Legislation

Legislation

Please note: SURS does not endorse specific pension reform legislation. Our goal is to update and educate SURS members concerning legislation that may affect their retirement benefits.

House

HB 2760
- Self-Managed Plan Transfers to In-Plan Roth Accounts
Sponsor(s): Representative Joe Sosnowski

HB 2760 amends the State Universities Retirement System article of the Illinois Pension Code.

HB 2760 requires all employees under the Self-Managed Plan to be provided options to establish, contribute to, and transfer any guaranteed or vested portion of their accounts, on any day, into qualified in-plan Roth accounts, without distribution.

HB 2760 takes effect immediately upon becoming law.

Status:

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HB 2902
- Pension Buyout Act + SURS Tier III
Sponsor(s): Representative Mike Fortner

HB 2902 creates the Pension Buyout Act and amends the State Universities Retirement System and Teachers Retirement System articles of the Illinois Pension Code.

Pension Buyout Option

HB 2902 authorizes the Illinois Department of Central Management Services to enter into contracts with approved vendors to provide lump-sum payments to eligible retirees pursuant to a pension buyout option.  A pension buyout option is a plan that authorizes an eligible retiree to relinquish all service credit, rights and benefits under SURS in exchange for a lump-sum payment equal to the present value of his or her retirement annuity.  An eligible retiree may elect to receive a pension buyout payment at any time after he or she has elected to retire and has terminated service.  An eligible retiree who receives a pension buyout payment will still receive any applicable retiree health insurance benefits.

An eligible retiree is a person who has elected to receive a retirement annuity, is eligible to receive a retirement annuity, has terminated service, is not subject to a QILDRO under SURS, is not a participant in the Self-Managed Plan or the Tier III plan, and has received a minimum amount of certified financial planning services, at no cost to the eligible retiree.

Tier III Plan

HB 2902 requires SURS to prepare and implement a Tier III defined contribution plan by July 1, 2018.  Active Tier I and Tier II members may voluntarily, irrevocably elect to stop accruing benefits in the defined benefit plan and start accruing benefits for future service in the Tier III plan.  A participant in the Tier III plan pays employee contributions 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 Board. An employer is not required to make employer contributions to the Tier III plan, but if the employer elects to contribute, then the rate of the employer contributions must be equal to the rate of the individual employee’s contributions.  The Tier III plan will require five years of participation to vest in the employer contributions.  Failure to vest will result in the forfeiture of the employer contributions and the earnings thereon.  The Tier III plan must provide a variety of options for investments and a variety of options for payouts to participants who are no longer active in SURS and their survivors.  Tier III participants will still receive any applicable retiree health insurance benefits.

HB 2902 allows a Tier I or Tier II member who elects to participate in the Tier III plan to irrevocably elect to terminate all participation in the defined benefit plan.  Upon that election, SURS must transfer an amount equal to the contribution refund, including regular interest for the respective years, into the member’s individual account.  

HB 2902 takes effect immediately upon becoming law.

Status:

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HB 2903
- Pension Buyout Act + SURS Tier III
Sponsor(s): Representative Mike Fortner

HB 2903 creates the Pension Buyout Act and amends the State Universities Retirement System and Teachers Retirement System articles of the Illinois Pension Code.

Pension Buyout Option

HB 2903 authorizes the Illinois Department of Central Management Services to enter into contracts with approved vendors to provide lump-sum payments to eligible persons pursuant to a pension buyout option.  A pension buyout option is a plan that authorizes an eligible person to relinquish all service credit, rights and benefits under SURS in exchange for a lump-sum payment equal to the present value of his or her retirement annuity.  An eligible person may elect to receive a pension buyout payment at any time after he or she has terminated service.  An eligible person who receives a pension buyout payment will still receive any applicable retiree health insurance benefits.

An eligible person is a person who has accrued the service credit necessary to receive a retirement annuity; has not received a retirement annuity; has terminated service; is not subject to a QILDRO under SURS; is not a participant in the Self-Managed Plan or the Tier III Plan; and has received a minimum amount of certified financial planning services provided by the approved vendor, at no cost to the eligible person.

Tier III Plan

HB 2903 requires SURS to prepare and implement a Tier III defined contribution plan by July 1, 2018.  Active Tier I and Tier II members may voluntarily, irrevocably elect to stop accruing benefits in the defined benefit plan and start accruing benefits for future service in the Tier III plan.  A participant in the Tier III plan pays employee contributions 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 Board.  An employer is not required to make employer contributions to the Tier III plan, but if the employer elects to contribute, then the rate of the employer contributions must be equal to the rate of the individual employee’s contributions.  The Tier III plan will require five years of participation to vest in the employer contributions.  Failure to vest will result in the forfeiture of the employer contributions and the earnings thereon.  The Tier III plan must provide a variety of options for investments and a variety of options for payouts to participants who are no longer active in SURS and their survivors.  Tier III participants will still receive any applicable retiree health insurance benefits.

HB 2903 allows a Tier I or Tier II member who elects to participate in the Tier III plan to irrevocably elect to terminate all participation in the defined benefit plan.  Upon that election, SURS must transfer an amount equal to the contribution refund, including regular interest for the respective years, into the member’s individual account.  

As it relates to SURS, HB 2903 is identical to House Bill 2902 with the following difference: HB 2903 allows eligible persons (instead of eligible retirees) to elect the pension buyout option.

HB 2903 takes effect immediately upon becoming law.

Status:

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HB 3061
- No Investments in Companies that Build a Border Wall
Sponsor(s): Representative Will Guzzardi

HB 3061 amends the General Provisions article of the Illinois Pension Code.

HB 3061 prohibits the state-funded retirement systems from investing in companies that contract to build a border wall. “Contracting to build a border wall” is defined as entering into a contract with the federal government for construction pursuant to Section 4 of Executive Order 13767 of the president of the United States. By July 1, 2017, the Illinois Investment Policy Board must make its best efforts to identify all companies that contract to build a border wall and include those companies in the list of restricted companies distributed to each retirement system for this purpose.

HB 3061 is similar to Senate Bill 2091 of the 100th General Assembly, as introduced.

HB 3061 takes effect immediately upon becoming law.

Status:

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HB 3069
- Alternative Retirement Plan - Local Control of Benefits
Sponsor(s): Representative Thomas Morrison

HB 3069 amends the Downstate Policemen’s Pension Fund, Downstate Firefighters’ Pension Fund, Chicago Policemen’s Pension Fund, Chicago Firefighters’ Pension Fund, Illinois Municipal Retirement Fund, Chicago Municipal Pension Fund, Cook County Pension Fund, Cook County Forest Preserve District Pension Fund, Chicago Laborers’ Pension Fund, Chicago Park District Pension Fund, Metropolitan Water Reclamation District Pension Fund, State Universities Retirement System, Teachers Retirement System, and Chicago Teachers Retirement System articles of the Illinois Pension Code.

HB 3069 authorizes the board of trustees of a community college district that is an employer covered under SURS to provide an alternative retirement plan, either in addition to or in lieu of the existing retirement plans under SURS, for its eligible new employees. The alternative retirement plan applies only to persons who have not participated in the existing plans under SURS. Participants in an alternative retirement plan are deemed to be participants in SURS.

The alternative retirement plan may include a defined benefit component, defined contribution component, or both, and may include disability or survivor benefits and any other benefits that are permitted under federal law. The alternative retirement plan is not required to provide any minimum level of benefits and does not need to provide any benefits at all, other than mandatory Social Security coverage if applicable. Service credit under the alternative retirement plan cannot be transferred to any other pension fund or retirement system and cannot be used under the Retirement Systems Reciprocal Act. The alternative retirement plan does not need to comply with any mandatory provisions of the existing retirement plans.

Providing an alternative retirement plan does not release the community college district from the obligation of continuing to participate in SURS with regard to participants in the existing retirement plans. The alternative retirement plan provided by the community college district must be funded with contributions from that community college district and its employees who participate in the alternate retirement plan. In no event may the community college district in any way diminish or impair the rights or benefits of participants in the existing retirement plan.

HB 3069 is identical to House Bill 669 of the 100th General Assembly, as introduced.

HB 3069 takes effect in accordance with the Effective Date of Laws Act.

Status:

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HB 3175
- Employers Pay Present Value of Salary Increases above CPI-U
Sponsor(s): Representative Nick Sauer

HB 3175 amends the State Universities Retirement System and Teachers Retirement System Articles of the Illinois Pension Code.

HB 3175 provides that, for academic years beginning on or after July 1, 2017, if a participant’s earnings exceed the amount of his or her earnings with the same employer for the previous academic year by more than the increase in CPI-U for any year during the final rate of earnings period, then the employer must pay the present value of the resulting increase in benefits to SURS. Earnings increases under contracts or collective bargaining agreements entered into, amended, or renewed before the effective date of the legislation are exempt from this requirement.

Under current law, if a participant’s earnings exceed the amount of his or her earnings with the same employer for the previous academic year by more than 6 percent for any year during the final rate of earnings period, then the participant’s employer must pay the present value of the resulting increase in benefits to SURS.

HB 3175 is identical to House Bill 671 of the 100th General Assembly, as introduced.

HB 3175 takes effect immediately upon becoming law.

Status:

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HB 3258
- Retiree Health Insurance Benefits Without Annuity
Sponsor(s): Representative Sara Wojcicki Jimenez

HB 3258 amends the State Employees Group Insurance Act of 1971 to allow members of the Portable Defined Benefit Plan and the Self-Managed Plan who take lump-sum distributions of their retirement benefits to receive retiree health insurance benefits. Under current law, members of the Portable Defined Benefit Plan and the Self-Managed Plan must annuitize their retirement benefits to receive retiree health insurance benefits.

HB 3258 takes effect immediately upon becoming law.

Status:

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HB 3419
- No Investments in Expatriate Corporations
Sponsor(s): Representative Jaime M. Andrade, Jr.

House Amendment #1 to HB 3419 amends the General Provisions article of the Illinois Pension Code to authorize the state-funded retirement systems to use shareholder activism prior to divestment to impact the behavior of expatriated entities.  

An expatriated entity is defined as “a foreign incorporated entity which is treated as an inverted domestic corporation under subsection (b) of Section 835 of the Homeland Security Act of 2002, 6 U.S.C. 395(b), or any subsidiary of such an entity.”

By April 1, 2018, the Illinois Investment Policy Board must make its best efforts to identify all expatriated entities and include those companies in the list of restricted companies distributed to each retirement system and the state treasurer.

To the extent the retirement system believes that shareholder activism would be more impactful than divestment, the retirement system has the authority to engage with an expatriated entity prior to divesting from it.  Methods of shareholder activism utilized by the retirement system may include, but are not limited to, bringing shareholder resolutions and proxy voting on shareholder resolutions.  The retirement system must report on its shareholder activism and the outcome of such efforts to the Illinois Investment Policy Board by April 1 of each year.  However, if the engagement efforts of the retirement system are unsuccessful, then it must adhere to the normal procedures for divestment.

If a company ceases activity that designates it as an expatriated entity, then it is removed from the list of restricted companies (and is not subject to shareholder activism or divestment), unless it resumes such activities.

As introduced, HB 3419 amends the General Provisions article of the Illinois Pension Code to prohibit the state-funded retirement systems from investing in expatriate corporations.  

An expatriate corporation is defined as a foreign incorporated entity to which all of the following apply: (1) it is publicly traded in the United States; (2) it is incorporated in a foreign tax haven; (3) less than 10 percent of the gross income of the foreign entity is derived from activities in the tax haven; (4) less than 10 percent of the employees of the foreign entity are permanently located in the tax haven; and (5) either of the following applies:

  • The foreign entity was established in connection with a transaction or series of related transactions pursuant to which: (i) the foreign entity directly or indirectly acquired substantially all of the properties held by a domestic corporation or all of the properties constituting a trade or business of a domestic partnership or related foreign partnership; and (ii) immediately after the acquisition, more than 50 percent of the publicly traded stock, by vote or value, of the foreign entity is held by former shareholders of the domestic corporation or by former partners of the domestic partnership or related foreign partnership.  For purposes of item (ii), any stock sold in a public offering related to the transaction or a series of transactions is disregarded.
  • The foreign entity was established in connection with a transaction or series of related transactions pursuant to which (i) the foreign entity directly or indirectly acquired substantially all of the properties held by a domestic corporation or all of the properties constituting a trade or business of a domestic partnership or related foreign partnership and (ii) the acquiring foreign entity is more than 50 percent owned, by vote or value, by domestic shareholders or partners.

By April 1, 2018, the Illinois Investment Policy Board must make its best efforts to identify all expatriate corporations and include those companies in the list of restricted companies distributed to each retirement system for this purpose.  If a company ceases activity that designates it as an expatriate corporation, then it must be removed from the list of restricted companies, and is subject to investment by the state-funded retirement systems, unless it resumes such activities.

As introduced, HB 3419 is identical to Senate Bill 1798 of the 100th General Assembly.

HB 3419 takes effect in accordance with the Effective Date of Laws Act.

Status:

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HB 3475
- 30-Year Rolling Discount Rate
Sponsor(s): Representative Peter Breen

HB 3475 amends the General Assembly Retirement System, State Employees Retirement System, State Universities Retirement System, Teachers Retirement System and Judges Retirement System articles of the Illinois Pension Code.

HB 3745 requires the discount rate to be the actual 30-year rolling rate of return experienced by the System, beginning in fiscal year 2019.

HB 3475 takes effect immediately upon becoming law.

Status:

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HB 3867
- Supplemental Defined Contribution Plan
Sponsor(s): Representative Thomas Morrison

HB 3867 amends the General Assembly Retirement System, State Employees Retirement System, State Universities Retirement System, Teachers Retirement System and Judges Retirement System articles of the Illinois Pension Code.

HB 3867 requires the SURS Board of Trustees to establish and maintain a defined contribution plan to address the retirement preparedness gap for participants in a defined benefit plan who are not on track to maintain their standard of living in retirement. The plan must be established within one year of the effective date of the legislation and must exist and serve in addition to other retirement, pension and benefit plans established under the Illinois Pension Code. All assets and income of the plan must be held in trust for the exclusive benefit of participants and their beneficiaries.

Each person who first became a participant of SURS before Jan. 1, 2011 (Tier I participants) and each person who first became a participant of SURS on or after Jan. 1, 2011 (Tier II participants) but prior to the creation of the supplemental defined contribution plan may voluntarily elect to enroll in the plan. Each person who becomes a Tier II participant after the creation of the supplemental defined contribution plan will be automatically enrolled in the plan at a contribution rate established by the board, unless he or she opts out within 60 days after becoming a participant.

The supplemental defined contribution plan must be designed to enable participants to generate a stream of income to replace their pre-retirement income in retirement and must provide a variety of options for distributions to participants and their beneficiaries.

HB 3867 is identical to Senate Bill 1801 of the 100th General Assembly, as introduced.

HB 3867 takes effect immediately upon becoming law.

Status:

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HB 4027
- Pension Reform
Sponsor(s): Representative Jim Durkin

HB 4027 amends the General Provisions, General Assembly Retirement System, State Employees Retirement System, State Universities Retirement System, Teachers Retirement System, Chicago Teachers Pension Fund, and Judges Retirement System articles of the Illinois Pension Code.   

Tier III Hybrid Plan

HB 4027 creates a Tier III hybrid plan for individuals who first become participants of SURS on or after 6 months after the effective date of the legislation (and who are not participants in the Self-Managed Plan).   Individuals who first become participants of SURS on or after 6 months after the effective date of the legislation (and who are not participants in the Self-Managed Plan) can irrevocably elect to participate in Tier II within 30 days after becoming a participant.

For the defined benefit portion of the Tier III hybrid plan:

  • Final average salary (“FAS”) equals the average monthly (or annual) salary during the period of service in which earnings were the highest during the last 120 months (or 10 years) of service.
  • Pensionable earnings are capped at the federal Social Security Wage Base.
  • Age and service credits for retirement are the normal Social Security retirement age applicable to that member, but no earlier than age 67, with 10 years of service credit.
  • Retirement annuities are calculated using the following formula: 1.25 percent x each year of service credit x FAS.
  • Automatic annual increases are applied beginning 1 year after retirement, calculated at ½ of the percentage increase in the CPI-W.
  • Survivor benefits are equal to 66 2/3 percent of the member’s retirement annuity on the date of death, or 66 2/3 percent of the member’s earned annuity without an age reduction if the member was not retired on the date of death.
  • Employee contributions are equal to the lower of 6.2 percent of salary or the normal cost of benefits under the defined benefit portion of the plan.

For the defined contribution portion of the Tier III hybrid plan:

  • Employee contributions are equal to a minimum of 4 percent of salary.
  • Employer contributions for employees with at least 1 year of service with the same employer are equal to a rate set for individual employees, but no higher than 6 percent of salary and no lower than 2 percent of salary.
  • The participant vests in employer contributions when they are paid into his or her account.
  • The plan must provide a variety of investment options (including investments handled by the Illinois State Board of Investment) and a variety of options for payouts to retirees and their survivors.

Future benefits under the Tier III hybrid plan can be modified.  Benefit increases under the Tier III hybrid plan cannot take effect unless they are approved by a resolution or ordinance of the governing body of the unit of local government responsible for those employees.  

The actual employer (university or community college) must contribute an amount equal to the normal cost of the defined benefit portion of the Tier III hybrid plan, minus the employee contributions, plus 2 percent.  SURS must annually certify the amount of unfunded liability accrued in each employer’s account to be paid by the employer so that SURS becomes 90 percent funded by fiscal year 2045.  The actual employer must also contribute an amount equal to the employer portion of the defined contribution portion of the Tier III hybrid plan, as set on an individual employee basis.

Beginning November 1, 2019, SURS must annually determine the amount of the State contribution that would have been required for the next fiscal year if the Tier III hybrid plan had not taken effect, based on the law in effect on May 31, 2019.  Beginning in fiscal year 2021, the an amount equal to the annual savings of the Tier III hybrid plan must be transferred from the General Revenue Fund to the Pension Stabilization Fund for distribution to the State-funded retirement systems until the earlier of fiscal year 2045 or until each system becomes 100 percent funded.

Tier I Offer and Consideration Pension Reform

HB 4027 requires each Tier I employee (i.e., each employee who first became a participant of SURS before Jan. 1, 2011, and who is not in the Self-Managed Plan) to elect one of two options:

  1. To accept a reduced and delayed automatic annual increase in retirement (the lesser of 3 percent or ½ of the increase in CPI-U, non-compounded, beginning the January on or after the earlier of age 67 or five years after retirement); or
  2. To keep the current Tier I automatic annual increase in retirement (3 percent compounded, beginning the January after retirement).

Each Tier I employee who elects to accept the reduced and delayed automatic annual increase in retirement will: receive a payment equal to 10 percent of his or her employee contributions made before the effective date of the election (which will not count towards his or her pension); pay reduced employee contributions moving forward (7.2 percent for regular employees and 8.55 percent for public safety employees); and have his or her future earnings increases count towards his or her pension.

Each Tier I employee who elects to keep the current Tier I automatic annual increase in retirement will not have his or her future earnings increases count towards his or her pension.

Generally, the election for Tier I employees will occur between Jan. 1, 2018 and March 31, 2018, and will become effective on July 1, 2018.  A Tier I employee who fails to make an election within the required time period is deemed to have chosen to keep the current Tier I automatic annual increase in retirement.

Retirees, Tier II employees (i.e., employees who first became participants of SURS on or after Jan. 1, 2011), and employees in the Self-Managed Plan are not required to make an election.

Accelerated Pension Benefit Payment Option

HB 4027 creates an accelerated pension benefit payment option for the first 10 percent of eligible SURS members each year.  An eligible SURS member is a person who has terminated service; has accrued the necessary service credit for retirement; has not received a retirement annuity from SURS; does not have a QILDRO in effect against him or her under SURS; and is not a participant in the Self-Managed Plan.  By January 1, 2018, and annually thereafter, SURS must calculate the net present value of pension benefits for each eligible person.  SURS must offer each eligible person the opportunity to irrevocably elect to receive an accelerated pension benefit payment equal to 70 percent of the net present value of his or her pension benefits in lieu of receiving any pension benefit from SURS.   The accelerated pension benefit payment must be rolled into another retirement plan or account qualified under the Internal Revenue Code of 1986, as amended.  Upon receipt of an accelerated pension benefit payment, credits and creditable service under SURS are terminated.  If the member subsequently returns to active service under SURS, then any subsequent pension benefits are based on the credits and creditable service accrued after the return to active service.  The accelerated pension benefit payment cannot be repaid to SURS and previously terminated credits and creditable service cannot be reinstated under SURS.  A SURS member who receives an accelerated pension benefit payment will still receive any applicable retiree health insurance benefits.

Voluntary Defined Contribution Plan

HB 4027 requires SURS to provide a voluntary defined contribution plan for up to 5 percent of Tier I employees by July 1, 2018.  Under the defined contribution plan, a Tier 1 employee could elect to stop accruing benefits in the defined benefit plan and start accruing benefits for future service in the defined contribution plan.  Participants in the defined contribution plan pay employee contributions at the same rate as other participants in SURS.  State contributions to the defined contribution plan are made at a uniform rate, no higher than the employer’s normal cost for Tier 1 employees in the defined benefit plan for that year and no lower than 3 percent of earnings. The rate of state contributions to the defined contribution plan is adjusted annually.  The defined contribution plan requires five years of service in order for the participant to vest in state contributions.  Failure to vest in state contributions results in the forfeiture of state contributions and any earnings on the state contributions. The defined contribution plan must provide a variety of options for investments and a variety of options for payouts to retirees and their survivors.  

State Funding Changes

HB 4027 makes three changes to the funding formula for SURS:  First, it requires the state contribution for fiscal year 2018 through fiscal year 2045 to be based on total payroll (which includes payroll that is not pensionable), but excluding payroll attributable to participants in the voluntary defined contribution plan.  Second, beginning in fiscal year 2018, it requires any increases or decreases attributable to changes in the System’s actuarial and investment assumptions to be phased-in over a five-year period.  Third, it requires the fiscal year 2018 and fiscal year 2019 state contributions to be recertified based on changes made by the legislation.

Employer Funding Changes

HB 4027 provides that, for academic years beginning on or after July 1, 2018, if a participant’s earnings exceed the amount of his or her earnings with the same employer for the previous academic year by more than the increase in CPI-U for any year during the final rate of earnings period, then the employer must pay the present value of the resulting increase in benefits to SURS.  Earnings increases under contracts or collective bargaining agreements entered into, amended or renewed before the effective date of the legislation are excluded from this provision.  (Current law provides that if a participant’s earnings exceed the amount of his or her earnings with the same employer for the previous academic year by more than 6 percent during the final rate of earnings period, then the employer must pay the present value of the resulting increase in benefits to SURS.)

Additionally, for academic years beginning on or after July 1, 2018, if a participant’s earnings exceed $140,000, then the employer must pay a contribution to SURS for the portion of earnings in excess of that amount.  The employer contribution equals the amount of earnings in excess of $140,000 multiplied by the level percentage of payroll needed for SURS to become 90 percent funded by fiscal year 2045.

Effective Date

HB 4027 takes effect immediately upon becoming law.

HB 4027 is identical to House Bill 4045 of the 100th General  Assembly.

Status:

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HB 4045
- Pension Reform
Sponsor(s): Representative Barbara Flynn Currie

HB 4045 amends the General Provisions, General Assembly Retirement System, State Employees Retirement System, State Universities Retirement System, Teachers Retirement System, Chicago Teachers Pension Fund and Judges Retirement System articles of the Illinois Pension Code.   

Tier III Hybrid Plan

HB 4045 creates a Tier III hybrid plan for individuals who first become participants of SURS on or after six months after the effective date of the legislation (and who are not participants in the Self-Managed Plan).   Individuals who first become participants of SURS on or after six months after the effective date of the legislation (and who are not participants in the Self-Managed Plan) can irrevocably elect to participate in Tier II within 30 days after becoming a participant.

For the defined benefit portion of the Tier III hybrid plan:

  • Final average salary (“FAS”) equals the average monthly (or annual) salary during the period of service in which earnings were the highest during the last 120 months (or 10 years) of service.
  • Pensionable earnings are capped at the federal Social Security Wage Base.
  • Age and service credits for retirement are the normal Social Security retirement age applicable to that member, but no earlier than age 67, with 10 years of service credit.
  • Retirement annuities are calculated using the following formula: 1.25 percent x each year of service credit x FAS.
  • Automatic annual increases are applied beginning one year after retirement, calculated at ½ of the percentage increase in the CPI-W.
  • Survivor benefits are equal to 66 2/3 percent of the member’s retirement annuity on the date of death, or 66 2/3 percent of the member’s earned annuity without an age reduction if the member was not retired on the date of death.
  • Employee contributions are equal to the lower of 6.2 percent of salary or the normal cost of benefits under the defined benefit portion of the plan.

For the defined contribution portion of the Tier III hybrid plan:

  • Employee contributions are equal to a minimum of 4 percent of salary.
  • Employer contributions for employees with at least one year of service with the same employer are equal to a rate set for individual employees, but no higher than 6 percent of salary and no lower than 2 percent of salary.
  • The participant vests in employer contributions when they are paid into his or her account.
  • The plan must provide a variety of investment options (including investments handled by the Illinois State Board of Investment) and a variety of options for payouts to retirees and their survivors.

Future benefits under the Tier III hybrid plan can be modified.  Benefit increases under the Tier III hybrid plan cannot take effect unless they are approved by a resolution or ordinance of the governing body of the unit of local government responsible for those employees.  

The actual employer (university or community college) must contribute an amount equal to the normal cost of the defined benefit portion of the Tier III hybrid plan, minus the employee contributions, plus 2 percent.  SURS must annually certify the amount of unfunded liability accrued in each employer’s account to be paid by the employer so that SURS becomes 90 percent funded by fiscal year 2045.  The actual employer must also contribute an amount equal to the employer portion of the defined contribution portion of the Tier III hybrid plan, as set on an individual employee basis.

Beginning November 1, 2019, SURS must annually determine the amount of the state contribution that would have been required for the next fiscal year if the Tier III hybrid plan had not taken effect, based on the law in effect on May 31, 2019.  Beginning in fiscal year 2021, the an amount equal to the annual savings of the Tier III hybrid plan must be transferred from the General Revenue Fund to the Pension Stabilization Fund for distribution to the state-funded retirement systems until the earlier of fiscal year 2045 or until each system becomes 100 percent funded.

Tier I Offer and Consideration Pension Reform

HB 4045 requires each Tier I employee (i.e., each employee who first became a participant of SURS before Jan. 1, 2011, and who is not in the Self-Managed Plan) to elect one of two options:

(1) To accept a reduced and delayed automatic annual increase in retirement (the lesser of 3 percent or ½ of the increase in CPI-U, non-compounded, beginning the January on or after the earlier of age 67 or five years after retirement); or

(2) To keep the current Tier I automatic annual increase in retirement (3 percent compounded, beginning the January after retirement).

Each Tier I employee who elects to accept the reduced and delayed automatic annual increase in retirement will: receive a payment equal to 10 percent of his or her employee contributions made before the effective date of the election (which will not count towards his or her pension); pay reduced employee contributions moving forward (7.2 percent for regular employees and 8.55 percent for public safety employees); and have his or her future earnings increases count towards his or her pension.

Each Tier I employee who elects to keep the current Tier I automatic annual increase in retirement will not have his or her future earnings increases count towards his or her pension.

Generally, the election for Tier I employees will occur between Jan. 1, 2018 and March 31, 2018, and will become effective on July 1, 2018.  A Tier I employee who fails to make an election within the required time period is deemed to have chosen to keep the current Tier I automatic annual increase in retirement.

Retirees, Tier II employees (i.e., employees who first became participants of SURS on or after Jan. 1, 2011) and employees in the Self-Managed Plan are not required to make an election.

Accelerated Pension Benefit Payment Option

HB 4045 creates an accelerated pension benefit payment option for the first 10 percent of eligible SURS members each year.  An eligible SURS member is a person who has terminated service; has accrued the necessary service credit for retirement; has not received a retirement annuity from SURS; does not have a QILDRO in effect against him or her under SURS; and is not a participant in the Self-Managed Plan.  By January 1, 2018, and annually thereafter, SURS must calculate the net present value of pension benefits for each eligible person.  SURS must offer each eligible person the opportunity to irrevocably elect to receive an accelerated pension benefit payment equal to 70 percent of the net present value of his or her pension benefits in lieu of receiving any pension benefit from SURS.   The accelerated pension benefit payment must be rolled into another retirement plan or account qualified under the Internal Revenue Code of 1986, as amended.  Upon receipt of an accelerated pension benefit payment, credits and creditable service under SURS are terminated.  If the member subsequently returns to active service under SURS, then any subsequent pension benefits are based on the credits and creditable service accrued after the return to active service.  The accelerated pension benefit payment cannot be repaid to SURS and previously terminated credits and creditable service cannot be reinstated under SURS.  A SURS member who receives an accelerated pension benefit payment will still receive any applicable retiree health insurance benefits.

Voluntary Defined Contribution Plan

HB 4045 requires SURS to provide a voluntary defined contribution plan for up to 5 percent of Tier I employees by July 1, 2018.  Under the defined contribution plan, a Tier 1 employee could elect to stop accruing benefits in the defined benefit plan and start accruing benefits for future service in the defined contribution plan.  Participants in the defined contribution plan pay employee contributions at the same rate as other participants in SURS.  State contributions to the defined contribution plan are made at a uniform rate, no higher than the employer’s normal cost for Tier 1 employees in the defined benefit plan for that year and no lower than 3 percent of earnings. The rate of state contributions to the defined contribution plan is adjusted annually.  The defined contribution plan requires five years of service in order for the participant to vest in state contributions.  Failure to vest in state contributions results in the forfeiture of state contributions and any earnings on the state contributions. The defined contribution plan must provide a variety of options for investments and a variety of options for payouts to retirees and their survivors.  

State Funding Changes

HB 4045 makes three changes to the funding formula for SURS:  First, it requires the state contribution for fiscal year 2018 through fiscal year 2045 to be based on total payroll (which includes payroll that is not pensionable), but excluding payroll attributable to participants in the voluntary defined contribution plan.  Second, beginning in fiscal year 2018, it requires any increases or decreases attributable to changes in the System’s actuarial and investment assumptions to be phased in over a five-year period.  Third, it requires the fiscal year 2018 and fiscal year 2019 state contributions to be recertified based on changes made by the legislation.

Employer Funding Changes

HB 4045 provides that, for academic years beginning on or after July 1, 2018, if a participant’s earnings exceed the amount of his or her earnings with the same employer for the previous academic year by more than the increase in CPI-U for any year during the final rate of earnings period, then the employer must pay the present value of the resulting increase in benefits to SURS.  Earnings increases under contracts or collective bargaining agreements entered into, amended or renewed before the effective date of the legislation are excluded from this provision.  (Current law provides that if a participant’s earnings exceed the amount of his or her earnings with the same employer for the previous academic year by more than 6 percent during the final rate of earnings period, then the employer must pay the present value of the resulting increase in benefits to SURS.)

Additionally, for academic years beginning on or after July 1, 2018, if a participant’s earnings exceed $140,000, then the employer must pay a contribution to SURS for the portion of earnings in excess of that amount.  The employer contribution equals the amount of earnings in excess of $140,000 multiplied by the level percentage of payroll needed for SURS to become 90 percent funded by fiscal year 2045.

Effective Date

HB 4045 takes effect immediately upon becoming law.

HB 4045 is identical to House Bill 4027 of the 100th General Assembly.

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HB 4055
- Pension Reform
Sponsor(s): Representative Mark Batinick

HB 4055 amends the General Provisions, General Assembly Retirement System, State Employees Retirement System, State Universities Retirement System, Teachers Retirement System, Chicago Teachers Pension Fund and Judges Retirement System articles of the Illinois Pension Code.   

Tier III Hybrid Plan

HB 4055 creates a Tier III hybrid plan for individuals who first become participants of SURS on or after six months after the effective date of the legislation (and who are not participants in the Self-Managed Plan).   Individuals who first become participants of SURS on or after six months after the effective date of the legislation (and who are not participants in the Self-Managed Plan) can irrevocably elect to participate in Tier II within 30 days after becoming a participant.

For the defined benefit portion of the Tier III hybrid plan:

  • Final average salary (FAS) equals the average monthly (or annual) salary during the period of service in which earnings were the highest during the last 120 months (or 10 years) of service.
  • Pensionable earnings are capped at the federal Social Security Wage Base. 
  • Age and service credits for retirement are the normal Social Security retirement age applicable to that member, but no earlier than age 67, with 10 years of service credit.
  • Retirement annuities are calculated using the following formula: 1.25 percent x each year of service credit x FAS.
  • Automatic annual increases are applied beginning one year after retirement, calculated at ½ of the percentage increase in the CPI-W.
  • Survivor benefits are equal to 66 2/3 percent of the member’s retirement annuity on the date of death, or 66 2/3 percent of the member’s earned annuity without an age reduction if the member was not retired on the date of death.
  • Employee contributions are equal to the lower of 6.2 percent of salary or the normal cost of benefits under the defined benefit portion of the plan.

For the defined contribution portion of the Tier III hybrid plan:

  • Employee contributions are equal to a minimum of 4 percent of salary.
  • Employer contributions for employees with at least one year of service with the same employer are equal to a rate set for individual employees, but no higher than 6 percent of salary and no lower than 2 percent of salary.
  • The participant vests in employer contributions when they are paid into his or her account.
  • The plan must provide a variety of investment options (including investments handled by the Illinois State Board of Investment) and a variety of options for payouts to retirees and their survivors.

Future benefits under the Tier III hybrid plan can be modified.  Benefit increases under the Tier III hybrid plan cannot take effect unless they are approved by a resolution or ordinance of the governing body of the unit of local government responsible for those employees.  

The actual employer (university or community college) must contribute an amount equal to the normal cost of the defined benefit portion of the Tier III hybrid plan, minus the employee contributions, plus 2 percent.  SURS must annually certify the amount of unfunded liability accrued in each employer’s account to be paid by the employer so that SURS becomes 90 percent funded by fiscal year 2045.  The actual employer must also contribute an amount equal to the employer portion of the defined contribution portion of the Tier III hybrid plan, as set on an individual employee basis.

Beginning November 1, 2019, SURS must annually determine the amount of the state contribution that would have been required for the next fiscal year if the Tier III hybrid plan had not taken effect, based on the law in effect on May 31, 2019.   Beginning in fiscal year 2021, the amount equal to the annual savings of the Tier III hybrid plan must be transferred from the General Revenue Fund to the Pension Stabilization Fund for distribution to the state-funded retirement systems until the earlier of fiscal year 2045 or until each system becomes 100 percent funded.

Accelerated Pension Benefit Payment Option

HB 4055 creates an accelerated pension benefit payment option.  Eligible SURS members may elect the accelerated pension benefit payment option between January 1, 2018, and July 1, 2018.  An eligible SURS member is a person who has terminated service; has accrued the necessary service credit for retirement; has not received a retirement annuity from SURS; does not have a QILDRO in effect against him or her under SURS; and is not a participant in the Self-Managed Plan.  By January 1, 2018, SURS must calculate the net present value of pension benefits for each eligible person.  SURS must offer each eligible person the opportunity to irrevocably elect to receive an accelerated pension benefit payment equal to 70 percent of the net present value of his or her pension benefits in lieu of receiving any pension benefit from SURS.   The accelerated pension benefit payment must be rolled into another retirement plan or account qualified under the Internal Revenue Code of 1986, as amended.  Upon receipt of an accelerated pension benefit payment, credits and creditable service under SURS are terminated.  If the member subsequently returns to active service under SURS, then any subsequent pension benefits are based on the credits and creditable service accrued after the return to active service.  The accelerated pension benefit payment cannot be repaid to SURS and previously terminated credits and creditable service cannot be reinstated under SURS.  A SURS member who receives an accelerated pension benefit payment will still receive any applicable retiree health insurance benefits. 

Voluntary Defined Contribution Plan

HB 4055 requires SURS to provide a voluntary defined contribution plan for up to 5 percent of Tier I employees by July 1, 2018.  Under the defined contribution plan, a Tier 1 employee could elect to stop accruing benefits in the defined benefit plan and start accruing benefits for future service in the defined contribution plan.  Participants in the defined contribution plan pay employee contributions at the same rate as other participants in SURS.  State contributions to the defined contribution plan are made at a uniform rate, no higher than the employer’s normal cost for Tier I employees in the defined benefit plan for that year and no lower than 3 percent of earnings. The rate of state contributions to the defined contribution plan is adjusted annually.  The defined contribution plan requires five years of service in order for the participant to vest in state contributions.  Failure to vest in state contributions results in the forfeiture of state contributions and any earnings on the state contributions. The defined contribution plan must provide a variety of options for investments and a variety of options for payouts to retirees and their survivors.  

State Funding Changes

HB 4055 makes three changes to the funding formula for SURS:  First, it requires the state contribution for fiscal year 2018 through fiscal year 2045 to be based on total payroll (which includes payroll that is not pensionable), but excluding payroll attributable to participants in the voluntary defined contribution plan.  Second, beginning in fiscal year 2018, it requires any increases or decreases in the state contribution attributable to changes in the System’s actuarial and investment assumptions to be phased in over a five-year period.  Third, it requires the fiscal year 2018 state contribution to be recertified based on changes made by the legislation.

Employer Funding Changes

HB 4055 provides that, beginning in fiscal year 2019, if a contract or collective bargaining agreement entered into, amended or renewed on or after the effective date of the legislation provides for earnings to exceed the salaries provided under the preceding contract or collective bargaining agreement, then the employer must pay the current value of the projected amount of the resulting increase in benefits, reflecting whether the participants are Tier I or Tier II members, to SURS.

Effective Date

HB 4055 takes effect immediately upon becoming law.

Status:

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Appropriations

HB 3868
- Unbalanced Budget Response Act
Sponsor(s): Representative Jim Durkin

HB 3868 creates the Unbalanced Budget Response Act.

HB 3868 authorizes the governor to designate a contingency reserve to balance the budget. The contingency reserve may be comprised of amounts appropriated from funds held by the state treasurer to any agency for fiscal year 2017 and fiscal year 2018, including amounts appropriated under a statutory continuing appropriation. However, the governor cannot designate amounts to be set aside as a contingency reserve from amounts appropriated for: (1) payment of debt service; (2) general state aid for schools; or (3) grants for early childhood education.

Additionally, HB 3868 authorizes the governor to delay payments under any statutory continuing appropriation, except for payments of debt service, for fiscal year 2017 and fiscal year 2018. Any payment so delayed may be paid out of the next fiscal year’s appropriation.

HB 3868 is identical to Senate Bill 2063 of the 100th General Assembly.

HB 3868 takes effect immediately upon becoming law.

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HB 3926
- Governor’s Introduced FY 2018 Budget
Sponsor(s): Representative Jim Durkin

HB 3926 appropriates $1,461,685,000 for the annual required state contribution to SURS for fiscal year 2018. Of this amount, $1,321,685,000 is appropriated from the General Revenue Fund, and $140,000,000 is appropriated from the state Pensions Fund. The certified fiscal year 2018 state contribution to SURS is $1,753,685,000.

HB 3926 also appropriates $0 from the Education Assistance Fund for the state contribution to the College Insurance Program (“CIP”) for fiscal year 2018. The certified fiscal year 2018 state contribution to CIP is $4,133,336.

Payment of both the certified annual required state contribution to SURS ($1,753,685,000) and the certified state contribution to CIP ($4,133,336) are required under the state Pension Funds Continuing Appropriation Act.

HB 3926 is identical to Senate Bill 2164 of the 100th General Assembly, as introduced.

HB 3926 takes effect July 1, 2017, if Senate Bill 2063 of the 100th General Assembly (the Unbalanced Budget Response Act), as introduced in the Illinois Senate, becomes law.

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