HB 1625 amends multiple articles of the Illinois Pension Code to create a voluntary Tier III plan for Tier I and Tier II members under the General Assembly Retirement System, State Employees’ Retirement System, State Universities Retirement System, Teachers’ Retirement System, and Judges’ Retirement System.
HB 1625 requires SURS to prepare and implement a Tier III plan by July 1, 2020. The Tier III plan must be a plan that aggregates state and employee contributions in individual participant accounts that are used for payouts after retirement. Employee contributions to the Tier III plan must be at a rate determined by the participant, but not less than 3 percent of earnings and not more than a percentage of earnings determined by the SURS Board of Trustees. State contributions to the Tier III plan must be at a uniform rate, expressed as a percentage of earnings and adjusted by the state each year, no higher than 7.6 percent of earnings and no lower than 3 percent of earnings. The Tier III plan requires five years of participation before vesting in state contributions. If the participant fails to vest, then state contributions, and the earnings thereon, are forfeited. If the Tier III plan provides for participants to be eligible for defined disability benefits, then SURS must reduce employee contributions by an amount to cover the cost of offering those benefits. The Tier III plan must provide a variety of options for investments, which must include investments handled by SURS, as well as private sector investment options, and it must offer a variety of payout options to participants who are no longer active in SURS and their survivors. To the extent authorized under federal law and as authorized by SURS, the Tier III plan must allow former participants to transfer or roll over employee and vested state contributions, and the earnings thereon, from the Tier III plan into other qualified retirement plans. SURS must reduce employee contributions by an amount to cover the cost of offering benefits and any applicable administrative fees.
HB 1625 allows active Tier I and Tier II participants of SURS to elect to participate in the Tier III plan for future service. The election to stop accruing benefits in the defined benefit plan and begin accruing benefits in the Tier III plan for future service must be made in writing to SURS. An active Tier I or Tier II participant who makes this election is prohibited from purchasing service credit on or after the date of the election and cannot receive interest accruals to his or her money purchase benefit on or after the date of the election. The election to participate in the Tier III plan for future service is voluntary and irrevocable. Service credit under the Tier III plan may be used for determining retirement eligibility under the defined benefit plan.
HB 1625 also allows a Tier I or Tier II participant who elects to participate in the Tier III plan to irrevocably elect to terminate all participation in the defined benefit plan. Upon such election, SURS must transfer an amount to the member’s individual account equal to the amount of contribution refund that the member would be eligible to receive if he or she terminated employment on that date and elected a refund of contributions, including interest at the effective rate for the respective years. The transfer must be made as a tax-free transfer in accordance with Internal Revenue Service guidelines for purposes of funding the amount credited to the member’s individual account.
HB 1625 prohibits an individual from participating in the Tier III plan until it has attained qualified plan status and received all necessary approvals from the U.S. Internal Revenue Service. HB 1625 requires SURS to report on its progress in implementing the Tier III plan, including available details of the Tier III plan and its plans for informing eligible Tier I and Tier II participants about the Tier III plan, to the governor and the General Assembly by January 15, 2020.
Additionally, HB 1625 establishes that, beginning on the effective date of the legislation, a person is not required to participate in SURS. HB 1625 allows an active employee to terminate his or her participation in SURS (including active participation in the Tier III plan, if applicable) by notifying SURS in writing. An active employee who terminates participation in SURS will be entitled to a refund of his or her contributions (except for any contributions made to the Self-Managed Plan or the Tier III plan), minus any benefits received prior to termination of participation.
Finally, HB 1625 prohibits payments for unused vacation and sick leave from counting towards pensionable earnings for individuals who first begin participation in SURS on or after the effective date of the legislation. HB 1625 further prohibits unused sick leave from counting toward service credit for individuals who first begin participation in SURS on or after the effective date of the legislation.
HB 1625 takes effect immediately upon becoming law.
HB 1625 is identical to HB 2279 of the 101st General Assembly.