent re-employment under this Article, may make an election under this Section.

A currently eligible participant who fails to make an election under this Section shall, by default, participate in the traditional benefit package.

(c) A currently eligible participant may elect to participate in the traditional benefit package or the self-managed plan.

A currently eligible participant must make this election within 5 years after the effective date of the employer's adoption of the self-managed plan or, in the case of a currently eligible participant who terminates employment under this Article, within 6 months after his or her re-employment under this Article.

A newly eligible participant is automatically enrolled in the self-managed plan under Section 18-133.2.

(d) If a currently eligible participant elects to participate in the self-managed plan, the System shall fund their account as stated in subsection (f) of Section 18-133.2. Employer contributions to the self-managed plan shall commence as of the first pay period that begins after the System receives the member's election.

(e) A currently eligible participant shall be provided with written information prepared or prescribed by the System that describes the participant's retirement program choices. The eligible participant 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 5/18-133) (from Ch. 108 1/2, par. 18-133)

Sec. 18-133. Financing; employee contributions.

(a) Effective July 1, 1967, each participant is required to contribute 7 1/2% of each payment of salary toward the retirement annuity. Such contributions shall continue during the entire time the participant is in service, with the following exceptions:

(1) Contributions for the retirement annuity are not required on salary received after 18 years of service by persons who were participants before January 2, 1954.

(2) A participant who continues to serve as a judge after becoming eligible to receive the maximum rate of annuity may elect, through a written direction filed with the Board, to discontinue contributing to the System. Any such option elected by a judge shall be irrevocable unless prior to January 1, 2000, and while continuing to serve as judge, the judge (A) files with the Board a letter cancelling the direction to discontinue contributing to the System and requesting that such contributing resume, and (B) pays into the System an amount equal to the total of the discontinued contributions plus interest thereon at 5% per annum. Service credits earned in any other "participating system" as defined in Article 20 of this Code shall be considered for purposes of determining a judge's eligibility to discontinue contributions under this subdivision (a)(2).

(3) A participant who (i) has attained age 60, (ii) continues to serve as a judge after becoming eligible to receive the maximum rate of annuity, and (iii) has not elected to discontinue contributing to the System under subdivision (a)(2) of this Section (or has revoked any such election) may elect, through a written direction filed with the Board, to make contributions to the System based only on the amount of the increases in salary received by the judge on or after the date of the election, rather than the total salary received. If a judge who is making contributions to the System on the effective date of this amendatory Act of the 91st General Assembly makes an election to limit contributions under this subdivision (a)(3) within 90 days after that effective date, the election shall be deemed to become effective on that effective date and the judge shall be entitled to receive a refund of any excess contributions paid to the System during that 90-day period; any other election under this subdivision (a)(3) becomes effective on the first of the month following the date of the election. An election to limit contributions under this subdivision (a)(3) is irrevocable. Service credits earned in any other participating system as defined in Article 20 of this Code shall be considered for purposes of determining a judge's eligibility to make an election under this subdivision (a)(3).

(b) Beginning July 1, 1969, each participant is required to contribute 1% of each payment of salary towards the automatic increase in annuity provided in Section 18-125.1. However, such contributions need not be made by any participant who has elected prior to September 15, 1969, not to be subject to the automatic increase in annuity provisions.

(c) Effective July 13, 1953, each married participant subject to the survivor's annuity provisions is required to contribute 2 1/2% of each payment of salary, whether or not he or she is required to make any other contributions under this Section. Such contributions shall be made concurrently with the contributions made for annuity purposes.

Notwithstanding any provision in this subsection (c) to the contrary, in the case of an employee who participates in the self-managed plan under Section 18-133.2, contributions for survivor's annuity shall be used to fund benefits under Section 18-133.2.

(Source: P.A. 91-653, eff. 12-10-99.)

(40 ILCS 5/18-133.2 new)

Sec. 18-133.2. Self-managed plan.

(a) The General Assembly finds that it is important to be able to attract and retain the most qualified judges and that in order to attract and retain these judges, the System should have the flexibility to provide a defined contribution (self-managed) plan for eligible participants. Accordingly, the Judges Retirement System of Illinois is hereby authorized to establish and administer a self-managed plan, which shall offer participants the opportunity to accumulate assets for retirement through a combination of participant 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) The Board shall adopt the self-managed plan established under this Section. An employer's election to adopt the self-managed plan makes available to the eligible participants of that employer the elections described in Section 18-133.2.

The Judges 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) 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 participants and the employer;

(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 judges.

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.

In addition to the companies approved by the System under this subsection (c), the System may offer its participants an investment fund managed by the System.

(d) Participants who are under the self-managed plan 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 State guarantees any of the investments in the participant's account balances.

(e) A currently eligible participant, as defined in Section 18-123.3, must make a written election to participate in the self-managed plan in accordance with the provisions of Section 18-133.2 and the procedures established by the System. Participation in the self-managed plan shall begin on the first day of the month immediately following the month in which the currently eligible participant's election is filed with the System or when a newly eligible participant, as defined in Section 18-123.3, enters the System, but not sooner than the effective date of the self-managed plan. The System shall make the self-managed plan available under this Article by January 1, 2011. A participant's participation in the traditional retirement package under this Article shall terminate on the date that participation in the self-managed plan begins.

A participant who has elected to participate in the self-managed plan under this Section must continue participation while employed as a judge, and may not participate in the traditional benefit package administered by the System under this Article while employed as a judge.

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

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

(f) If, at the time a participant elects to participate in the self-managed plan, the participant rights and credits in the System due to previous participation in the traditional benefit package, the System shall establish for the participant an opening account balance in the self-managed plan, equal to (i) the amount of the contribution refund that the participant would be eligible to receive under Section 18-129 if the participant terminated employment on that date and elected a refund of contributions, plus (ii) an amount equal to the regular employer contribution that would be required to fund the actual regular cost incurred for each year of service credit earned, provided that the total opening account balance does not exceed 7.6% of that participant's salary for that year, plus interest. The interest used in this subsection (f) is calculated as the average annual rate of return that the System has earned over the past 20 fiscal years and is compounded. 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 participant's opening account balance.

(g) Notwithstanding any other provision of this Article, a participant may not purchase or receive service or service credit applicable to the traditional benefit package under this Article for any period during which the participant was covered under the self-managed plan established under this Section.

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

The contribution rate for persons participating in the self-managed plan under this Section shall be equal to the participant contribution rate for other participants in the System, as provided in Section 18-133. 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 that contribution. 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 a participant have the option of receiving these amounts in cash. Participants 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.

The program shall provide for State contributions to be credited to each self-managed plan participant in an amount equal to the regular employer contribution that would be required to fund the actual regular cost incurred for each year of service credit earned had the participant chosen to enroll in the traditional benefit plan.

An amount of participant contribution, not exceeding 1% of the participant'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 participant contributions to be allocated during that plan year for providing disability benefits for participants in the self-managed plan. The provisions of this paragraph shall be administered in conjunction with the provisions of Section 18-124.

The State of Illinois shall make contributions by appropriations to the System of the employer contributions required for participants who are covered under the self-managed plan under this Section. The amount required shall be certified by the Board of Trustees of the System and paid by the State in accordance with Section 18-140. 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 those procedures described in subsection (b) of Section 18-140 to obtain the required funding from the General Revenue Fund.

(i) 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) attainment of 5 years of service credit; (2) the death of the participant while employed as a judge, 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 as a judge, 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.

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

If a participant who is not vested in employer contributions terminates employment, the participant shall be entitled to a benefit based solely on the account values attributable to the participant'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.

(40 ILCS 5/18-169.1 new)

Sec. 18-169.1. New benefit increases. To the extent that the changes made to this Article by this amendatory Act of the 96th General Assembly authorizing the System to offer a self-managed plan are determined to be a new benefit increase within the meaning of Section 18-169, the changes made by this amendatory Act are exempt from the provisions of subsection (d) of Section 18-169.

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