HB5094 95TH GENERAL ASSEMBLY

LRB095 15491 AMC 41484 b

95TH GENERAL ASSEMBLY
State of Illinois
2007 and 2008
HB5094

Introduced , 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.

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 Section 14-110.5 as follows:

(40 ILCS 5/14-110.5 new)

Sec. 14-110.5. Deferred Retirement Option Plan.

(a) As used in this Section:

"Deferred eligibility date" means the first day of any month to which a vested member is eligible to defer his election to participate in DROP. A vested member who has reached 26 years and 8 months of actual service and has not reached the age of 50 may enter the DROP and be eligible for contributions to this fund. If the member resigns or dies prior to age 50 he or his designee is not eligible to collect any of the DROP contributions. For a member with dual normal retirement dates, the DROP eligibility date may be determined by the member as the first day of the month in which normal retirement is achieved in either class. For an elected officer member who has reached normal retirement date during a term of office, the DROP initial eligibility date may be deferred to the first day of the month after the beginning date of the next succeeding term of office.

"Deferred Retirement Option Plan" or "DROP" means a program available to certain members who are eligible to receive benefits under Section 14-110 of this Code 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.

"DROP begin date" means the first day of the month in which the member's DROP participation period begins and is always the same date as the member's effective date of retirement. Such date shall be the first day of the month in which the eligible member submits a DROP application, or any future month after the member reaches his or her DROP eligibility date, as selected by the member. However, a member's DROP begin date cannot precede the month the Board receives the DROP application.

"DROP break in service" means a period for which no compensation is reported for a DROP participant during one full month of the participant's work year and there is no continuing employer-employee relationship. A member who is on leave of absence without pay or on a workers' compensation leave has an employer-employee relationship.

"DROP eligibility date" means the first day of the month in which a vested member becomes eligible to elect to participate in DROP by virtue of reaching either his normal retirement date or a deferred eligibility date, if a deferred eligibility date is applicable and elected by the member. Both the 12-month period during which the member may elect to participate in the DROP and the 60-month period that a member is allowed to participate in DROP begin on the member's DROP eligibility date.

"DROP end date" means the date DROP participation ceases and shall be the date termination of all employment occurs. The DROP end date shall be effective as of the date of the participant's designated deferred resignation or earlier if the participant terminates prior to the designated resignation date.

"DROP participation period" means the period of time a member participates in DROP, not to exceed 60 months.

"Initial eligibility date" means the first day of the month in which a vested member first becomes eligible to elect to participate in DROP by virtue of reaching his or her normal retirement date.

"Normal retirement date" means when the member becomes age 50 or when the member completes 26 years and 8 months of service. The member may either include or exclude optional service credit in determining the date on which 26 years and 8 months of service has been attained.

"Optional service credit" includes credit for prior service, past service purchased by the member, and military service. "Optional service credit" does not include workers' compensation credit or past service credit paid for by the employer.

(b) A member who is eligible for benefits under Section 14-110 of this Code is eligible to participate in the DROP provided the member attains a normal retirement date and is employed in a regularly established position within their Department.

An eligible member must elect to participate in DROP no less than 3 months prior to the member's DROP eligibility date, subject to the following conditions:

(1) A member who reaches age 50 with 25 years of service or 26 years and 8 months at any age in accordance with section (b)1.

(2) A member may elect to include or exclude any optional service credit from the total service used to establish the DROP begin date when determining the DROP eligibility date.

(3) A member with dual normal retirement dates, due to an employment history in 2 different classes of membership with different normal retirement date and age requirements, may elect to participate in DROP within 12 months of attaining normal retirement date in either membership class.

(4) An elected officer who reaches his or her DROP eligibility date during a term of office may defer DROP participation until the next term in such office. The officer must elect to participate in DROP within 12 months of the first day of the month following the first month of such succeeding term and may participate for no more than 60 months after such day or until the end of the term, whichever occurs first.

(c) It is the responsibility of the eligible member to make proper application to the System to participate in DROP. To qualify for DROP, the member shall submit a notice of election to participate that shall specify the DROP begin date and the DROP termination and resignation date and is acknowledged by the employer, and the notice of election to participate shall be received by the System no later than the end of the last month of the member's election period described in subsection (b) of this Section or a later date, if authorized in subsection (b). Such termination and resignation date shall constitute a binding letter of resignation with the employer. Failure to complete the notice of election to participate within the limitations of subsection (b) of this Section shall result in the member being ineligible for DROP participation.

An application for service retirement and the DROP shall be accepted by the System up to 6 months, but no later than 3 months, in advance of the intended DROP begin date and shall establish the member's effective date of retirement and DROP begin date. The effective date of retirement and the DROP begin date shall both be the first day of the month that the member indicates on his or her application as the date he or she wishes his or her DROP participation to begin, provided the System receives the member's application no later than the close of business on the last day 3 months prior to when the DROP begin date occurs. If a member fails to apply for DROP by the last day of the month in which his or her intended DROP begin date occurs, the effective date of retirement and the DROP begin date shall be the first day of the month in which the System receives the member's application, provided the application is received within the 3-month election period.

(d) When the System receives a member's application for DROP, the System must:

(1) acknowledge receipt of the member's application and advise him or her of any required information or documents that have not yet been received; such information may include, but is not limited to, birth date, beneficiary designation, option selection, any payments due the member's account for purchase of additional service credit or a written statement from the member that the member does not wish to claim such service credit, and certification of final salary and accumulated annual leave payments;

(2) establish the DROP begin date; and

(3) send a follow-up notice, reminding the member of any required information or documents that have not yet been received.

(e) Subject to timely submission of all required documents, the effective date of DROP participation shall be the effective date of retirement. The DROP participant may not modify or cancel his or her retirement benefit after the last day of the month of the DROP begin date. The DROP benefit shall be deemed cashed or deposited as of the last day of the month following the DROP begin date.

(f) If all the required information and documents have not been received by the System after 3 follow-up notices have been sent to the member, the System must send the member a certified letter, advising the member that he has 21 days to provide such information or documents without loss of his DROP begin date. If the System has not received all of the required information and documents after the 21 days specified in the certified letter, the System must send a final agency action letter to the member advising the member that his or her application is canceled and that he or she must reapply to join DROP, if eligible, with a new effective DROP begin date to be established upon application.

(g) All employers paying the salary of a DROP participant shall contribute the required percentage of such participant's gross compensation. In addition, health insurance benefits continue in accordance with the State Employees Group Insurance Act of 1971.

(h) The retirement benefit of a member who has elected to participate in the DROP shall be calculated as provided in this Section.

A member may choose to receive his accumulated annual leave and applicable sick time payments and earned in accordance with agency policy, either upon beginning or terminating DROP. This early annual leave payment shall be based on the hourly wage of the member at the time he or she begins participation in DROP. Any additional annual leave payment made at the DROP end date according to the employer's leave policy cannot be included in the retirement benefit, which was determined and fixed by law when the member elected to participate in DROP. If the member elects to receive the annual leave payment upon termination of DROP and termination of employment with his or her employer, any accumulated annual leave payment made at that time cannot be included in the retirement benefit, which was determined and fixed by law when the member elected to participate in DROP.

(i) The beneficiary eligible to receive any accrued DROP benefits payable if the DROP participant dies before the completion of the DROP participation period is the most recent joint annuitant or beneficiary designated to receive retirement benefits upon the death of the participant, as directed by the participant on his or her beneficiary forms. However, if the beneficiary or joint annuitant dies during the DROP participation period, the participant may designate a new beneficiary as follows:

(1) If the participant retired under option 1 or 2, he or she may name a new beneficiary. Such beneficiary is eligible for both the DROP benefits and any benefits provided by the option selected.

(2) If the participant retired under option 3 or 4, he or she may name a new qualified joint annuitant or spouse. Such beneficiary is eligible for both the accrued DROP benefits and any continuing benefits.

(3) If the participant retired under option 3 or 4, he or she may name a new beneficiary who will receive only the accrued DROP benefits. Such beneficiary shall not replace the joint annuitant or spouse or be eligible for any continuing benefits.

(4) The participant may not name a beneficiary to receive DROP benefits who is different from the beneficiary designated to receive the retirement benefits.

(j) Effective with the DROP begin date, the member's initial normal monthly benefit shall be fixed and shall accrue monthly in the System Trust Fund. Interest shall accrue at an effective annual rate of 6.5% compounded monthly, on the prior month's accumulated ending balance, up to the month of the DROP participant's termination or death. The DROP benefit is increased by the annual cost-of-living adjustment as otherwise provided in this Article.

(k) A DROP participant is not eligible to apply for or receive retiree health insurance subsidy payments until such participant has terminated employment and DROP participation. A member shall not earn creditable service applicable to the health insurance subsidy while participating in DROP.

(l) A DROP participant is considered an annuitant; however, participation in DROP does not alter the participant's employment status. Terms and conditions of employment, including, but not limited to, salary, insurance coverage, leave accrual and seniority status, do not change as a result of DROP participation. However, employment is not guaranteed during the DROP participation period.

Employment continues during participation in DROP through the date the member preselected to stop participation in DROP, except that elected officers may continue in office after the DROP end date. A DROP participant may change jobs or have more than one employer under this Article, as long as the participant does not have a break in service. If a break in service occurs, DROP participation ceases as of the end of the month in which no compensation is received for covered employment. All employers are required to acknowledge the participant's DROP termination date and to acknowledge potential liability for any additional retirement contributions and interest required if the participant fails to timely terminate employment.

(m) DROP participants shall not be eligible for disability benefits under this Article.

(n) If a participant continues employment beyond the preselected DROP end date and prior to completion of the maximum 60 months allowed, a new form must be submitted with a new DROP end date acknowledged by both the participant and any affected employer.

(o) DROP benefits shall be subject to the provisions of this Article pertaining to assignment, execution, or attachment of benefits, and forfeiture of benefits, respectively.

(p) Eligibility to participate in the DROP ends upon the death of the participant. A DROP participant's survivors shall not be eligible to receive the participant's line-of-duty death benefits. If the participant dies on or after the DROP begin date, but prior to the first monthly benefit being credited to his or her DROP account, benefits shall be paid as follows:

(1) according to the option selected by the participant at the time he or she entered DROP;

(2) if the beneficiary qualifies as a joint annuitant and the participant had selected an option other than option 3, the beneficiary may choose to receive a benefit payable under option 3 with no payout of DROP accrual, as though the participant had not applied for DROP and had retired on the date of death; or

(3) if no option had been selected by the participant, benefits shall be paid in accordance with System rules.

Upon the death of a DROP participant, the designated beneficiary shall be entitled to apply for and receive the accrued benefits in the DROP.

(q) A DROP participant not in the Elected Officers' Class must terminate employment on or before the preselected resignation date. If a participant fails to terminate on or before the DROP termination and resignation date: (1) retirement and DROP participation are voided; (2) the DROP accumulation and any monthly retirement benefits received are forfeited; (3) membership in the System is retroactively reestablished to the date the member initiated DROP participation; (4) each employer is liable for payment of or eligible for a refund of, as applicable, the difference between the DROP contributions paid and the required retirement contributions for the applicable class of membership during the period of DROP participation, plus 6.5% interest compounded annually; no interest is payable on refunds to employers; and (5) the designated beneficiary shall remain the named beneficiary, unless revised.

(r) A member of the Elected Officers' Class participating in the DROP may continue to serve in elected office upon reaching the DROP end date. No additional DROP benefits shall accrue on behalf of the officer after the officer's DROP end date, however, cost-of-living adjustments and interest shall continue to accrue until the officer ceases holding office and satisfies the definition of termination provided in this Section. The officer shall not be a renewed member in the Elected Officers' Class and the employer shall not make retirement contributions on the officer's behalf after the officer's DROP end date, however, the employer shall submit health insurance subsidy contributions until the officer ceases holding elective office. Monthly retirement benefit payments shall be paid to the officer beginning the first month after the officer ceases holding office and satisfies the definition of termination provided in this Section. After satisfying the definition of termination, such officer who is reemployed or reelected shall be subject to the reemployment limitations provided in this Article.

(s) Upon the participant's termination of all employment, the deferred resignation becoming effective, and the conclusion of the DROP participation period, or upon the death of the participant, or for an elected officer as provided in this Section, benefits shall be paid or distributed as follows:

(1) The previously determined normal monthly retirement benefits, plus applicable cost-of-living increases, commence in accordance with the method of payment chosen by the participant at the time he or she began DROP participation.

(2) The total accumulated DROP benefits are distributed to the participant, or, if deceased, to the participant's joint annuitant or beneficiary as appropriate, provided the System receives the proper forms signed by both the participant and employer verifying termination of employment and notifying the System as to which of the following methods of payment he or she has chosen: (i) lump sum (if the participant is deceased, a beneficiary, other than a spouse, must receive the lump sum distribution only), (ii) direct rollover, or (iii) combined partial lump sum and rollover.

A DROP participant or beneficiary who submits all required forms, but fails to elect a method of payment within 60 days of termination of DROP, automatically receives a lump sum distribution, less applicable withheld taxes.

A participant who elects a rollover must have the rollover paid directly to the custodian of an eligible retirement plan. Eligible retirement plans include an individual retirement account as described in Section 408(a) of the Internal Revenue Code, an Individual Retirement Annuity as described in Section 408(b) of the Internal Revenue Code, excluding an endowment contract, a qualified trust established in accordance with Section 401(a) of the Internal Revenue Code, for the sole and exclusive benefit of employees or their beneficiaries, an annuity plan as described in Section 403(a) of the Internal Revenue Code, excluding a plan described in Sections 403(b) and 457 of in the Internal Revenue Code, an eligible deferred compensation plan described in Section 457(B) of the Internal Revenue Code that is maintained by an eligible employer as described in Section 457(e)(1)(A) of the Internal Revenue Code, and an annuity contract as described in Section 403(b) of the Internal Revenue Code. If the DROP participant dies and the surviving spouse wishes to roll over the DROP account, it can only be rolled over into an individual retirement account, an individual retirement annuity, an eligible deferred compensation plan, or an annuity contract.

(t) Benefits accumulating in the DROP are not subject to federal benefit limitations specified in Section 415 of the Internal Revenue Code until DROP participation ends and the participant begins receiving his monthly retirement benefits. The amount of the accumulated DROP at the time the member ceases DROP is amortized over the member's expected lifetime, in the manner required by the Internal Revenue Code, and the annualized value of the DROP account reduces the federal maximum annual benefit the member is entitled to receive.

(u) Reemployment with an employer during the first calendar month after concluding DROP shall result in cancellation of DROP and retirement. The member's DROP application shall be void, and he or she shall be required to repay all DROP and monthly retirement benefits received. The employer who re-employs such member is liable for payment of or eligible for a refund of, as applicable, the difference between the DROP contributions paid and the required SERS retirement contributions for the applicable class of membership during the period of DROP participation. Payment of additional contributions for the applicable class of membership during the period of DROP participation. Payment of additional contributions shall include 6.5% interest compounded annually. No interest will be paid on refunds to employers.

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