P.A. 100-0281 (House Bill 418) was signed into law by Governor Rauner August 24, 2017. As previously reported, it purports to address “doubling dipping” for members of Article 3 pension funds and takes away the Chief of Police option to participate in IMRF. The amendments to the Pension Code prevent Chief’s from electing to participate in IMRF after January 1, 2019, unless they have IMRF service prior to that date.
The new law also requires municipalities create defined contribution plans with individual accounts. While the legislation is short on specifics, it appears these would be similar to a 401(k)-style plans. Each municipality will control the rules, contributions, and benefits of their own 401(k)-style plan.
Police officers eligible to participate in the 401(k)-style plan instead of Article 3 will be only those officers who have more than 10 years creditable service in a fund and enter service with a different municipality. They will be given the option to participate in the defined contribution plan as opposed to the current defined benefit plan. The election may later be rescinded in writing in accordance with the rules of the pension board. If rescinded, any employer contributions, along with the earnings on the contributions, shall remain vested in the officer’s account. The officer would then begin participating in the Article 3 fund on the first day of the month following the written rescission. An officer making an election to participate in the 401(k)-style plan will not receive creditable service or any other benefit under the new municipality’s Article 3 pension fund.
In addition, the legislation purports to address re-entry into active service issues. It provides a police officer who first enters service after January 1, 2019, and re-enters service with any municipality while receiving pension benefits can only participate in the defined contribution plan. The officer would not receive any additional creditable service or Article 3 pension benefit.
In the short term, this legislation has the potential to create funding issues for Article 3 funds if transferring officers opt for 401(k)-style plans thereby foregoing contributions to the existing Article 3 fund. However, as noted above, the pool of officers eligible to make that election is limited. While the restriction on re-entry is being interpreted to apply only to those officers first entering service on or after January 1, 2019, it is not clear from the language of the Act if this was the intent of the Legislature. An alternative interpretation applying it to all officers effective January 1, 2019, would certainly give rise to Constitutional concerns under the Pension Protection Clause. It seems probable further clarification on how to apply these amendments will need to come from the DOI and/or the courts.