Illinois General Assembly - Full Text of HB2920

LRB104 11507 RPS 21596 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB2920

Introduced 2/6/2025, by Rep. Katie Stuart

SYNOPSIS AS INTRODUCED:

40 ILCS 5/1-168 new

Amends the General Provisions Article of the Illinois Pension Code. Provides for a deferred retirement option plan for participants under the State Universities Article under which a participant who is eligible to retire may continue in active service for up to 5 years while having his or her monthly retirement annuity deposited into a special account. Provides that the election must be made no later than January 1, 2029. Provides that the amounts credited to the deferred retirement option plan shall be held in notional accounts by the retirement system, and that the amounts in the account shall not accrue interest. Provides that, upon termination of the deferred retirement option plan, the participant shall commence his or her retirement annuity from the retirement system and may not participate in employment in any way that would require the participant to become an active contributing member of the retirement system. Sets forth provisions concerning the manner of the election; automatic increases; contributions to the retirement system; accounting; expiration or termination of the deferred retirement option plan; and administration of the deferred retirement option plan. Effective immediately.

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 Section 1-168 as follows:

(40 ILCS 5/1-168 new)

Sec. 1-168. Deferred retirement option plan.

(a) In this Section:

"Applicable pension fund or retirement system" means the pension fund or retirement system established under Article 15 under which the eligible member or DROP member participates.

"Deferred retirement option plan" or "DROP" means the plan created under this Section that provides an alternative method of benefit accrual in the pension fund or retirement system.

"DROP member" means an eligible member who makes an election to participate in the DROP no later than January 1, 2029.

"Eligible member" means a participating member under a pension fund or retirement system established under Article 15 who, at the time of the member's election to participate in the DROP:

(1) is otherwise eligible to retire under the applicable Article with a full and unreduced pension as determined by the retirement system or pension fund of which the member is an active member at the time of the election to participate in the DROP;

(2) is not in receipt of a disability or retirement annuity from the applicable retirement system or pension fund at the time of his or her election to participate in the DROP; and

(3) is actively employed in a position that is covered under a collective bargaining agreement.

(b) The DROP shall be made available to eligible members no later than January 1, 2026.

(c) Eligible members must make their election to participate in the DROP in writing with the applicable pension fund or retirement system in a form acceptable to the applicable pension fund or retirement system. The applicable pension fund or retirement system must process the election and begin crediting an account on behalf of the DROP member as soon as is practicable after the election has been received.

At the time of or prior to electing to participate in the DROP, a member must, unless otherwise provided by law, make all other elections required to be made at or before the date of retirement, including, but not limited to, purchase of optional service, election of an accelerated pension benefit payment, or any other election identified by the retirement system or pension fund.

(d) An eligible member may participate in the DROP for a period not to exceed 5 years from the date of the eligible member's election.

(e) During the period of the DROP member's participation in the DROP, the applicable pension fund or retirement system shall transfer and credit into a notional account on behalf of the DROP member an amount equal to the monthly amount of retirement annuity the DROP member would otherwise be eligible to receive if the DROP member had retired on the date of the election under this Section. A DROP member who is entitled to a benefit from a participating system under the Retirement Systems Reciprocal Act shall be eligible to have the benefit the DROP member would have otherwise been eligible to receive if the DROP member retired on the date of the election under this Section deposited with the applicable pension fund or retirement system in the DROP member's DROP account and administered in a manner consistent with the requirements of this Section. The applicable pension fund or retirement system shall deduct any amounts required to be deducted under State or federal law, including, but not limited to, payments required under a Qualified Illinois Domestic Relations Order under Section 1-119. Any automatic annual increases that would have otherwise been applied to the DROP member's benefit if the DROP member had elected to retire instead of participate in the DROP shall accrue to the DROP member's monthly payment placed into the account prior to the expiration of the DROP and shall otherwise apply to the DROP member's annuity upon expiration of the DROP. The account shall be held on behalf of the DROP member.

(f) DROP members shall make contributions to the applicable pension fund or retirement system during their participation in the DROP in an amount equal to the employee contributions under the applicable Article that would otherwise be required if the DROP member were an active participant of the applicable pension fund or retirement system. Those amounts shall be credited to the member's DROP account, minus any administrative costs determined by the pension fund or retirement system to be attributable to the administration of the DROP benefits experienced by the applicable pension fund or retirement system.

(g) The amounts credited to the DROP account shall be held in notional accounts by the applicable pension fund or retirement system. The amounts in the DROP account shall not accrue interest. The applicable pension fund or retirement system shall reduce the amounts in the DROP account on a schedule set by the applicable pension fund or retirement system to cover all of the administrative costs of the applicable pension fund or retirement system that are deemed to be attributable to the administration of the DROP account and any duties required under this Section.

(h) Upon expiration or termination of the DROP member's participation in the DROP, the account balance shall be paid to the DROP member as a lump sum. The applicable pension fund or retirement system shall provide options for the transfer of the account consistent with its fiduciary duty and any applicable State or federal law. The expiration or termination of a DROP member's participation in the DROP may not occur after January 1, 2034.

(i) The DROP election is irrevocable, and the DROP member may not, except as otherwise provided in this Section, access the account prior to the date established as the last day of the DROP when the DROP member made the initial election to participate in the DROP. The DROP member must terminate employment with the employer upon expiration of his or her participation in the DROP. The DROP member's participation in the DROP shall terminate prior to the expiration date:

(1) if the DROP member terminates employment with the employer prior to the expiration of the designated DROP period;

(2) if the DROP member becomes eligible for and begins collecting a disability benefit from the pension fund or retirement system; or

(3) upon the death of the DROP member.

Upon termination from the DROP, the member shall commence his or her retirement annuity from the pension fund or retirement system. After termination or expiration of a member's participation in the DROP, the member may not participate in employment in any way that would require the member to become an active contributing member of the retirement system or pension fund.

The applicable pension fund or retirement system may allow for the payment of the balance of the DROP account prior to the last date of participation in the DROP established by the DROP member when the DROP member made the initial election to participate in the DROP if (i) the member's participation in the DROP terminated and (ii) the applicable pension fund or retirement system determines the DROP member should have access to the DROP account balance due to hardship or necessity as determined by the applicable pension fund or retirement system.

(j) A DROP member shall be considered in active service for purposes of eligibility for death and disability benefits and access to any health care benefits provided for by the employer and shall retain all rights of employment as established under the DROP member's collective bargaining agreement.

The DROP member shall not accrue additional service credit in the pension fund or retirement system while participating in the DROP, regardless of any service accruals, future pay increases, active cost of living adjustments, or promotions. Additionally, the DROP member shall not be eligible to purchase any optional service credit or to repay any refunds.

Eligibility for a surviving spouse benefit shall be determined at the time of the DROP election.

Any amounts due to an alternate payee under a Qualified Illinois Domestic Relations Order under Section 1-119 shall be calculated at the time of the DROP election and such amounts shall be payable at the time of election.

If the DROP member's designated beneficiary predeceases the DROP member and the DROP member dies before designating a new beneficiary, the DROP member's DROP account shall be paid to the DROP member's estate.

When determining if a member is owed a refund of contributions due to the member's death prior to collecting an amount equal to or greater than the member's contributions, the proceeds of the DROP account shall be considered part of the total payment made to the member or the member's estate.

(k) It is intended that the DROP shall not jeopardize the tax qualified status of the pension fund or retirement system. The pension fund or retirement system shall have the authority to adopt rules necessary or appropriate for the DROP to maintain compliance with applicable federal laws and regulations. Notwithstanding any other provision of this Code, all benefits provided under the DROP shall be subject to the requirements and limits of the Internal Revenue Code of 1986, as amended.

(l) Each applicable pension fund or retirement system shall be the administrator of the DROP plan created in this Section. The administration shall be subject to any applicable laws, and the pension fund or retirement system shall administer the program in the best interest of the DROP members in a way that a prudent person in a similar circumstance would.

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