HB3370ham001 97TH GENERAL ASSEMBLY

Rep. Mike Fortner

Filed: 3/4/2011

09700HB3370ham001 LRB097 08653 JDS 52145 a

AMENDMENT TO HOUSE BILL 3370

AMENDMENT NO. ______. Amend House Bill 3370 by replacing everything after the enacting clause with the following:

"Section 5. The Illinois Pension Code is amended by adding Sections 7-130.1, 7-130.2, 7-140.5, and 7-173.3 and changing Section 7-173 as follows:

(40 ILCS 5/7-130.1 new)

Sec. 7-130.1. Reformed benefit package. "Reformed benefit package" means the benefit retirement program maintained by the Fund for persons who first become participants of the Fund on or after January 1, 2011. It includes the following benefits for those persons: retirement annuities payable directly from the Fund; surviving spouse annuities payable directly from the Fund; child annuities payable directly from the Fund; contribution refunds; and separation benefits.

(40 ILCS 5/7-130.2 new)

Sec. 7-130.2. Self-managed plan. "Self-managed plan" means the defined contribution retirement program maintained by the Fund, as described in Section 7-173.3. The self-managed plan does not include retirement, surviving spouse, or child annuities payable directly from the Fund, contribution refunds, or separation benefits.

(40 ILCS 5/7-140.5 new)

Sec. 7-140.5. Retirement program elections.

(a) For the purposes of this Article:

"Currently eligible participant" means a person who first became or becomes a participant under this Article on or after January 1, 2011 and is a participant under this Article before the day on which the Fund first offers the self-managed plan as an alternative to the reformed benefit package.

"Eligible participant" means either a currently eligible participant or a newly eligible participant of the Fund

"Newly eligible participant" means a person who first becomes a participant under this Article on or after the date on which the Fund first offers the self-managed plan as an alternative to the reformed benefit package.

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

If an eligible participant elects the self-managed plan, then that election is irrevocable. If an eligible participant who elected to participate or participated by default in the reformed 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.

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

(c) An eligible participant may elect to participate in the reformed benefit package or the self-managed plan. An eligible participant must make this election within one year after the effective date of the adoption of the self-managed plan under Section 7-173.3 or 60 days after first becoming a participant under this Article, whichever is later, or, in the case of a currently eligible participant who terminates employment under this Article, within one year after his or her re-employment under this Article.

(d) If the eligible participant elects to participate in the self-managed plan, the Fund shall fund his or her account as stated in subsection (f) of Section 7-173.3.

(e) An eligible participant shall be provided with written information prepared or prescribed by the Fund that describes the participant's retirement program choices. The eligible participant shall be offered an opportunity to receive counseling from the Fund before making his or her election. This counseling may consist of videotaped materials, group presentations, individual consultation with an employee or authorized representative of the Fund in person or by telephone or other electronic means, or any combination of these methods.

(40 ILCS 5/7-173) (from Ch. 108 1/2, par. 7-173)

Sec. 7-173. Contributions by employees.

(a) Each participating employee shall make contributions to the fund as follows:

1. For retirement annuity purposes, normal contributions of 3 3/4% of earnings.

2. Additional contributions of such percentages of each payment of earnings, as shall be elected by the employee for retirement annuity purposes, but not in excess of 10%. The selected rate shall be applicable to all earnings paid following receipt by the Board of written notice of election to make such contributions. Additional contributions at the selected rate shall be made concurrently with normal contributions.

3. Survivor contributions, by each participating employee, of 3/4% of each payment of earnings. Notwithstanding this item 3, in the case of an employee who participates in the self-managed plan under Section 7-173.3, contributions for a survivor's annuity shall instead be used to finance the benefits available under Section 1-173.3.

(b) Each employee shall make contributions for Federal Social Security taxes, for periods during which he is a covered employee, as required by the Social Security Enabling Act and State and federal law. For participating employees, such contributions shall be in addition to those required under paragraph (a) of this Section.

(c) Contributions shall be deducted from each corresponding payment of earnings paid to each employee and shall be remitted to the board by the participating municipality or participating instrumentality making such payment. The remittance, together with a report of the earnings and contributions shall be made as directed by the board. For township treasurers and employees of township treasurers qualifying as employees hereunder, the contributions herein required as deductions from salary shall be withheld by the school township trustees from funds available for the payment of the compensation of such treasurers and employees as provided in the School Code and remitted to the board.

(d) An employee who has made additional contributions under paragraph (a)2 of this Section may upon retirement or at any time prior thereto, elect to withdraw the total of such additional contributions including interest credited thereon to the end of the preceding calendar year.

(e) Failure to make the deductions for employee contributions provided in paragraph (c) of this Section shall not relieve the employee from liability for such contributions. The amount of such liability may be deducted, with interest charged under Section 7-209, from any annuities or benefits payable hereunder to the employee or any other person receiving an annuity or benefit by reason of such employee's participation.

(f) A participating employee who has at least 40 years of creditable service in the Fund may elect to cease making the contributions required under this Section. The status of the employee under this Article shall be unaffected by this election, except that the employee shall not receive any additional creditable service for the periods of employment following the election. An election under this subsection relieves the employer from making additional employer contributions in relation to that employee.

(Source: P.A. 96-1084, eff. 7-16-10; 96-1258, eff. 7-23-10; revised 9-2-10.)

(40 ILCS 5/7-173.3 new)

Sec. 7-173.3. Self-managed plan.

(a) The General Assembly finds that the Illinois Municipal Retirement Fund should have the flexibility to provide a defined contribution (self-managed) plan for eligible participants. Accordingly, the Illinois Municipal Retirement Fund 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 that are fixed, variable, or a combination of fixed and variable. 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 for eligible participants under this Article. The adoption of the self-managed plan makes available to the eligible participants under this Article the elections described in Section 7-140.5.

The Illinois Municipal Retirement Fund shall be the plan sponsor for the self-managed plan and shall prepare a plan document and adopt any rules and procedures that 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 Fund may delegate aspects of plan administration as it sees fit to companies authorized to do business in this State.

(c) The Fund 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 Fund 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 employers; and

(4) the ability of the company to provide benefits under the contract and the financial stability of the company.

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 Fund under this subsection (c), the Fund may offer its participants an investment fund managed by the Illinois State Board of Investment.

(d) Participants in the program 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 that investment direction and shall not be deemed to have breached any fiduciary duty by acting in accordance with that direction. Neither the Fund nor the employer shall guarantee any of the investments in the participant's account balances.

(e) Eligible participants, as defined in Section 7-140.5, must make a written election to participate in the self-managed plan in accordance with the provisions of Section 7-140.5 and the procedures established by the Fund. Participation in the self-managed plan shall begin on the first day of the month immediately following the month in which the participant's election is filed with the Fund, but not sooner than the effective date of the self-managed plan. The Fund shall make the self-managed plan available under this Article within 6 months after the effective date of this amendatory Act of the 97th General Assembly. A member's participation in the reformed benefit package under this Article shall terminate on the date that participation in the self-managed plan begins.

A member who has elected to participate in the self-managed plan under this Section must continue participation while he or she remains a participant under this Article, and may not participate in the reformed benefit package.

Participation in the self-managed plan under this Section shall constitute participation in the Illinois Municipal Retirement Fund.

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 has rights and credits in the Fund due to previous participation in the reformed benefit package, the Fund shall establish for the participant an opening account balance in the self-managed plan, equal to (1) the amount of the separation benefit that the participant would be eligible to receive if the participant terminated employment on that date and elected a separation benefit and (2) an amount, representing employer contributions, equal to the amount of employee contributions, plus interest. The interest used in this subsection (f) shall be calculated using the actual annual rates of return that the Fund has earned during the time period corresponding to the actual investment of the contributions being transferred. The Fund shall transfer assets from the reformed benefit package 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 reformed benefit package under this Article for any period during which the employee was a participant in the self-managed plan established under this Section.

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

The contribution rate for participants in the self-managed plan under this Section shall be equal to the member contribution rate for other participants in the Fund, as provided in Section 7-173. 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 participant in the Fund's reformed benefit package before his or her election to participate in the self-managed plan shall continue to have the employer pick up the contributions required under Section 7-173. 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 Fund, to the extent permitted under rules adopted by the Fund.

The program shall provide for employer contributions to be credited to each self-managed plan participant in an amount equal to the employee contributions, notwithstanding Section 7-172.

Each employer shall make contributions by appropriations to the Fund for participants in the self-managed plan under this Section. The amount required shall be certified by the Board of Trustees of the Fund and paid by the employer in accordance with Section 7-172. The Fund 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 employer

(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 participating member while employed under this Article, if the member has completed at least 1.5 years of service; or (3) the member'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 Fund; if he or she subsequently becomes a participant under this Article again, he or she shall be considered a new participant. If a former participant again becomes a participant (or becomes employed by a participating system under Article 20 of this Code) and continues as such for at least 2 years, all rights, service credits, and previous status as a participant shall be restored upon repayment of the amount of the distribution, with interest at the actuarially assumed rate from the date of distribution until the date of payment.

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

If a participant in the self-managed plan 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 that are forfeited shall be held in escrow by the company investing those contributions and shall be used, as directed by the Fund, for future allocations of employer contributions or for the restoration of amounts previously forfeited by former participants who again become participating members.

Section 90. The State Mandates Act is amended by adding Section 8.35 as follows:

(30 ILCS 805/8.35 new)

Sec. 8.35. Exempt mandate. Notwithstanding Sections 6 and 8 of this Act, no reimbursement by the State is required for the implementation of any mandate created by this amendatory Act of the 97th General Assembly.

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