Full Text of HB1089 94th General Assembly
HB1089 94TH GENERAL ASSEMBLY
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94TH GENERAL ASSEMBLY
State of Illinois
2005 and 2006 HB1089
Introduced 02/08/05, by Rep. Randall M. Hultgren SYNOPSIS AS INTRODUCED: |
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40 ILCS 5/14-103.40 new |
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40 ILCS 5/14-103.41 new |
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40 ILCS 5/14-105.8 new |
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40 ILCS 5/14-133 |
from Ch. 108 1/2, par. 14-133 |
40 ILCS 5/14-133.2 new |
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Amends the State Employee Article of the Illinois Pension Code. Provides that the System may offer to employees the option to participate in a self-managed program of retirement benefits instead of the program of retirement benefits currently offered. 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. Effective immediately.
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FISCAL NOTE ACT MAY APPLY | |
PENSION IMPACT NOTE ACT MAY APPLY |
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A BILL FOR
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HB1089 |
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LRB094 09895 EFG 40153 b |
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| AN ACT concerning public employee benefits.
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| Be it enacted by the People of the State of Illinois,
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| represented in the General Assembly:
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| Section 5. The Illinois Pension Code is amended by adding | 5 |
| 14-103.40, 14-103.41, 14-105.8 and 14-133.2 and changing | 6 |
| Section 14-133 as follows:
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| (40 ILCS 5/14-103.40 new)
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| Sec. 14-103.40. Traditional Benefit Package. "Traditional | 9 |
| benefit
package":
The defined benefit retirement program | 10 |
| maintained by the System, which
includes retirement annuities | 11 |
| payable directly from the System as provided in
Sections | 12 |
| 14-107, 14-108, 14-108.3, 14-108.4, 14-109, 14-110, 14-112, | 13 |
| 14-113, 14-114, and 14-115; disability
benefits payable under | 14 |
| Sections 14-123, 14-123.1, 14-124, 14-125, 14-125.1, and | 15 |
| 14-126; death benefits payable
directly from the System as | 16 |
| provided in Sections 14-116, 14-117, and 14-128; widow's | 17 |
| annuities
and survivor's benefits payable directly from the | 18 |
| System as provided in
Sections 14-118, 14-119, 14-120, 14-121, | 19 |
| 14-121.1, and 14-122; and contribution refunds as provided in | 20 |
| Section
14-130. | 21 |
| (40 ILCS 5/14-103.41 new)
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| Sec. 14-103.41. Self-Managed Plan. "Self-managed plan": | 23 |
| The defined
contribution retirement program maintained under | 24 |
| the System as described in
Section 14-133.2. The self-managed | 25 |
| plan also includes disability benefits as
provided in Sections | 26 |
| 14-123, 14-123.1, 14-124, 14-125, 14-125.1, and 14-126. The | 27 |
| self-managed plan does not
include retirement annuities, death | 28 |
| benefits, or widow's or survivor's benefits
payable directly | 29 |
| from the System as provided in Sections 14-107, 14-108, | 30 |
| 14-108.3, 14-108.4, 14-109, 14-110, 14-112, 14-113, 14-114, | 31 |
| 14-115, 14-116, 14-117, 14-118, 14-119, 14-120, 14-121, |
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| 14-121.1, 14-122, and 14-128 or refunds determined under | 2 |
| Section 14-130.
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| (40 ILCS 5/14-105.8 new)
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| Sec. 14-105.8. Retirement program elections. | 5 |
| (a) All participating employees are participants under the | 6 |
| traditional
benefit package prior to January 1, 2006. | 7 |
| If the System offers to employees under this Article the
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| self-managed plan as an alternative to the traditional benefit | 9 |
| package, each eligible employee (as defined in subsection (b)) | 10 |
| shall be
given the choice to elect which retirement program he | 11 |
| or she wishes to
participate in with respect to all periods of | 12 |
| covered employment occurring on
and after the effective date of | 13 |
| the employee's election. The retirement
program election made | 14 |
| by an eligible employee must be made in writing, in the
manner | 15 |
| prescribed by the System, and within the time period described | 16 |
| in
subsection (d). | 17 |
| The employee election authorized by this Section is a | 18 |
| one-time, irrevocable
election. If an employee terminates | 19 |
| employment after making the election
provided under this | 20 |
| subsection (a), then upon his or her subsequent
re-employment | 21 |
| under this Article the original election shall automatically | 22 |
| apply
to him or her, provided that the System is then offering | 23 |
| the self-managed plan under Section 14-133.2. | 24 |
| An eligible employee who fails to make this election shall, | 25 |
| by default,
participate in the traditional benefit package. | 26 |
| (b) "Eligible employee" means an employee who does not have | 27 |
| sufficient age and
service to qualify for a retirement annuity | 28 |
| under Section 14-107. An eligible employee is either a | 29 |
| currently eligible employee or a newly eligible
employee. For | 30 |
| purposes of this Section, a "currently eligible employee"
is an | 31 |
| employee who is employed by the State on the date on which
the | 32 |
| System first offers the self-managed plan as an alternative to | 33 |
| the traditional benefit package. A "newly
eligible employee" is | 34 |
| an employee who first becomes employed under this Article
after | 35 |
| the date on which the System first offers the
self-managed plan |
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| as an alternative to the
traditional benefit package.
A newly | 2 |
| eligible employee participates in the traditional benefit | 3 |
| package
until he or she makes an election to participate in the | 4 |
| self-managed plan. If an employee does not elect to participate
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| in the self-managed plan, he or she shall
continue to | 6 |
| participate in the
traditional benefit package by default. | 7 |
| (c) An eligible employee may elect to
participate in the | 8 |
| traditional benefit package
or the self-managed plan. | 9 |
| A currently eligible employee must make this election | 10 |
| within one year
after the effective date of the adoption of the | 11 |
| self-managed plan under Section 14-133.2. | 12 |
| A newly eligible employee must make this election within
6 | 13 |
| months after the date on which the System receives the report | 14 |
| of status
certification from the State. | 15 |
| (d) If an employee elects to participate in the | 16 |
| self-managed plan, no State
contributions shall be remitted to | 17 |
| the self-managed plan when the employee's
account balance | 18 |
| transfer is made. Employer contributions to the self-managed
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| plan shall commence as of the first pay period that begins | 20 |
| after the System
receives the employee's election.
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| (e) An eligible employee shall be provided with written | 22 |
| information prepared
or prescribed by the System that describes | 23 |
| the employee's retirement program
choices. Each eligible | 24 |
| employee shall be offered an opportunity to
receive counseling | 25 |
| from the System prior to making his or her election. This
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| counseling may consist of videotaped materials, group | 27 |
| presentations, individual
consultation with an employee or | 28 |
| authorized representative of the System in
person or by | 29 |
| telephone or other electronic means, or any combination of | 30 |
| these
methods.
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| (40 ILCS 5/14-133) (from Ch. 108 1/2, par. 14-133)
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| Sec. 14-133. Contributions on behalf of members.
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| (a) Each participating employee shall make contributions | 34 |
| to the System,
based on the employee's compensation, as | 35 |
| follows:
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| (1) Covered employees, except as indicated below, 3.5% | 2 |
| for
retirement annuity, and 0.5% for a widow or survivors
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| annuity;
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| (2) Noncovered employees, except as indicated below, | 5 |
| 7% for retirement
annuity and 1% for a widow or survivors | 6 |
| annuity;
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| (3) Noncovered employees serving in a position in which | 8 |
| "eligible
creditable service" as defined in Section 14-110 | 9 |
| may be earned, 1% for a widow
or survivors annuity
plus the | 10 |
| following amount for retirement annuity: 8.5% through | 11 |
| December 31,
2001; 9.5% in 2002; 10.5% in 2003; and 11.5% | 12 |
| in 2004 and thereafter;
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| (4) Covered employees serving in a position in which | 14 |
| "eligible creditable
service" as defined in Section 14-110 | 15 |
| may be earned, 0.5% for a widow or survivors annuity
plus | 16 |
| the following amount for retirement annuity: 5% through | 17 |
| December 31,
2001; 6% in 2002; 7% in 2003; and 8% in 2004 | 18 |
| and thereafter;
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| (5) Each security employee of the Department of | 20 |
| Corrections
or of the Department of Human Services who is a | 21 |
| covered employee, 0.5% for a widow or survivors annuity
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| plus the following amount for retirement annuity: 5% | 23 |
| through December 31,
2001; 6% in 2002; 7% in 2003; and 8% | 24 |
| in 2004 and thereafter;
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| (6) Each security employee of the Department of | 26 |
| Corrections
or of the Department of Human Services who is | 27 |
| not a covered employee, 1% for a widow or survivors annuity
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| plus the following amount for retirement annuity: 8.5% | 29 |
| through December 31,
2001; 9.5% in 2002; 10.5% in 2003; and | 30 |
| 11.5% in 2004 and thereafter.
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| (a-1) Notwithstanding any provision in subsection (a) to | 32 |
| the contrary, in the case of an employee who participates in | 33 |
| the self-managed plan under Section 14-133.2, contributions | 34 |
| for widow or survivors annuity shall instead be used to finance | 35 |
| the benefits available under Section 14-133.2.
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| (b) Contributions shall be in the form of a deduction from
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| compensation and shall be made notwithstanding that the | 2 |
| compensation
paid in cash to the employee shall be reduced | 3 |
| thereby below the minimum
prescribed by law or regulation. Each | 4 |
| member is deemed to consent and
agree to the deductions from | 5 |
| compensation provided for in this Article,
and shall receipt in | 6 |
| full for salary or compensation.
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| (Source: P.A. 92-14, eff. 6-28-01.)
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| (40 ILCS 5/14-133.2 new) | 9 |
| Sec. 14-133.2. Self-managed plan. | 10 |
| (a) Purpose. The General Assembly finds that it is | 11 |
| important for Illinois to be able to attract and retain the | 12 |
| most qualified employees
and that in order to attract and | 13 |
| retain these employees, the State of Illinois should have the | 14 |
| flexibility to provide the defined contribution
plan as an | 15 |
| alternative for eligible employees who elect not to participate
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| in a defined benefit retirement program provided under this | 17 |
| Article.
Accordingly, the State Employees Retirement System of | 18 |
| Illinois is hereby authorized to
establish and administer a | 19 |
| self-managed plan, which shall offer participating
employees | 20 |
| the opportunity to accumulate assets for retirement through a
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| combination of employee and employer contributions that may be | 22 |
| invested in
mutual funds, collective investment funds, or other | 23 |
| investment products and
used to purchase annuity contracts, | 24 |
| either fixed or variable or a combination
thereof. The plan | 25 |
| must be qualified under the Internal Revenue Code of 1986. | 26 |
| (b) Adoption of Plan. The Board may
adopt the self-managed | 27 |
| plan established under this Section for members under this | 28 |
| Article. The State's election to adopt the self-managed
plan | 29 |
| makes available to the eligible employees of the State of | 30 |
| Illinois the elections
described in Section 14-105.8.
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| The State Employees Retirement System of Illinois shall be | 32 |
| the plan sponsor for the
self-managed plan and shall prepare a | 33 |
| plan document and prescribe such rules
and procedures as are | 34 |
| considered necessary or desirable for the administration
of the | 35 |
| self-managed plan. Consistent with its fiduciary duty to the
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| participants and beneficiaries of the self-managed plan, the | 2 |
| Board of Trustees
of the System may delegate aspects of plan | 3 |
| administration as it sees fit to
companies authorized to do | 4 |
| business in this State.
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| (c) Selection of service providers and funding vehicles. | 6 |
| The System shall solicit proposals to provide
administrative | 7 |
| services and funding vehicles for the self-managed plan from
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| insurance and annuity companies and mutual fund companies, | 9 |
| banks, trust
companies, or other financial institutions | 10 |
| authorized to do business in this
State. In reviewing the | 11 |
| proposals received and approving and contracting with
no fewer | 12 |
| than 2 and no more than 7 companies, the Board of Trustees of | 13 |
| the System shall
consider, among other things, the following | 14 |
| criteria:
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| (1) the nature and extent of the benefits that would be | 16 |
| provided
to the participants;
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| (2) the reasonableness of the benefits in relation to | 18 |
| the premium
charged;
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| (3) the suitability of the benefits to the needs and
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| interests of the participating employees and the State;
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| (4) the ability of the company to provide benefits | 22 |
| under the contract and
the financial stability of the | 23 |
| company; and
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| (5) the efficacy of the contract in the recruitment and | 25 |
| retention of
employees.
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| The System shall periodically review
each approved | 27 |
| company. A company may continue to provide administrative
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| services and funding vehicles for the self-managed plan only so | 29 |
| long as
it continues to be an approved company under contract | 30 |
| with the Board.
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| (d) Employee Direction. Employees who are participating in | 32 |
| the program
must be allowed to direct the transfer of their | 33 |
| account balances among the
various investment options offered, | 34 |
| subject to applicable contractual
provisions.
The participant | 35 |
| shall not be deemed a fiduciary by reason of providing such
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| investment direction. A person who is a fiduciary shall not be |
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| liable for any
loss resulting from such investment direction | 2 |
| and shall not be deemed to have
breached any fiduciary duty by | 3 |
| acting in accordance with that direction.
Neither the System | 4 |
| nor the employer guarantees any of the investments in the
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| employee's account balances.
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| (e) Participation. An employee eligible to participate in | 7 |
| the
self-managed plan must make a written election in | 8 |
| accordance with the
provisions of Section 14-105.8 and the | 9 |
| procedures established by the System.
Participation in the | 10 |
| self-managed plan by an electing employee shall begin
on the | 11 |
| first day of the first pay period following the later of the | 12 |
| date the
employee's election is filed with the System or the | 13 |
| effective date of
the self-managed
plan. The System shall not | 14 |
| make the self-managed plan available earlier than
January 1, | 15 |
| 2006. An employee's participation in the traditional benefit | 16 |
| package under this Article shall terminate on the date that
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| participation in the self-managed plan begins.
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| An employee who has elected to participate in the | 19 |
| self-managed plan under
this Section must continue | 20 |
| participation while employed in an eligible
position, and may | 21 |
| not participate in the traditional benefit package | 22 |
| administered
by the System under this Article while employed by | 23 |
| the State under this Article, unless the self-managed plan
is | 24 |
| terminated in accordance with subsection (i).
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| Participation in the self-managed plan under this Section | 26 |
| shall constitute
membership in the State Employees' Retirement | 27 |
| System of Illinois.
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| A participant under this Section shall be entitled to the | 29 |
| benefits of
Article 20 of this Code.
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| (f) Establishment of Initial Account Balance. If at the | 31 |
| time an employee
elects to participate in the self-managed plan | 32 |
| he or she has rights and credits
in the System due to previous | 33 |
| participation in the traditional benefit package,
the System | 34 |
| shall establish for the employee an opening account balance in | 35 |
| the
self-managed plan, equal to the amount of contribution | 36 |
| refund that the employee
would be eligible to receive under |
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| Section 14-130 if the employee terminated
employment on that | 2 |
| date and elected a refund of contributions, except that this
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| hypothetical refund shall include interest at the effective | 4 |
| rate for the
respective years. The System shall transfer assets | 5 |
| from the defined benefit
retirement program to the self-managed | 6 |
| plan, as a tax free transfer in
accordance with Internal | 7 |
| Revenue Service guidelines, for purposes of funding
the | 8 |
| employee's opening account balance.
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| (g) No Duplication of Service Credit. Notwithstanding any | 10 |
| other provision
of this Article, an employee may not purchase | 11 |
| or receive service or service
credit applicable to the | 12 |
| traditional benefit package
under this Article for any period | 13 |
| during which the employee was a participant
in the self-managed | 14 |
| plan established under this Section.
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| (h) Contributions. The self-managed plan shall be funded by | 16 |
| contributions
from employees participating in the self-managed | 17 |
| plan and State
contributions as provided in this Section.
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| The contribution rate for employees participating in the | 19 |
| self-managed plan
under this Section shall be equal to the | 20 |
| employee contribution rate applicable to participants of the | 21 |
| same class under Section 14-133. This required
contribution | 22 |
| shall be made as an "employer pick-up" under Section 414(h) of | 23 |
| the
Internal Revenue Code of 1986 or any successor Section | 24 |
| thereof. Any employee
participating in the System's | 25 |
| traditional benefit package prior to his or her
election to | 26 |
| participate in the self-managed plan shall continue to have the
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| employer pick up the contributions required under Section | 28 |
| 14-133. However, the
amounts picked up after the election of | 29 |
| the self-managed plan shall be remitted
to and treated as | 30 |
| assets of the self-managed plan. In no event shall an
employee | 31 |
| have an option of receiving these amounts in cash. Employees | 32 |
| may make
additional contributions to the
self-managed plan in | 33 |
| accordance with procedures prescribed by the System, to
the | 34 |
| extent permitted under rules prescribed by the System.
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| Employers shall make employer contributions to the
System | 36 |
| for employees who participate in the self-managed plan in the |
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| same manner as for employees who participate in the traditional | 2 |
| benefit package. | 3 |
| The program shall provide for a portion of employer | 4 |
| contributions to be credited to each
self-managed plan | 5 |
| participant at a rate to be determined by the Board, based on | 6 |
| the amount of employer contribution received, less the amount | 7 |
| used by
the System to provide disability benefits for the | 8 |
| employee and less the amount allocable to amortization of | 9 |
| unfunded liability.
The amounts so credited
shall be paid into | 10 |
| the participant's self-managed plan accounts in a manner
to be | 11 |
| prescribed by the System.
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| The System shall not be obligated to remit the
required | 13 |
| employer contributions to any of the insurance and annuity
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| companies, mutual fund
companies, banks, trust companies, | 15 |
| financial institutions, or other sponsors
of any of the funding | 16 |
| vehicles offered under the self-managed plan
until it has | 17 |
| received the required employer contributions from the State. In
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| the event of a deficiency in the amount of State contributions, | 19 |
| the System
shall implement any procedures
to obtain the | 20 |
| required funding from the General Revenue
Fund.
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| An amount of employer contribution, not exceeding 1% of the | 22 |
| participating
employee's salary, shall be used for the purpose | 23 |
| of providing the disability
benefits of the System to the | 24 |
| employee. Prior to the beginning of each plan
year under the | 25 |
| self-managed plan, the Board of Trustees shall determine, as a
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| percentage of salary, the amount of employer contributions to | 27 |
| be allocated
during that plan year for providing disability | 28 |
| benefits for employees in the
self-managed plan.
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| (i) Termination. The self-managed plan authorized under | 30 |
| this
Section may be terminated by the System, subject to the | 31 |
| terms
of any relevant
contracts, and the System shall have no | 32 |
| obligation to
reestablish the self-managed plan under this | 33 |
| Section. This Section does not
create a right
to continued | 34 |
| participation in any self-managed plan set up by the System | 35 |
| under
this Section. If the self-managed plan is terminated,
the | 36 |
| participants shall have the right to participate in the |
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| traditional benefit package and receive service credit in the | 2 |
| traditional benefit package for any years of employment | 3 |
| following the termination.
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| (j) Vesting; Withdrawal; Return to Service. A participant | 5 |
| in the
self-managed plan becomes vested in the employer | 6 |
| contributions credited to his
or her accounts in the | 7 |
| self-managed plan on the earliest to occur of the
following: | 8 |
| (1) completion of 8 years of service credit under this Article; | 9 |
| (2) the death of the participating employee while employed by
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| an employer under this Article, if the participant has | 11 |
| completed at
least 1.5 years of service; or (3) the | 12 |
| participant's election to retire and
apply the reciprocal | 13 |
| provisions of Article 20 of this Code.
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| A participant in the self-managed plan who receives a | 15 |
| distribution of his or
her vested amounts from the self-managed | 16 |
| plan
while not yet eligible for retirement under this Article
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| (and Article 20, if applicable) shall forfeit all service | 18 |
| credit
and accrued rights in the System; if subsequently | 19 |
| re-employed, the participant
shall be considered a new
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| employee. If a former participant again becomes a participating | 21 |
| employee (or
becomes employed by a participating system under | 22 |
| Article 20 of this Code) and
continues as such for at least 2 | 23 |
| years, all such rights, service credits, and
previous status as | 24 |
| a participant shall be restored upon repayment of the amount
of | 25 |
| the distribution, without interest.
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| (k) Benefit amounts. If an employee participating in the | 27 |
| self-managed plan who is vested in employer
contributions | 28 |
| terminates employment, the employee shall be entitled to a
| 29 |
| benefit which is based on the
account values attributable to | 30 |
| both employer and
employee contributions and any
investment | 31 |
| return thereon.
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| If an employee participating in the self-managed plan who | 33 |
| is not vested in employer contributions terminates
employment, | 34 |
| the employee shall be entitled to a benefit based solely on the
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| account values attributable to the employee's contributions | 36 |
| and any investment
return thereon, and the employer |
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| contributions and any investment return
thereon shall be | 2 |
| forfeited. Any employer contributions which are forfeited
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| shall be held in escrow by the
company investing those | 4 |
| contributions and shall be used as directed by the
System for | 5 |
| future allocations of employer contributions or for the | 6 |
| restoration
of amounts previously forfeited by former | 7 |
| participants who again become
participating employees.
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| Section 99. Effective date. This Act takes effect upon | 9 |
| becoming law.
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