PEN CD-DEFERRED RETIRE OPTION

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HB2765 - 104th General Assembly

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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.
LRB104 11963 RPS 22056 b

A BILL FOR

HB2765
LRB104 11963 RPS 22056 b
1

AN ACT concerning public employee benefits.

2

Be it enacted by the People of the State of Illinois,
3
represented in the General Assembly:

4

Section 5.
The Illinois Pension Code is amended by adding
5
Section 16-207 and Article 25 as follows:

6

(40 ILCS 5/16-207 new)
7

Sec. 16-207.
Deferred retirement option plan.
The System
8
shall provide a deferred retirement option plan in accordance
9
with Article 25.

10

(40 ILCS 5/Art. 25 heading new)
11
ARTICLE 25.

DEFERRED RETIREMENT OPTION.

12

(40 ILCS 5/25-5 new)
13

Sec. 25-5.
Deferred retirement option plan administered by
14
a retirement system.

15

(a) As used in this Section:
16

"Board" means the board of trustees of the retirement
17
system.
18

"Deferred retirement option plan" or "DROP" means the plan
19
created under this Section that provides an alternative method
20
of benefit accrual in the retirement system.
21

"Eligible member" means a participating employee of the

HB2765
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LRB104 11963 RPS 22056 b
1
retirement system who, at the time of electing to participate
2
in the DROP:
3

(1) is otherwise eligible to retire under the
4

applicable Article with an unreduced retirement annuity;
5

(2) has never received a retirement annuity from the
6

retirement system;
7

(3) is an active participant in the retirement system;
8

and
9

(4) is not subject to mandatory retirement under law
10

and will not become subject to mandatory retirement under
11

law during the period of time covered by the DROP.
12

"DROP member" means an eligible member who makes an
13
election to participate in the DROP no later than January 1,
14
2030.
15

"Retirement system" means the retirement system
16
established under Article 16.
17

(b) The DROP shall be made available to eligible members
18
no later than July 1, 2028.
19

(c) Eligible members must make their election to
20
participate in the DROP in writing with the retirement system
21
in a form acceptable to the retirement system. The retirement
22
system must process the election and begin crediting an
23
account on behalf of the DROP member as soon as is practicable
24
after the election has been received by the retirement system.
25

(d) An eligible member may elect to participate in the
26
DROP for a period not to exceed 5 years from the date of

HB2765
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LRB104 11963 RPS 22056 b
1
election.
2

(e) During the period of the DROP, the retirement system
3
shall credit into a notional account on behalf of the DROP
4
member an amount equal to the monthly amount of retirement
5
annuity the DROP member would otherwise be eligible to receive
6
had the DROP member retired on the date of the election under
7
this Section, less any amounts required to be deducted under
8
State or federal law, including, but not limited to, payments
9
required under a Qualified Illinois Domestic Relations Order
10
under Section 1-119. Any automatic annual increases that would
11
have otherwise been applied to the DROP member's benefit had
12
the DROP member elected to retire instead of participating in
13
the DROP shall accrue to the DROP member's monthly payment
14
placed into the account prior to the expiration of the DROP and
15
shall otherwise apply to the DROP member's annuity upon
16
expiration of the DROP. The account shall be held on behalf of
17
the DROP member.
18

(f) DROP members shall make contributions to the
19
retirement system during their participation in the DROP in an
20
amount equal to the employee contributions that would
21
otherwise be required if the DROP member were an active
22
participant of the retirement system. Those amounts shall be
23
credited to DROP account.
24

(g) The amounts credited to the DROP account shall be held
25
in notional accounts by the retirement system and shall be
26
credited interest annually on January 1. Interest shall be

HB2765
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LRB104 11963 RPS 22056 b
1
calculated at a rate equal to the 10-year Treasury rate in
2
effect at that time and will be based on the amount in the
3
notional account on December 31 of the preceding year.
4

(h) Upon expiration or termination of the DROP member's
5
participation in the DROP, the account balance shall be paid
6
to the DROP member as a lump sum. The retirement system shall
7
provide options for the transfer of the account consistent
8
with its fiduciary duty and any applicable State or federal
9
law. An expiration or termination of a DROP member's
10
participation in the DROP may not occur after January 1, 2033.
11

(i) The DROP election is irrevocable and the DROP member
12
may not access the account prior to termination or expiration
13
of the DROP member's participation in the DROP. The DROP
14
member must terminate employment with the employer upon
15
expiration of their participation in the DROP. The DROP
16
member's participation in the DROP shall terminate prior to
17
the expiration date:
18

(1) if the DROP member terminates employment with the
19

employer prior to the expiration of the designated DROP
20

period;
21

(2) if the DROP member becomes eligible for and begins
22

collecting a disability benefit from the retirement
23

system; or
24

(3) upon the death of the DROP member.
25

Upon termination or expiration of the DROP period, the
26
DROP member shall commence his or her retirement annuity from

HB2765
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LRB104 11963 RPS 22056 b
1
the retirement system.
2

(j) The DROP member shall be considered in active service
3
for purposes of eligibility for death and disability benefits
4
and any health care benefits provided for by the employer.
5

The DROP member shall not accrue additional service credit
6
in the retirement system while participating in the DROP,
7
whether service accruals, future pay increases, active cost of
8
living adjustments or promotions. Additionally, the DROP
9
member shall not be eligible to purchase service credit under
10
the applicable Article. Any amounts due to an alternate payee
11
under a Qualified Illinois Domestic Relations Order under
12
Section 1-119 shall be calculated at the time of the DROP
13
election and such amounts shall be payable at the time of
14
election. If the DROP member's designated beneficiary
15
predeceases the DROP member, and the DROP member dies before
16
designating a new beneficiary, the DROP member's DROP account
17
shall be paid to the DROP member's estate.
18

(k) It is intended that the DROP shall not jeopardize the
19
tax qualified status of the pension fund or retirement system.
20
The board of the pension fund or retirement system may adopt
21
rules necessary or appropriate for the DROP to maintain
22
compliance with applicable federal laws and regulations.
23
Notwithstanding any other provision in the Article, all
24
benefits provided under the DROP shall be subject to the
25
requirements and limits of the Internal Revenue Code of 1986,
26
as amended.

HB2765
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LRB104 11963 RPS 22056 b
1

(l) The board of trustees of the retirement system may
2
transfer the administrative responsibility for the DROP
3
program to the State Treasurer under Section 25-10 after an
4
affirmative vote of the board.

5

(40 ILCS 5/25-10 new)
6

Sec. 25-10.
Deferred retirement option plan administered
7
by the State Treasurer.
8

(a) This Section applies only if a pension fund or
9
retirement system transfers administrative responsibility for
10
a deferred retirement option plan to the State Treasurer. Upon
11
the transfer of administrative responsibility for a deferred
12
retirement option plan, the rules adopted by the pension fund
13
or retirement system pertaining to the deferred retirement
14
option plan shall apply to the deferred retirement option plan
15
under this Section and to the State Treasurer, unless and
16
until superseded by the rules of the State Treasurer, and all
17
statutory provisions pertaining to the pension fund's or
18
retirement system's administrative responsibility with regard
19
to the deferred retirement option plan shall apply to the
20
State Treasurer. The State Treasurer shall administer each
21
deferred retirement option plan as a separate plan on behalf
22
of each pension fund or retirement system that has transferred
23
administrative responsibility to the State Treasurer.

24

(b) In this Section:
25

"Deferred retirement option plan" or "DROP" means the plan

HB2765
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LRB104 11963 RPS 22056 b
1
created under this Section that provides an alternative method
2
of benefit accrual in the pension fund or retirement system.
3

"Pension fund or retirement system" means a pension fund
4
or retirement system established under this Code that has been
5
required by law to establish a DROP and has elected to transfer
6
administrative responsibility for the DROP to the State
7
Treasurer to be administered in accordance with this Section.
8

(c) During the period of the DROP, the applicable pension
9
fund or retirement system shall transfer, and the State
10
Treasurer shall credit into a notional account on behalf of
11
the DROP member, an amount equal to the monthly amount of
12
retirement annuity the DROP member would otherwise be eligible
13
to receive had the DROP member retired on the date of the
14
election under this Section. The pension fund or retirement
15
system, prior to forwarding any funds to the State Treasurer
16
shall deduct any amounts required to be deducted under State
17
or federal law, including, but not limited to, payments
18
required under a Qualified Illinois Domestic Relations Order
19
in Section 1-119. Any automatic annual increases that would
20
have otherwise been applied to the DROP member's benefit had
21
the DROP member elected to retire instead of participating in
22
the DROP shall accrue to the DROP member's monthly payment
23
placed into the account prior to the expiration of the DROP and
24
shall otherwise apply to the DROP member's annuity upon
25
expiration of the DROP. The account shall be held on behalf of
26
the DROP member.

HB2765
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LRB104 11963 RPS 22056 b
1

(d) DROP members shall make contributions to pension fund
2
or retirement system during their participation in the DROP in
3
an amount equal to the emplo
yee contributions under the
4
applicable Article that would otherwise be required if the
5
DROP member were an active participant of pension fund or
6
retirement system. Those amounts shall be forwarded to the
7
State Treasurer and credited to the DROP member's DROP
8
account, less any administrative costs determined by the
9
pension fund or retirement system to be attributable to the
10
administration of the DROP benefits experienced by pension
11
fund or retirement system.
12

(e) The State Treasurer shall be the administrator of the
13
DROP created in this Section. The administration shall be
14
subject to any applicable laws, and the State Treasurer shall
15
administer the program in the best interest of the
16
participating members in a way that a prudent person in a
17
similar circumstance would. The executive director of each
18
pension fund or retirement system, or the executive director's
19
designee, shall participate in the DROP Advisory Board, that
20
shall meet quarterly. The State Treasurer, or the State
21
Treasurer's designee, shall chair the DROP Advisory Board. The
22
State Treasurer may solicit advice and information from the
23
members of the DROP Advisory Board or from the board as a whole
24
while administering the DROP program. Except as otherwise
25
provided by law, the State Treasurer shall be the sole
26
decision maker governing the DROP.

HB2765
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LRB104 11963 RPS 22056 b
1

Section 99.
Effective date.
This Act takes effect upon
2
becoming law.

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