HB1165sam001 98TH GENERAL ASSEMBLY

Sen. Terry Link

Filed: 5/29/2014

09800HB1165sam001 LRB098 08854 RPS 60388 a

AMENDMENT TO HOUSE BILL 1165

AMENDMENT NO. ______. Amend House Bill 1165 by replacing everything after the enacting clause with the following:

"Section 5. The Illinois Pension Code is amended by changing Sections 1-113.2, 1-113.3, 1-113.4, 1-113.4a, 1A-108, 3-128, and 4-121 and by adding Section 1-113.4b as follows:

(40 ILCS 5/1-113.2)

Sec. 1-113.2. List of permitted investments for all Article 3 or 4 pension funds. Any pension fund established under Article 3 or 4 may invest in the following items:

(1) Interest bearing direct obligations of the United States of America.

(2) Interest bearing obligations to the extent that they are fully guaranteed or insured as to payment of principal and interest by the United States of America.

(3) Interest bearing bonds, notes, debentures, or other similar obligations of agencies of the United States of America. For the purposes of this Section, "agencies of the United States of America" includes: (i) the Federal National Mortgage Association and the Student Loan Marketing Association; (ii) federal land banks, federal intermediate credit banks, federal farm credit banks, and any other entity authorized to issue direct debt obligations of the United States of America under the Farm Credit Act of 1971 or amendments to that Act; (iii) federal home loan banks and the Federal Home Loan Mortgage Corporation; and (iv) any agency created by Act of Congress that is authorized to issue direct debt obligations of the United States of America.

(4) Interest bearing savings accounts or certificates of deposit, issued by federally chartered banks or savings and loan associations, to the extent that the deposits are insured by agencies or instrumentalities of the federal government.

(5) Interest bearing savings accounts or certificates of deposit, issued by State of Illinois chartered banks or savings and loan associations, to the extent that the deposits are insured by agencies or instrumentalities of the federal government.

(6) Investments in credit unions, to the extent that the investments are insured by agencies or instrumentalities of the federal government.

(7) Interest bearing bonds of the State of Illinois.

(8) Pooled interest bearing accounts managed by the Illinois Public Treasurer's Investment Pool in accordance with the Deposit of State Moneys Act, interest bearing funds or pooled accounts of the Illinois Metropolitan Investment Funds, and interest bearing funds or pooled accounts managed, operated, and administered by banks, subsidiaries of banks, or subsidiaries of bank holding companies in accordance with the laws of the State of Illinois.

(9) Interest bearing bonds or tax anticipation warrants of any county, township, or municipal corporation of the State of Illinois.

(10) Direct obligations of the State of Israel, subject to the conditions and limitations of item (5.1) of Section 1-113.

(11) Money market mutual funds managed by investment companies that are registered under the federal Investment Company Act of 1940 and the Illinois Securities Law of 1953 and are diversified, open-ended management investment companies; provided that the portfolio of the money market mutual fund is limited to the following:

(i) bonds, notes, certificates of indebtedness, treasury bills, or other securities that are guaranteed by the full faith and credit of the United States of America as to principal and interest;

(ii) bonds, notes, debentures, or other similar obligations of the United States of America or its agencies; and

(iii) short term obligations of corporations organized in the United States with assets exceeding $400,000,000, provided that (A) the obligations mature no later than 180 days from the date of purchase, (B) at the time of purchase, the obligations are rated by at least 2 standard national rating services at one of their 3 highest classifications, and (C) the obligations held by the mutual fund do not exceed 10% of the corporation's outstanding obligations.

(12) General accounts of life insurance companies authorized to transact business in Illinois.

(13) Mutual funds comprised of bonds or money market instruments managed by an investment company defined and registered under the federal Investment Company Act of 1940 and registered under the Illinois Securities Law of 1953 that has been in operation for at least 3 years and has total net assets of $150 million or more across all share classes.

(14) Investment grade corporate bonds.

(15) American Depository Receipts (ADRs).

(16) (13) Any combination of the following, not to exceed 10% of the pension fund's net assets:

(i) separate accounts that are managed by life insurance companies authorized to transact business in Illinois and are comprised of diversified portfolios consisting of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments;

(ii) limited partnerships that are comprised of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments;

(iii) collective trust funds that are comprised of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments;

(iv) commingled funds that are comprised of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments;

(v) exchange traded funds (ETFs) that are comprised of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments;

(vi) exchange traded notes (ETNs) that are comprised of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments;

(vii) (ii) separate accounts that are managed by insurance companies authorized to transact business in Illinois, and are comprised of real estate or loans upon real estate secured by first or second mortgages; and

(viii) (iii) mutual funds that meet the following requirements:

(A) the mutual fund is managed by an investment company as defined and registered under the federal Investment Company Act of 1940 and registered under the Illinois Securities Law of 1953;

(B) the mutual fund has been in operation for at least 3 5 years;

(C) the mutual fund has total net assets of $150 $250 million or more across all share classes; and

(D) the mutual fund is comprised of diversified portfolios of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments.

(17) Any combination of the following, not to exceed 20% of the pension fund's net assets:

(i) Corporate bonds rated below investment grade.

(ii) Non-agency mortgage backed or asset backed bonds.

(14) Corporate bonds managed through an investment advisor must meet all of the following requirements:

(1) The bonds must be rated as investment grade by one of the 2 largest rating services at the time of purchase.

(2) If subsequently downgraded below investment grade, the bonds must be liquidated from the portfolio within 90 days after being downgraded by the manager.

(Source: P.A. 96-1495, eff. 1-1-11.)

(40 ILCS 5/1-113.3)

Sec. 1-113.3. List of additional permitted investments for pension funds with net assets of $10,000,000 or less $2,500,000 or more.

(a) In addition to the items in Section 3-113.2, a pension fund established under Article 3 or 4 that has net assets of $10,000,000 or less at least $2,500,000 may invest a portion of its net assets in the following items:

(1) Separate accounts that are managed by life insurance companies authorized to transact business in Illinois and are comprised of diversified portfolios consisting of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments.

(2) Mutual funds that meet the following requirements:

(i) the mutual fund is managed by an investment company as defined and registered under the federal Investment Company Act of 1940 and registered under the Illinois Securities Law of 1953;

(ii) the mutual fund has been in operation for at least 3 5 years;

(iii) the mutual fund has total net assets of $150 $250 million or more across all share classes; and

(iv) the mutual fund is comprised of diversified portfolios of common or preferred stocks, bonds, real estate or loans upon real estate secured by first or second mortgages, commodities, currency, derivatives, or money market instruments.

(b) A pension fund's total investment in the items authorized under this Section shall not exceed 70% 35% of the market value of the pension fund's net present assets stated in its most recent annual report on file with the Illinois Department of Insurance.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/1-113.4)

Sec. 1-113.4. List of additional permitted investments for pension funds with net assets of $10,000,000 or less $5,000,000 or more.

(a) In addition to the items in Sections 1-113.2 and 1-113.3, a pension fund established under Article 3 or 4 that has net assets of $10,000,000 or less at least $5,000,000 and has appointed an investment adviser under Section 1-113.5 may, through that investment adviser, invest a portion of its assets in common and preferred stocks authorized for investments of trust funds under the laws of the State of Illinois. The stocks must meet all of the following requirements:

(1) The common stocks have been are listed on a national securities exchange or board of trade (as defined in the federal Securities Exchange Act of 1934 and set forth in Section 3.G of the Illinois Securities Law of 1953) or quoted in the National Association of Securities Dealers Automated Quotation System National Market System (NASDAQ NMS) for at least 5 years.

(2) (Blank). The securities are of a corporation created or existing under the laws of the United States or any state, district, or territory thereof and the corporation has been in existence for at least 5 years.

(3) The corporation has not been in arrears on payment of dividends on its preferred stock during the preceding 5 years.

(4) The market value of stock in any one corporation does not exceed 5% of the cash and invested assets of the pension fund, and the investments in the stock of any one corporation do not exceed 5% of the total outstanding stock of that corporation.

(5) The straight preferred stocks or convertible preferred stocks are issued or guaranteed by a corporation whose common stock qualifies for investment by the board.

(6) The issuer of the stocks has been subject to the requirements of Section 12 of the federal Securities Exchange Act of 1934 and has been current with the filing requirements of Sections 13 and 14 of that Act during the preceding 3 years.

(b) A pension fund's total investment in the items authorized under this Section and Section 1-113.3 shall not exceed 70% 35% of the market value of the pension fund's net present assets stated in its most recent annual report on file with the Illinois Department of Insurance.

(c) A pension fund that invests funds under this Section shall electronically file with the Division any reports of its investment activities that the Division may require, at the times and in the format required by the Division.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/1-113.4a)

Sec. 1-113.4a. List of additional permitted investments for Article 3 and 4 pension funds with net assets of $10,000,000 or less more.

(a) In addition to the items in Sections 1-113.2 and 1-113.3, a pension fund established under Article 3 or 4 that has net assets of at least $10,000,000 or less and has appointed an investment adviser, as defined under Sections 1-101.4 and 1-113.5, may, through that investment adviser, invest an additional portion of its assets in common and preferred stocks and mutual funds.

(b) The stocks must meet all of the following requirements:

(1) The common stocks must be listed on a national securities exchange or board of trade (as defined in the Federal Securities Exchange Act of 1934 and set forth in paragraph G of Section 3 of the Illinois Securities Law of 1953) or quoted in the National Association of Securities Dealers Automated Quotation System National Market System.

(2) The securities must be of a corporation in existence for at least 5 years.

(3) The market value of stock in any one corporation may not exceed 5% of the cash and invested assets of the pension fund, and the investments in the stock of any one corporation may not exceed 5% of the total outstanding stock of that corporation.

(4) The straight preferred stocks or convertible preferred stocks must be issued or guaranteed by a corporation whose common stock qualifies for investment by the board.

(c) The mutual funds must meet the following requirements:

(1) The mutual fund must be managed by an investment company registered under the Federal Investment Company Act of 1940 and registered under the Illinois Securities Law of 1953.

(2) The mutual fund must have been in operation for at least 5 years.

(3) The mutual fund must have total net assets of $250,000,000 or more.

(4) The mutual fund must be comprised of a diversified portfolio of common or preferred stocks, bonds, or money market instruments.

(d) A pension fund's total investment in the items authorized under this Section and Section 1-113.3 shall not exceed 50% effective July 1, 2011 and 55% effective July 1, 2012 of the market value of the pension fund's net present assets stated in its most recent annual report on file with the Department of Insurance.

(e) A pension fund that invests funds under this Section shall electronically file with the Division any reports of its investment activities that the Division may require, at the time and in the format required by the Division.

(Source: P.A. 96-1495, eff. 1-1-11.)

(40 ILCS 5/1-113.4b new)

Sec. 1-113.4b. Permitted investments for Article 3 and 4 pension funds with net assets of more than $10,000,000. An Article 3 or 4 pension fund with net assets of more than $10,000,000 may invest the reserves of the Fund in any reasonable and prudent investment, subject to the requirements and restrictions set forth in Sections 1-109, 1-109.1, 1-109.2, 1-110, 1-111, 1-114, and 1-115 of this Code. Investments made in accordance with Section 1-113, 1-113.2, 1-113.3, 1-113.4, or 1-113.4a of this Code shall be deemed prudent.

No bank or savings and loan association shall receive investment funds as permitted by this Section, unless it has complied with the requirements established pursuant to Section 6 of "An Act relating to certain investments of public funds by public agencies", approved July 23, 1943, as now or hereafter amended. The limitations set forth in that Section 6 shall be applicable only at the time of investment and shall not require the liquidation of any investment at any time.

The board of the pension fund shall have the authority to enter into such agreements and to execute such documents as it determines to be necessary to complete any investment transaction. All investments shall be clearly held and accounted for to indicate ownership by the pension fund. The board of the pension fund may direct the registration of securities or the holding in interests in real property in the name of the pension fund or in the name of a nominee created for the express purpose of registration of securities or holding interests in real property by a national or state bank or trust company authorized to conduct a trust business in the State of Illinois.

Investments shall be carried at cost or at a value determined in accordance with generally accepted accounting principles.

(40 ILCS 5/1A-108)

Sec. 1A-108. Report to the Governor and General Assembly.

(a) On or before October 1 following the convening of a regular session of the General Assembly, the Division shall submit a report to the Governor and General Assembly setting forth the latest financial statements on the pension funds operating in the State of Illinois, a summary of the current provisions underlying these funds, and a report on any changes that have occurred in these provisions since the date of the last such report submitted by the Division.

The report shall also include the results of examinations made by the Division of any pension fund and any specific recommendations for legislative and administrative correction that the Division deems necessary. The report may embody general recommendations concerning desirable changes in any existing pension, annuity, or retirement laws designed to standardize and establish uniformity in their basic provisions and to bring about an improvement in the financial condition of the pension funds. The purposes of these recommendations and the objectives sought shall be clearly expressed in the report.

(b) In its annual report to the General Assembly due on or before October 1, 2014, the Division shall include its recommendations for a means of consolidating or averaging the various actuarial assumptions and financial conditions of the Article 3 and 4 pension funds that could be used in a unified and convenient way by the General Assembly in considering and evaluating the effects of proposed funding and benefit reforms for those pension funds.

(c) The requirement for reporting to the General Assembly shall be satisfied by filing copies of the report with the Speaker, the Minority Leader, and the Clerk of the House of Representatives, the President, the Minority Leader, and the Secretary of the Senate, and the Legislative Research Unit, as required by Section 3.1 of the General Assembly Organization Act, and filing additional copies with the State Government Report Distribution Center for the General Assembly as required under paragraph (t) of Section 7 of the State Library Act.

Upon request, the Division shall distribute additional copies of the report at no charge to the secretary of each pension fund established under Article 3 or 4, the treasurer or fiscal officer of each municipality with an established police or firefighter pension fund, the executive director of every other pension fund established under this Code, and to public libraries, State agencies, and police, firefighter, and municipal organizations active in the public pension area.

(Source: P.A. 90-507, eff. 8-22-97.)

(40 ILCS 5/3-128) (from Ch. 108 1/2, par. 3-128)

Sec. 3-128. Board created. A board of 6 members 5 members shall constitute a board of trustees to administer the pension fund and to designate the beneficiaries thereof. The board shall be known as the "Board of Trustees of the Police Pension Fund" of the municipality.

Two members of the board shall be appointed by the mayor or president of the board of trustees of the municipality involved. The 3rd and 4th members of the board shall be elected from the active participants of the pension fund by such active participants. The 5th member shall be elected by and from the beneficiaries. Beginning January 1, 2015, a 6th member of the board shall be appointed by the mayor or president of the board of trustees of the municipality.

One of the members appointed by the mayor or president of the board of trustees shall serve for one year beginning on the 2nd Tuesday in May after the municipality comes under this Article. The other initial appointed member shall serve for 2 years beginning on the same date. The new member appointed under this amendatory Act of the 98th General Assembly shall serve from the time of appointment to the second Tuesday of the second May occurring after that appointment. Their successors shall serve for 2 years each or until their successors are appointed and have qualified.

The election for board members shall be held biennially on the 3rd Monday in April, at such place or places in the municipality and under the Australian ballot system and such other regulations as shall be prescribed by the appointed members of the board.

The active pension fund participants shall be entitled to vote only for the active participant members of the board. All beneficiaries of legal age may vote only for the member chosen from among the beneficiaries. No person shall be entitled to cast more than one ballot at such election. The term of elected members shall be 2 years, beginning on the 2nd Tuesday of the first May after the election.

Upon the death, resignation or inability to act of any elected board member, his or her successor shall be elected for the unexpired term at a special election, to be called by the board and conducted in the same manner as the regular biennial election.

Members of the board shall neither receive nor have any right to receive any salary from the pension fund for services performed as trustees in that office.

(Source: P.A. 83-1440.)

(40 ILCS 5/4-121) (from Ch. 108 1/2, par. 4-121)

Sec. 4-121. Board created. There is created in each municipality or fire protection district a board of trustees to be known as the "Board of Trustees of the Firefighters' Pension Fund". The membership of the board for each municipality shall be, respectively, as follows: in cities, the treasurer, clerk, marshal, or chief officer of the fire department, and the comptroller if there is one, or if not, the mayor; in each township, village or incorporated town, the president of the municipality's board of trustees, the village or town clerk, village or town attorney, village or town treasurer, and the chief officer of the fire department; and in each fire protection district, the president and other 2 members of its board of trustees and the marshal or chief of its fire department or service, as the case may be; and in all the municipalities above designated 3 additional persons chosen from their active firefighters and one other person who has retired under the "Firemen's Pension Fund Act of 1919", or this Article. Notwithstanding any provision of this Section to the contrary, the term of office of each member of a board established on or before the 3rd Monday in April, 2006 shall terminate on the 3rd Monday in April, 2006, but all incumbent members shall continue to exercise all of the powers and be subject to all of the duties of a member of the board until all the new members of the board take office.

Beginning on the 3rd Monday in April, 2006, the board for each municipality or fire protection district shall consist of 5 members, and beginning January 1, 2015, the board shall consist of 6 members. Two members of the board shall be appointed by the mayor or president of the board of trustees of the municipality or fire protection district involved, and beginning January 1, 2015, a third member of the board shall be appointed by the mayor or president of the board of trustees of the municipality or fire protection district. Two members of the board shall be active participants of the pension fund who are elected from the active participants of the fund. One member of the board shall be a person who is retired under the Firemen's Pension Fund Act of 1919 or this Article who is elected from persons retired under the Firemen's Pension Fund Act of 1919 or this Article.

For the purposes of this Section, a firefighter receiving a disability pension shall be considered a retired firefighter. In the event that there are no retired firefighters under the Fund or if none is willing to serve on the board, then an additional active firefighter shall be elected to the board in lieu of the retired firefighter that would otherwise be elected.

If the regularly constituted fire department of a municipality is dissolved and Section 4-106.1 is not applicable, the board shall continue to exist and administer the Fund so long as there continues to be any annuitant or deferred pensioner in the Fund. In such cases, elections shall continue to be held as specified in this Section, except that: (1) deferred pensioners shall be deemed to be active members for the purposes of such elections; (2) any otherwise unfillable positions on the board, including ex officio positions, shall be filled by election from the remaining firefighters and deferred pensioners of the Fund, to the extent possible; and (3) if the membership of the board falls below 3 persons, the Illinois Director of Insurance or his designee shall be deemed a member of the board, ex officio.

The members chosen from the active and retired firefighters shall be elected by ballot at elections to be held on the 3rd Monday in April of the applicable years under the Australian ballot system, at such place or places, in the municipality, and under such regulations as shall be prescribed by the board.

No person shall cast more than one vote for each candidate for whom he or she is eligible to vote. In the elections for board members to be chosen from the active firefighters, all active firefighters and no others may vote. In the elections for board members to be chosen from retired firefighters, the retired firefighters and no others may vote.

Each member of the board so elected shall hold office for a term of 3 years and until his or her successor has been duly elected and qualified.

The board shall canvass the ballots and declare which persons have been elected and for what term or terms respectively. In case of a tie vote between 2 or more candidates, the board shall determine by lot which candidate or candidates have been elected and for what term or terms respectively. In the event of the failure, resignation, or inability to act of any board member, a successor shall be elected for the unexpired term at a special election called by the board and conducted in the same manner as a regular election.

The board shall elect annually from its members a president and secretary.

Board members shall not receive or have any right to receive any salary from a pension fund for services performed as board members.

(Source: P.A. 96-1000, eff. 7-2-10.)

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