HB2765 104TH GENERAL ASSEMBLY

LRB104 11963 RPS 22056 b

104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
HB2765

Introduced 2/6/2025, by Rep. Jackie Haas

SYNOPSIS AS INTRODUCED:

40 ILCS 5/16-207 new
40 ILCS 5/Art. 25 heading new
40 ILCS 5/25-5 new
40 ILCS 5/25-10 new

Amends the Illinois Pension Code. Creates the Deferred Retirement Option Article. Provides a deferred retirement option plan (DROP) for certain participants under the Downstate Teacher Article who are eligible to retire and meet other criteria. Provides that a participant in the DROP may elect to participate for up to 5 years. Provides that on the effective date of the member's election, the System shall credit the member's account on a monthly basis, for as long as the member participates in the DROP, an amount equal to the monthly amount of retirement annuity the member would otherwise be eligible to receive had the member retired on the date of the election. Provides that the DROP member shall be considered in active service for purposes of participation in a collective bargaining agreement, for health care benefits, and for other purposes. Establishes a DROP administered by the State Treasurer for pension funds or retirement systems that are required to establish a DROP and elect to transfer administrative responsibility for the DROP to the State Treasurer. Sets forth provisions concerning interest on the account; termination of the DROP; contributions; administrative costs; and a DROP advisory board. 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 16-207 and Article 25 as follows:

(40 ILCS 5/16-207 new)

Sec. 16-207. Deferred retirement option plan. The System shall provide a deferred retirement option plan in accordance with Article 25.

(40 ILCS 5/Art. 25 heading new)

ARTICLE 25. DEFERRED RETIREMENT OPTION.

(40 ILCS 5/25-5 new)

Sec. 25-5. Deferred retirement option plan administered by a retirement system.

(a) As used in this Section:

"Board" means the board of trustees of the retirement system.

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

"Eligible member" means a participating employee of the retirement system who, at the time of electing to participate in the DROP:

(1) is otherwise eligible to retire under the applicable Article with an unreduced retirement annuity;

(2) has never received a retirement annuity from the retirement system;

(3) is an active participant in the retirement system; and

(4) is not subject to mandatory retirement under law and will not become subject to mandatory retirement under law during the period of time covered by the DROP.

"DROP member" means an eligible member who makes an election to participate in the DROP no later than January 1, 2030.

"Retirement system" means the retirement system established under Article 16.

(b) The DROP shall be made available to eligible members no later than July 1, 2028.

(c) Eligible members must make their election to participate in the DROP in writing with the retirement system in a form acceptable to the retirement system. The 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 by the retirement system.

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

(e) During the period of the DROP, the retirement system shall 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 had the DROP member retired on the date of the election under this Section, less 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 had the DROP member elected to retire instead of participating 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 retirement system during their participation in the DROP in an amount equal to the employee contributions that would otherwise be required if the DROP member were an active participant of the retirement system. Those amounts shall be credited to DROP account.

(g) The amounts credited to the DROP account shall be held in notional accounts by the retirement system and shall be credited interest annually on January 1. Interest shall be calculated at a rate equal to the 10-year Treasury rate in effect at that time and will be based on the amount in the notional account on December 31 of the preceding year.

(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 retirement system shall provide options for the transfer of the account consistent with its fiduciary duty and any applicable State or federal law. An expiration or termination of a DROP member's participation in the DROP may not occur after January 1, 2033.

(i) The DROP election is irrevocable and the DROP member may not access the account prior to termination or expiration of the DROP member's participation in the DROP. The DROP member must terminate employment with the employer upon expiration of their 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 retirement system; or

(3) upon the death of the DROP member.

Upon termination or expiration of the DROP period, the DROP member shall commence his or her retirement annuity from the retirement system.

(j) The DROP member shall be considered in active service for purposes of eligibility for death and disability benefits and any health care benefits provided for by the employer.

The DROP member shall not accrue additional service credit in the retirement system while participating in the DROP, whether service accruals, future pay increases, active cost of living adjustments or promotions. Additionally, the DROP member shall not be eligible to purchase service credit under the applicable Article. 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.

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

(l) The board of trustees of the retirement system may transfer the administrative responsibility for the DROP program to the State Treasurer under Section 25-10 after an affirmative vote of the board.

(40 ILCS 5/25-10 new)

Sec. 25-10. Deferred retirement option plan administered by the State Treasurer.

(a) This Section applies only if a pension fund or retirement system transfers administrative responsibility for a deferred retirement option plan to the State Treasurer. Upon the transfer of administrative responsibility for a deferred retirement option plan, the rules adopted by the pension fund or retirement system pertaining to the deferred retirement option plan shall apply to the deferred retirement option plan under this Section and to the State Treasurer, unless and until superseded by the rules of the State Treasurer, and all statutory provisions pertaining to the pension fund's or retirement system's administrative responsibility with regard to the deferred retirement option plan shall apply to the State Treasurer. The State Treasurer shall administer each deferred retirement option plan as a separate plan on behalf of each pension fund or retirement system that has transferred administrative responsibility to the State Treasurer.

(b) In this Section:

"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.

"Pension fund or retirement system" means a pension fund or retirement system established under this Code that has been required by law to establish a DROP and has elected to transfer administrative responsibility for the DROP to the State Treasurer to be administered in accordance with this Section.

(c) During the period of the DROP, the applicable pension fund or retirement system shall transfer, and the State Treasurer shall 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 had the DROP member retired on the date of the election under this Section. The pension fund or retirement system, prior to forwarding any funds to the State Treasurer 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 in Section 1-119. Any automatic annual increases that would have otherwise been applied to the DROP member's benefit had the DROP member elected to retire instead of participating 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.

(d) DROP members shall make contributions to 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 pension fund or retirement system. Those amounts shall be forwarded to the State Treasurer and credited to the DROP member's DROP account, less any administrative costs determined by the pension fund or retirement system to be attributable to the administration of the DROP benefits experienced by pension fund or retirement system.

(e) The State Treasurer shall be the administrator of the DROP created in this Section. The administration shall be subject to any applicable laws, and the State Treasurer shall administer the program in the best interest of the participating members in a way that a prudent person in a similar circumstance would. The executive director of each pension fund or retirement system, or the executive director's designee, shall participate in the DROP Advisory Board, that shall meet quarterly. The State Treasurer, or the State Treasurer's designee, shall chair the DROP Advisory Board. The State Treasurer may solicit advice and information from the members of the DROP Advisory Board or from the board as a whole while administering the DROP program. Except as otherwise provided by law, the State Treasurer shall be the sole decision maker governing the DROP.

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