PEN CD-TRS-SELF-MANAGED PLAN

Illinois General Assembly - Full Text of SB3389

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104TH GENERAL ASSEMBLY
State of Illinois
2025 and 2026
SB3389

Introduced 2/4/2026, by Sen. Li Arellano, Jr.

SYNOPSIS AS INTRODUCED:

40 ILCS 5/16-106.42 new
40 ILCS 5/16-115 new
40 ILCS 5/16-203
40 ILCS 5/16-210 new
40 ILCS 5/16-215 new
30 ILCS 805/8.50 new

Amends the Downstate Teacher Article of the Illinois Pension Code.
Provides that employers under the Article may elect to establish a
self-managed plan for members as an alternative to the traditional benefit
package. Provides that an employee of an employer that establishes a
self-managed plan 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 and after the effective date of the
employee's election. Sets forth provisions concerning definitions,
adoption of the self-managed plan by employers, selection of service
providers, establishment of an initial account balance, employee and
employer contributions, plan termination, vesting, and benefit amounts.
Provides that any benefit increase that results from the amendatory Act is
excluded from the definition of "new benefit increase". Amends the State
Mandates Act to require implementation without reimbursement.
LRB104 19008 RPS 32453 b
STATE MANDATES ACT MAY REQUIRE REIMBURSEMENT
MAY APPLY

A BILL FOR

SB3389
LRB104 19008 RPS 32453 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 10.
The Illinois Pension Code is amended by
5
changing Section 16-203 and by adding Sections 16-106.42,
6
16-115, 16-210, and 16-215 as follows:

7

(40 ILCS 5/16-106.42 new)
8

Sec. 16-106.42.
Tier 2 member.
"Tier 2 member": A member
9
of this System who first becomes a member under this Article on
10
or after January 1, 2011 and who is not a Tier 1 member.

11

(40 ILCS 5/16-115 new)
12

Sec. 16-115.
Traditional benefit package.
"Traditional
13
benefit package": The defined benefit maintained by the System
14
to which a member who does not participate in the self-managed
15
plan established under Section 16-215 is entitled.

16

(40 ILCS 5/16-203)
17

Sec. 16-203.
Application and expiration of new benefit
18
increases.
19

(a) As used in this Section, "new benefit increase" means
20
an increase in the amount of any benefit provided under this
21
Article, or an expansion of the conditions of eligibility for

SB3389
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LRB104 19008 RPS 32453 b
1
any benefit under this Article, that results from an amendment
2
to this Code that takes effect after June 1, 2005 (the
3
effective date of Public Act 94-4). "New benefit increase",
4
however, does not include any benefit increase resulting from
5
the changes made to Article 1 or this Article by Public Act
6
95-910, Public Act 100-23, Public Act 100-587, Public Act
7
100-743, Public Act 100-769, Public Act 101-10, Public Act
8
101-49, Public Act 102-16,
or
Public Act 102-871
, or this
9
amendatory Act of the 104th General Assembly
.
10

(b) Notwithstanding any other provision of this Code or
11
any subsequent amendment to this Code, every new benefit
12
increase is subject to this Section and shall be deemed to be
13
granted only in conformance with and contingent upon
14
compliance with the provisions of this Section.
15

(c) The Public Act enacting a new benefit increase must
16
identify and provide for payment to the System of additional
17
funding at least sufficient to fund the resulting annual
18
increase in cost to the System as it accrues.
19

Every new benefit increase is contingent upon the General
20
Assembly providing the additional funding required under this
21
subsection. The Commission on Government Forecasting and
22
Accountability shall analyze whether adequate additional
23
funding has been provided for the new benefit increase and
24
shall report its analysis to the Public Pension Division of
25
the Department of Insurance. A new benefit increase created by
26
a Public Act that does not include the additional funding

SB3389
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LRB104 19008 RPS 32453 b
1
required under this subsection is null and void. If the Public
2
Pension Division determines that the additional funding
3
provided for a new benefit increase under this subsection is
4
or has become inadequate, it may so certify to the Governor and
5
the State Comptroller and, in the absence of corrective action
6
by the General Assembly, the new benefit increase shall expire
7
at the end of the fiscal year in which the certification is
8
made.
9

(d) Every new benefit increase shall expire 5 years after
10
its effective date or on such earlier date as may be specified
11
in the language enacting the new benefit increase or provided
12
under subsection (c). This does not prevent the General
13
Assembly from extending or re-creating a new benefit increase
14
by law.
15

(e) Except as otherwise provided in the language creating
16
the new benefit increase, a new benefit increase that expires
17
under this Section continues to apply to persons who applied
18
and qualified for the affected benefit while the new benefit
19
increase was in effect and to the affected beneficiaries and
20
alternate payees of such persons, but does not apply to any
21
other person, including, without limitation, a person who
22
continues in service after the expiration date and did not
23
apply and qualify for the affected benefit while the new
24
benefit increase was in effect.
25
(Source: P.A. 102-16, eff. 6-17-21; 102-558, eff. 8-20-21;
26
102-813, eff. 5-13-22; 102-871, eff. 5-13-22; 103-154, eff.

SB3389
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LRB104 19008 RPS 32453 b
1
6-30-23.)

2

(40 ILCS 5/16-210 new)
3

Sec. 16-210.
Retirement program elections.

4

(a) In this Section:
5

"Currently eligible employee" means an employee who is
6
employed by an employer on the effective date on which the
7
employer offers to its employees the self-managed plan as an
8
alternative to the traditional benefit package.
9

"Eligible employee" means a teacher, as defined in Section
10
16-106, who is either a currently eligible employee or a newly
11
eligible employee.
12

"Newly eligible employee" means an employee who first
13
becomes employed by an employer after the effective date on
14
which the employer offers its employees the self-managed plan
15
as an alternative to the traditional benefit package.
16

(b) All participating teachers are participants under the
17
traditional benefit package prior to January 1, 2027. If an
18
employee does not elect to participate in the self-managed
19
plan, he or she shall continue to participate in the
20
traditional benefit package by default. A newly eligible
21
employee participates in the traditional benefit package until
22
he or she makes an election to participate in the self-managed
23
plan.
24

Effective on and after the date that an employer elects,
25
as described in Section 16-215, to offer to its teachers the

SB3389
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LRB104 19008 RPS 32453 b
1
self-managed plan as an alternative to the traditional benefit
2
package, each of that employer's eligible employees, as
3
defined in subsection (a), shall be given the choice to elect
4
which retirement program he or she wishes to participate in
5
with respect to all periods of covered employment occurring on
6
and after the effective date of the employee's election. The
7
retirement program election made by an eligible employee must
8
be made in writing, in the manner prescribed by the System and
9
within the time period described in subsection (d).
10

The employee election authorized by this Section is a
11
one-time, irrevocable election. If an employee terminates
12
employment after making the election provided under this
13
subsection (b), then, upon his or her subsequent re-employment
14
with an employer, the original election shall automatically
15
apply to him or her if the employer is then a participating
16
employer as described in Section 16-215.
17

An eligible employee who fails to make this election
18
shall, by default, participate in the traditional benefit
19
package. Notwithstanding any other provision of this Article
20
and Article 1, a Tier 2 member shall have the option to enroll
21
in the self-managed plan.
22

(c) An eligible employee who, at the time he or she is
23
first eligible to make the election described in subsection
24
(b), does not have sufficient age and service to qualify for a
25
retirement annuity under Section 16-132 may elect to
26
participate in the traditional benefit package or the

SB3389
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LRB104 19008 RPS 32453 b
1
self-managed plan.
2

(d) A currently eligible employee must make this election
3
within one year after the effective date of the employer's
4
adoption of the self-managed plan.
5

A newly eligible employee must make this election within 6
6
months after the date on which the System receives the report
7
of status certification from the employer. If an employee
8
elects to participate in the self-managed plan, no employer
9
contributions shall be remitted to the self-managed plan when
10
the employee's account balance transfer is made. Employer
11
contributions to the self-managed plan shall commence as of
12
the first pay period that begins after the System receives the
13
employee's election.
14

(e) An eligible employee shall be provided with written
15
information prepared or prescribed by the System that
16
describes the employee's retirement program choices. The
17
eligible employee shall be offered an opportunity to receive
18
counseling from the System prior to making his or her
19
election. This counseling may consist of videotaped materials,
20
group presentations, individual consultation with an employee
21
or authorized representative of the System in person or by
22
telephone or other electronic means, or any combination of
23
these methods.

24

(40 ILCS 5/16-215 new)
25

Sec. 16-215.
Self-Managed Plan.

SB3389
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LRB104 19008 RPS 32453 b
1

(a) Purpose. The General Assembly finds that it is
2
important for Illinois Public Schools to be able to attract
3
and retain the most qualified teachers and that in order to
4
attract and retain these employees, school districts should
5
have the flexibility to provide a defined contribution plan as
6
an alternative for eligible employees who elect not to
7
participate in a defined benefit retirement program provided
8
under this Article. Accordingly, the System is hereby
9
authorized to establish and administer a self-managed plan,
10
which shall offer participating employees the opportunity to
11
accumulate assets for retirement through a combination of
12
employee and employer contributions that may be invested in
13
mutual funds, collective investment funds, or other investment
14
products and used to purchase annuity contracts, either fixed
15
or variable or a combination thereof. The plan must be
16
qualified under the Internal Revenue Code of 1986.
17

(b) Adoption by employers. Each employer subject to this
18
Article may irrevocably elect to adopt the self-managed plan
19
established under this Section. An employer's election to
20
adopt the self-managed plan makes available to the eligible
21
employees of that employer the elections described in Section
22
16-210.
23

The Teachers' Retirement System of the State of Illinois
24
shall be the plan sponsor for the self-managed plan and shall
25
prepare a plan document and prescribe such rules and
26
procedures as are considered necessary or desirable for the

SB3389
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LRB104 19008 RPS 32453 b
1
administration of the self-managed plan. Consistent with its
2
fiduciary duty to the participants and beneficiaries of the
3
self-managed plan, the Board of Trustees of the System may
4
delegate aspects of plan administration as it sees fit to
5
companies authorized to do business in this State, to the
6
employers, or to a combination of both.
7

(c) Selection of service providers and funding vehicles.
8
The System, in consultation with the employers, shall solicit
9
proposals to provide administrative services and funding
10
vehicles for the self-managed plan from insurance and annuity
11
companies and mutual fund companies, banks, trust companies,
12
or other financial institutions authorized to do business in
13
this State. In reviewing the proposals received and approving
14
and contracting with no fewer than 2 and no more than 7
15
companies, the Board of Trustees of the System shall consider,
16
among other things, the following criteria:
17

(1) the nature and extent of the benefits that would
18

be provided to the participants;
19

(2) the reasonableness of the benefits in relation to
20

the premium charged;
21

(3) the suitability of the benefits to the needs and
22

interests of the participating employees and the employer;
23

(4) the ability of the company to provide benefits
24

under the contract and the financial stability of the
25

company; and
26

(5) the efficacy of the contract in the recruitment

SB3389
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LRB104 19008 RPS 32453 b
1

and retention of employees.
2

The System, in consultation with the employers, shall
3
periodically review each approved company. A company may
4
continue to provide administrative services and funding
5
vehicles for the self-managed plan only so long as it
6
continues to be an approved company under contract with the
7
Board.
8

(d) Employee direction. Teachers who are participating in
9
the program must be allowed to direct the transfer of their
10
account balances among the various investment options offered,
11
subject to applicable contractual provisions. The participant
12
shall not be deemed a fiduciary by reason of providing such
13
investment direction. A person who is a fiduciary shall not be
14
liable for any loss resulting from such investment direction
15
and shall not be deemed to have breached any fiduciary duty by
16
acting in accordance with that direction. The System shall
17
provide advance notice to the participant of the participant's
18
obligation to direct the investment of employee and employer
19
contributions into one or more investment funds selected by
20
the System at the time he or she makes his or her initial
21
retirement plan selection. If a participant fails to direct
22
the investment of employee and employer contributions into the
23
various investment options offered to the participant when
24
making his or her initial retirement election choice, that
25
failure shall require the System to invest the employee and
26
employer contributions in a default investment fund on behalf

SB3389
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LRB104 19008 RPS 32453 b
1
of the participant, and the investment shall be deemed to have
2
been made at the participant's investment direction. The
3
participant has the right to transfer account balances out of
4
the default investment fund during time periods designated by
5
the System. Neither the System nor the employer guarantees any
6
of the investments in the employee's account balances.
7

(e) Participation. A teacher eligible to participate in
8
the self-managed plan must make a written election in
9
accordance with the provisions of Section 16-210 and the
10
procedures established by the System. Participation in the
11
self-managed plan by an electing employee shall begin on the
12
first day of the first pay period following the later of the
13
date the employee's election is filed with the System or the
14
effective date as of which the teacher's employer begins to
15
offer participation in the self-managed plan. Employers may
16
not make the self-managed plan available earlier than January
17
1, 2027. An employee's participation in any other retirement
18
program administered by the System under this Article shall
19
terminate on the date that participation in the self-managed
20
plan begins.
21

A teacher who has elected to participate in the
22
self-managed plan under this Section must continue
23
participation while employed in an eligible position and may
24
not participate in any other retirement program administered
25
by the System under this Article while employed by that
26
employer or any other employer that has adopted the

SB3389
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LRB104 19008 RPS 32453 b
1
self-managed plan, unless the self-managed plan is terminated
2
in accordance with subsection (i).
3

Participation in the self-managed plan under this Section
4
shall constitute membership in the System.
5

A participant under this Section shall be entitled to the
6
benefits of Article 20 of this Code.
7

(f) Establishment of initial account balance. If, at the
8
time an employee elects to participate in the self-managed
9
plan, the employee has rights and credits in the System due to
10
previous participation in the traditional benefit package, the
11
System shall establish for the employee an opening account
12
balance in the self-managed plan, equal to the amount of
13
contribution refund that the employee would be eligible to
14
receive under Section 16-151 if the employee terminated
15
employment on that date and elected a refund of contributions,
16
except that this hypothetical refund shall include interest at
17
the effective rate for the respective years. The System shall
18
transfer assets from the defined benefit retirement program to
19
the self-managed plan, as a tax-free transfer in accordance
20
with Internal Revenue Service guidelines, for purposes of
21
funding the employee's opening account balance.
22

(g) No duplication of service credit. Notwithstanding any
23
other provision of this Article, an employee may not purchase
24
or receive service or service credit applicable to any other
25
retirement program administered by the System under this
26
Article for any period during which the employee was a

SB3389
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LRB104 19008 RPS 32453 b
1
participant in the self-managed plan established under this
2
Section.
3

(h) Contributions. The self-managed plan shall be funded
4
by contributions from employees participating in the
5
self-managed plan and employer contributions as provided in
6
this Section.
7

The contribution rate for employees participating in the
8
self-managed plan under this Section shall be equal to the
9
employee contribution rate for other members of the System, as
10
provided in Section 16-152. This required contribution shall
11
be made as an "employer pick-up" under Section 414(h) of the
12
Internal Revenue Code of 1986 or any successor Section
13
thereof. Any employee participating in the System's
14
traditional benefit package prior to his or her election to
15
participate in the self-managed plan shall continue to have
16
the employer pick up the contributions required under Section
17
16-152. However, the amounts picked up after the election of
18
the self-managed plan shall be remitted to and treated as
19
assets of the self-managed plan. In no event shall an employee
20
have an option of receiving these amounts in cash. Employees
21
may make additional contributions to the self-managed plan in
22
accordance with procedures prescribed by the System, to the
23
extent permitted under rules prescribed by the System.
24

The program shall provide for employer contributions to be
25
credited to each self-managed plan participant at a rate of
26
7.6% of the participating employee's salary, less the amount

SB3389
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LRB104 19008 RPS 32453 b
1
used by the System to provide disability benefits for the
2
employee. The amounts so credited shall be paid into the
3
participant's self-managed plan accounts in a manner to be
4
prescribed by the System.
5

An amount of employer contribution, not exceeding 1% of
6
the participating employee's salary, shall be used for the
7
purpose of providing the disability benefits of the System to
8
the employee. Prior to the beginning of each plan year under
9
the self-managed plan, the Board of Trustees shall determine,
10
as a percentage of salary, the amount of employer
11
contributions to be allocated during that plan year for
12
providing disability benefits for employees in the
13
self-managed plan.
14

The State of Illinois shall make contributions by
15
appropriations to the System of the employer contributions
16
required for teachers who participate in the self-managed plan
17
under this Section. The amount required shall be certified by
18
the Board of Trustees of the System and paid by the State in
19
accordance with Section 16-158. The System shall not be
20
obligated to remit the required employer contributions to any
21
of the insurance and annuity companies, mutual fund companies,
22
banks, trust companies, financial institutions, or other
23
sponsors of any of the funding vehicles offered under the
24
self-managed plan until it has received the required employer
25
contributions from the State. In the event of a deficiency in
26
the amount of State contributions, the System shall implement

SB3389
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LRB104 19008 RPS 32453 b
1
those procedures described in Section 16-158 to obtain the
2
required funding from the Common School Fund.
3

(i) Termination. The self-managed plan authorized under
4
this Section may be terminated by the System, subject to the
5
terms of any relevant contracts, and the System shall have no
6
obligation to reestablish the self-managed plan under this
7
Section. This Section does not create a right to continued
8
participation in any self-managed plan set up by the System
9
under this Section. If the self-managed plan is terminated,
10
the participants shall have the right to participate in one of
11
the other retirement programs offered by the System and
12
receive service credit in such other retirement program for
13
any years of employment following the termination.
14

(j) Vesting; withdrawal; return to service. A participant
15
in the self-managed plan becomes vested in the employer
16
contributions credited to his or her accounts in the
17
self-managed plan on the earliest to occur of the following:
18
(1) completion of 3 years of service with an employer
19
described in Section 16-106; (2) the death of the
20
participating employee while employed by an employer described
21
in Section 16-106, if the participant has completed at least 1
22
1/2 years of service; or (3) the participant's election to
23
retire and apply the reciprocal provisions of Article 20 of
24
this Code.
25

A participant in the self-managed plan who receives a
26
distribution of his or her vested amounts from the

SB3389
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LRB104 19008 RPS 32453 b
1
self-managed plan while not yet eligible for retirement under
2
this Article (and Article 20, if applicable) shall forfeit all
3
service credit and accrued rights in the System; if
4
subsequently re-employed, the participant shall be considered
5
a new employee. If a former participant again becomes a
6
participating employee (or becomes employed by a participating
7
system under Article 20 of this Code) and continues as such for
8
at least 2 years, all such rights, service credits, and
9
previous status as a participant shall be restored upon
10
repayment of the amount of the distribution, without interest.
11

(k) Benefit amounts. If an employee who is vested in
12
employer contributions terminates employment, the employee
13
shall be entitled to a benefit that is based on the account
14
values attributable to both employer and employee
15
contributions and any investment return thereon.
16

If an employee who is not vested in employer contributions
17
terminates employment, the employee shall be entitled to a
18
benefit based solely on the account values attributable to the
19
employee's contributions and any investment return thereon,
20
and the employer contributions and any investment return
21
thereon shall be forfeited. Any employer contributions which
22
are forfeited shall be held in escrow by the company investing
23
those contributions and shall be used as directed by the
24
System for future allocations of employer contributions or for
25
the restoration of amounts previously forfeited by former
26
participants who again become participating employees.

SB3389
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LRB104 19008 RPS 32453 b
1

Section 90.
The State Mandates Act is amended by adding
2
Section 8.50 as follows:

3

(30 ILCS 805/8.50 new)
4

Sec. 8.50.
Exempt mandate.
Notwithstanding Sections 6 and
5
8 of this Act, no reimbursement by the State is required for
6
the implementation of any mandate created by this amendatory
7
Act of the 104th General Assembly.

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