Bill Text: IL HB1568 | 2019-2020 | 101st General Assembly | Introduced


Bill Title: Amends the Illinois Pension Code. Moves the investment power for eligible downstate police and downstate firefighter pension funds that have net assets in trust that exceed an amount equal to 3 months of current liabilities to the Board of Trustees of the Illinois Municipal Retirement Fund (IMRF). Provides that within 24 months after the effective date of the amendatory Act, the Department of Insurance shall audit the investment assets of each eligible pension fund to determine a certified investment asset list. Provides that upon receipt of the certified investment asset list, the Board of IMRF shall initiate the transfer of assets from the board of trustees of the eligible pension fund to the Board of IMRF. Makes conforming changes. Amends the State Mandates Act to require implementation without reimbursement.

Spectrum: Partisan Bill (Republican 1-0)

Status: (Introduced) 2019-03-29 - Rule 19(a) / Re-referred to Rules Committee [HB1568 Detail]

Download: Illinois-2019-HB1568-Introduced.html


101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
HB1568

Introduced , by Rep. Jim Durkin

SYNOPSIS AS INTRODUCED:
See Index

Amends the Illinois Pension Code. Moves the investment power for eligible downstate police and downstate firefighter pension funds that have net assets in trust that exceed an amount equal to 3 months of current liabilities to the Board of Trustees of the Illinois Municipal Retirement Fund (IMRF). Provides that within 24 months after the effective date of the amendatory Act, the Department of Insurance shall audit the investment assets of each eligible pension fund to determine a certified investment asset list. Provides that upon receipt of the certified investment asset list, the Board of IMRF shall initiate the transfer of assets from the board of trustees of the eligible pension fund to the Board of IMRF. Makes conforming changes. Amends the State Mandates Act to require implementation without reimbursement.
LRB101 06696 RPS 51723 b
FISCAL NOTE ACT MAY APPLY
PENSION IMPACT NOTE ACT MAY APPLY
STATE MANDATES ACT MAY REQUIRE REIMBURSEMENT

A BILL FOR

HB1568LRB101 06696 RPS 51723 b
1 AN ACT concerning public employee benefits.
2 Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4 Section 5. The Illinois Pension Code is amended by changing
5Sections 1-113.1, 1-113.2, 1-113.3, 1-113.4, 1-113.4a,
61-113.5, 1-113.6, 1-113.7, 3-127, 3-132, 3-135, 4-120, 4-123,
7and 4-128 and by adding Sections 1-101.6, 1-101.7, 1-113.05,
83-135.1, 3-135.2, 4-128.1, 4-128.2, 7-226, and 7-227 as
9follows:
10 (40 ILCS 5/1-101.6 new)
11 Sec. 1-101.6. Eligible pension fund. "Eligible pension
12fund" means a pension fund established pursuant to Article 3 or
13Article 4 of this Code that has net assets in trust that exceed
14the threshold amount defined in Section 1-101.7 of this Code.
15The status of "eligible pension fund", once established,
16continues in effect without regard to subsequent variations in
17the net assets of the pension fund. "Eligible pension fund"
18does not include a pension fund established pursuant to Article
193 or Article 4 of this Code that has elected before the
20effective date of this amendatory Act of the 101st General
21Assembly to come under the authority of the Illinois State
22Board of Investment for the management of its investments and
23that continues to be under the authority of the Illinois State

HB1568- 2 -LRB101 06696 RPS 51723 b
1Board of Investment for the management of its investments.
2 (40 ILCS 5/1-101.7 new)
3 Sec. 1-101.7. Threshold amount. "Threshold amount", when
4used in relation to the financial assets of a pension fund
5established under Article 3 or Article 4 of this Code, means an
6amount equal to 3 months of current liabilities of the pension
7fund, including benefit payments owed to annuitants and
8beneficiaries of the pension fund and reasonable operational
9expenses.
10 (40 ILCS 5/1-113.05 new)
11 Sec. 1-113.05. Transfer of investment authority of certain
12pension funds established under Article 3 or 4. Upon receiving
13a certified investment asset list from the Department of
14Insurance pursuant to Section 3-135.1 or Section 4-128.1 of
15this Code, the board of trustees of an eligible pension fund
16established under Article 3 or 4 of this Code shall cease
17investment activities and shall transfer all investment assets
18of the pension fund to the Board of Trustees of the Illinois
19Municipal Retirement Fund in the manner prescribed by rules
20adopted by the Board of Trustees of the Illinois Municipal
21Retirement Fund. Upon completion of that transfer, the
22investment authority of the board of trustees shall terminate.
23 (40 ILCS 5/1-113.1)

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1 Sec. 1-113.1. Investment authority of certain pension
2funds established under Article 3 or 4.
3 (a) Beginning 24 months after the effective date of this
4amendatory Act of the 101st General Assembly, or when the
5transfer of investment authority is made pursuant to Section
61-113.05, whichever occurs first, subsection (b) of this
7Section does not apply to any pension fund that is an eligible
8pension fund as defined in Section 1-101.6.
9 This Section continues to apply to any pension fund
10established under Article 3 or 4 that is not an eligible
11pension fund as defined in Section 1-101.6.
12 (b) The board of trustees of a police pension fund
13established under Article 3 of this Code or firefighter pension
14fund established under Article 4 of this Code shall draw
15pension funds from the treasurer of the municipality and,
16beginning January 1, 1998, invest any part thereof in the name
17of the board in the items listed in Sections 1-113.2 through
181-113.4 according to the limitations and requirements of this
19Article. These investments shall be made with the care, skill,
20prudence, and diligence that a prudent person acting in like
21capacity and familiar with such matters would use in the
22conduct of an enterprise of like character with like aims.
23 Interest and any other income from the investments shall be
24credited to the pension fund.
25 For the purposes of Sections 1-113.2 through 1-113.11, the
26"net assets" of a pension fund include both the cash and

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1invested assets of the pension fund.
2(Source: P.A. 90-507, eff. 8-22-97.)
3 (40 ILCS 5/1-113.2)
4 Sec. 1-113.2. List of permitted investments for certain all
5Article 3 or 4 pension funds.
6 (a) Beginning 24 months after the effective date of this
7amendatory Act of the 101st General Assembly, or when the
8transfer of investment authority is made pursuant to Section
91-113.05, whichever occurs first, subsection (b) of this
10Section does not apply to any pension fund that is an eligible
11pension fund as defined in Section 1-101.6.
12 (b) Except as provided in subsection (a), any Any pension
13fund established under Article 3 or 4 may invest in the
14following items:
15 (1) Interest bearing direct obligations of the United
16States of America.
17 (2) Interest bearing obligations to the extent that they
18are fully guaranteed or insured as to payment of principal and
19interest by the United States of America.
20 (3) Interest bearing bonds, notes, debentures, or other
21similar obligations of agencies of the United States of
22America. For the purposes of this Section, "agencies of the
23United States of America" includes: (i) the Federal National
24Mortgage Association and the Student Loan Marketing
25Association; (ii) federal land banks, federal intermediate

HB1568- 5 -LRB101 06696 RPS 51723 b
1credit banks, federal farm credit banks, and any other entity
2authorized to issue direct debt obligations of the United
3States of America under the Farm Credit Act of 1971 or
4amendments to that Act; (iii) federal home loan banks and the
5Federal Home Loan Mortgage Corporation; and (iv) any agency
6created by Act of Congress that is authorized to issue direct
7debt obligations of the United States of America.
8 (4) Interest bearing savings accounts or certificates of
9deposit, issued by federally chartered banks or savings and
10loan associations, to the extent that the deposits are insured
11by agencies or instrumentalities of the federal government.
12 (5) Interest bearing savings accounts or certificates of
13deposit, issued by State of Illinois chartered banks or savings
14and loan associations, to the extent that the deposits are
15insured by agencies or instrumentalities of the federal
16government.
17 (6) Investments in credit unions, to the extent that the
18investments are insured by agencies or instrumentalities of the
19federal government.
20 (7) Interest bearing bonds of the State of Illinois.
21 (8) Pooled interest bearing accounts managed by the
22Illinois Public Treasurer's Investment Pool in accordance with
23the Deposit of State Moneys Act, interest bearing funds or
24pooled accounts of the Illinois Metropolitan Investment Funds,
25and interest bearing funds or pooled accounts managed,
26operated, and administered by banks, subsidiaries of banks, or

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1subsidiaries of bank holding companies in accordance with the
2laws of the State of Illinois.
3 (9) Interest bearing bonds or tax anticipation warrants of
4any county, township, or municipal corporation of the State of
5Illinois.
6 (10) Direct obligations of the State of Israel, subject to
7the conditions and limitations of item (5.1) of Section 1-113.
8 (11) Money market mutual funds managed by investment
9companies that are registered under the federal Investment
10Company Act of 1940 and the Illinois Securities Law of 1953 and
11are diversified, open-ended management investment companies;
12provided that the portfolio of the money market mutual fund is
13limited to the following:
14 (i) bonds, notes, certificates of indebtedness,
15 treasury bills, or other securities that are guaranteed by
16 the full faith and credit of the United States of America
17 as to principal and interest;
18 (ii) bonds, notes, debentures, or other similar
19 obligations of the United States of America or its
20 agencies; and
21 (iii) short term obligations of corporations organized
22 in the United States with assets exceeding $400,000,000,
23 provided that (A) the obligations mature no later than 180
24 days from the date of purchase, (B) at the time of
25 purchase, the obligations are rated by at least 2 standard
26 national rating services at one of their 3 highest

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1 classifications, and (C) the obligations held by the mutual
2 fund do not exceed 10% of the corporation's outstanding
3 obligations.
4 (12) General accounts of life insurance companies
5authorized to transact business in Illinois.
6 (13) Any combination of the following, not to exceed 10% of
7the pension fund's net assets:
8 (i) separate accounts that are managed by life
9 insurance companies authorized to transact business in
10 Illinois and are comprised of diversified portfolios
11 consisting of common or preferred stocks, bonds, or money
12 market instruments;
13 (ii) separate accounts that are managed by insurance
14 companies authorized to transact business in Illinois, and
15 are comprised of real estate or loans upon real estate
16 secured by first or second mortgages; and
17 (iii) mutual funds that meet the following
18 requirements:
19 (A) the mutual fund is managed by an investment
20 company as defined and registered under the federal
21 Investment Company Act of 1940 and registered under the
22 Illinois Securities Law of 1953;
23 (B) the mutual fund has been in operation for at
24 least 5 years;
25 (C) the mutual fund has total net assets of $250
26 million or more; and

HB1568- 8 -LRB101 06696 RPS 51723 b
1 (D) the mutual fund is comprised of diversified
2 portfolios of common or preferred stocks, bonds, or
3 money market instruments.
4 (14) Corporate bonds managed through an investment advisor
5must meet all of the following requirements:
6 (1) The bonds must be rated as investment grade by one
7 of the 2 largest rating services at the time of purchase.
8 (2) If subsequently downgraded below investment grade,
9 the bonds must be liquidated from the portfolio within 90
10 days after being downgraded by the manager.
11(Source: P.A. 96-1495, eff. 1-1-11.)
12 (40 ILCS 5/1-113.3)
13 Sec. 1-113.3. List of additional permitted investments for
14certain pension funds with net assets of $2,500,000 or more.
15 (a) Beginning 24 months after the effective date of this
16amendatory Act of the 101st General Assembly, or when the
17transfer of investment authority is made pursuant to Section
181-113.05, whichever occurs first, subsection (a-5) of this
19Section does not apply to any pension fund that is an eligible
20pension fund as defined in Section 1-101.6.
21 (a-5) Except as provided in subsection (a), in (a) In
22addition to the items in Section 3-113.2, a pension fund
23established under Article 3 or 4 that has net assets of at
24least $2,500,000 may invest a portion of its net assets in the
25following items:

HB1568- 9 -LRB101 06696 RPS 51723 b
1 (1) Separate accounts that are managed by life
2 insurance companies authorized to transact business in
3 Illinois and are comprised of diversified portfolios
4 consisting of common or preferred stocks, bonds, or money
5 market instruments.
6 (2) Mutual funds that meet the following requirements:
7 (i) the mutual fund is managed by an investment
8 company as defined and registered under the federal
9 Investment Company Act of 1940 and registered under the
10 Illinois Securities Law of 1953;
11 (ii) the mutual fund has been in operation for at
12 least 5 years;
13 (iii) the mutual fund has total net assets of $250
14 million or more; and
15 (iv) the mutual fund is comprised of diversified
16 portfolios of common or preferred stocks, bonds, or
17 money market instruments.
18 (b) A pension fund's total investment in the items
19authorized under this Section shall not exceed 35% of the
20market value of the pension fund's net present assets stated in
21its most recent annual report on file with the Illinois
22Department of Insurance.
23(Source: P.A. 90-507, eff. 8-22-97.)
24 (40 ILCS 5/1-113.4)
25 Sec. 1-113.4. List of additional permitted investments for

HB1568- 10 -LRB101 06696 RPS 51723 b
1certain pension funds with net assets of $5,000,000 or more.
2 (a) Beginning 24 months after the effective date of this
3amendatory Act of the 101st General Assembly, or when the
4transfer of investment authority is made pursuant to Section
51-113.05, whichever occurs first, subsection (a-5) of this
6Section does not apply to any pension fund that is an eligible
7pension fund as defined in Section 1-101.6.
8 (a-5) Except as provided in subsection (a), in (a) In
9addition to the items in Sections 1-113.2 and 1-113.3, a
10pension fund established under Article 3 or 4 that has net
11assets of at least $5,000,000 and has appointed an investment
12adviser under Section 1-113.5 may, through that investment
13adviser, invest a portion of its assets in common and preferred
14stocks authorized for investments of trust funds under the laws
15of the State of Illinois. The stocks must meet all of the
16following requirements:
17 (1) The common stocks are listed on a national
18 securities exchange or board of trade (as defined in the
19 federal Securities Exchange Act of 1934 and set forth in
20 subdivision G of Section 3 of the Illinois Securities Law
21 of 1953) or quoted in the National Association of
22 Securities Dealers Automated Quotation System National
23 Market System (NASDAQ NMS).
24 (2) The securities are of a corporation created or
25 existing under the laws of the United States or any state,
26 district, or territory thereof and the corporation has been

HB1568- 11 -LRB101 06696 RPS 51723 b
1 in existence for at least 5 years.
2 (3) The corporation has not been in arrears on payment
3 of dividends on its preferred stock during the preceding 5
4 years.
5 (4) The market value of stock in any one corporation
6 does not exceed 5% of the cash and invested assets of the
7 pension fund, and the investments in the stock of any one
8 corporation do not exceed 5% of the total outstanding stock
9 of that corporation.
10 (5) The straight preferred stocks or convertible
11 preferred stocks are issued or guaranteed by a corporation
12 whose common stock qualifies for investment by the board.
13 (6) The issuer of the stocks has been subject to the
14 requirements of Section 12 of the federal Securities
15 Exchange Act of 1934 and has been current with the filing
16 requirements of Sections 13 and 14 of that Act during the
17 preceding 3 years.
18 (b) A pension fund's total investment in the items
19authorized under this Section and Section 1-113.3 shall not
20exceed 35% of the market value of the pension fund's net
21present assets stated in its most recent annual report on file
22with the Illinois Department of Insurance.
23 (c) A pension fund that invests funds under this Section
24shall electronically file with the Division any reports of its
25investment activities that the Division may require, at the
26times and in the format required by the Division.

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1(Source: P.A. 100-201, eff. 8-18-17.)
2 (40 ILCS 5/1-113.4a)
3 Sec. 1-113.4a. List of additional permitted investments
4for certain Article 3 and 4 pension funds with net assets of
5$10,000,000 or more.
6 (a) Beginning 24 months after the effective date of this
7amendatory Act of the 101st General Assembly, or when the
8transfer of investment authority is made pursuant to Section
91-113.05, whichever occurs first, subsection (a-5) of this
10Section does not apply to any pension fund that is an eligible
11pension fund as defined in Section 1-101.6.
12 (a-5) Except as provided in subsection (a), in (a) In
13addition to the items in Sections 1-113.2 and 1-113.3, a
14pension fund established under Article 3 or 4 that has net
15assets of at least $10,000,000 and has appointed an investment
16adviser, as defined under Sections 1-101.4 and 1-113.5, may,
17through that investment adviser, invest an additional portion
18of its assets in common and preferred stocks and mutual funds.
19 (b) The stocks must meet all of the following requirements:
20 (1) The common stocks must be listed on a national
21 securities exchange or board of trade (as defined in the
22 Federal Securities Exchange Act of 1934 and set forth in
23 paragraph G of Section 3 of the Illinois Securities Law of
24 1953) or quoted in the National Association of Securities
25 Dealers Automated Quotation System National Market System.

HB1568- 13 -LRB101 06696 RPS 51723 b
1 (2) The securities must be of a corporation in
2 existence for at least 5 years.
3 (3) The market value of stock in any one corporation
4 may not exceed 5% of the cash and invested assets of the
5 pension fund, and the investments in the stock of any one
6 corporation may not exceed 5% of the total outstanding
7 stock of that corporation.
8 (4) The straight preferred stocks or convertible
9 preferred stocks must be issued or guaranteed by a
10 corporation whose common stock qualifies for investment by
11 the board.
12 (c) The mutual funds must meet the following requirements:
13 (1) The mutual fund must be managed by an investment
14 company registered under the Federal Investment Company
15 Act of 1940 and registered under the Illinois Securities
16 Law of 1953.
17 (2) The mutual fund must have been in operation for at
18 least 5 years.
19 (3) The mutual fund must have total net assets of
20 $250,000,000 or more.
21 (4) The mutual fund must be comprised of a diversified
22 portfolio of common or preferred stocks, bonds, or money
23 market instruments.
24 (d) A pension fund's total investment in the items
25authorized under this Section and Section 1-113.3 shall not
26exceed 50% effective July 1, 2011 and 55% effective July 1,

HB1568- 14 -LRB101 06696 RPS 51723 b
12012 of the market value of the pension fund's net present
2assets stated in its most recent annual report on file with the
3Department of Insurance.
4 (e) A pension fund that invests funds under this Section
5shall electronically file with the Division any reports of its
6investment activities that the Division may require, at the
7time and in the format required by the Division.
8(Source: P.A. 96-1495, eff. 1-1-11.)
9 (40 ILCS 5/1-113.5)
10 Sec. 1-113.5. Investment advisers and investment services
11for certain all Article 3 or 4 pension funds.
12 (a) Beginning 24 months after the effective date of this
13amendatory Act of the 101st General Assembly, or when the
14transfer of investment authority is made pursuant to Section
151-113.05, whichever occurs first, subsection (a-1) of this
16Section does not apply to any pension fund that is an eligible
17pension fund as defined in Section 1-101.6.
18 (a-1) Except as provided in subsection (a), the (a) The
19board of trustees of a pension fund established under Article 3
20or 4 of this Code may appoint investment advisers as defined in
21Section 1-101.4. The board of any pension fund investing in
22common or preferred stock under Section 1-113.4 shall appoint
23an investment adviser before making such investments.
24 The investment adviser or consultant shall be a fiduciary,
25as defined in Section 1-101.2, with respect to the pension fund

HB1568- 15 -LRB101 06696 RPS 51723 b
1and shall be one of the following:
2 (1) an investment adviser registered under the federal
3 Investment Advisers Act of 1940 and the Illinois Securities
4 Law of 1953;
5 (2) a bank or trust company authorized to conduct a
6 trust business in Illinois;
7 (3) a life insurance company authorized to transact
8 business in Illinois; or
9 (4) an investment company as defined and registered
10 under the federal Investment Company Act of 1940 and
11 registered under the Illinois Securities Law of 1953.
12 (a-5) Notwithstanding any other provision of law, a person
13or entity that provides consulting services (referred to as a
14"consultant" in this Section) to a pension fund with respect to
15the selection of fiduciaries may not be awarded a contract to
16provide those consulting services that is more than 5 years in
17duration. No contract to provide such consulting services may
18be renewed or extended. At the end of the term of a contract,
19however, the contractor is eligible to compete for a new
20contract. No person shall attempt to avoid or contravene the
21restrictions of this subsection by any means. All offers from
22responsive offerors shall be accompanied by disclosure of the
23names and addresses of the following:
24 (1) The offeror.
25 (2) Any entity that is a parent of, or owns a
26 controlling interest in, the offeror.

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1 (3) Any entity that is a subsidiary of, or in which a
2 controlling interest is owned by, the offeror.
3 Beginning on July 1, 2008, a person, other than a trustee
4or an employee of a pension fund or retirement system, may not
5act as a consultant under this Section unless that person is at
6least one of the following: (i) registered as an investment
7adviser under the federal Investment Advisers Act of 1940 (15
8U.S.C. 80b-1, et seq.); (ii) registered as an investment
9adviser under the Illinois Securities Law of 1953; (iii) a
10bank, as defined in the Investment Advisers Act of 1940; or
11(iv) an insurance company authorized to transact business in
12this State.
13 (b) All investment advice and services provided by an
14investment adviser or a consultant appointed under this Section
15shall be rendered pursuant to a written contract between the
16investment adviser and the board, and in accordance with the
17board's investment policy.
18 The contract shall include all of the following:
19 (1) acknowledgement in writing by the investment
20 adviser that he or she is a fiduciary with respect to the
21 pension fund;
22 (2) the board's investment policy;
23 (3) full disclosure of direct and indirect fees,
24 commissions, penalties, and any other compensation that
25 may be received by the investment adviser, including
26 reimbursement for expenses; and

HB1568- 17 -LRB101 06696 RPS 51723 b
1 (4) a requirement that the investment adviser submit
2 periodic written reports, on at least a quarterly basis,
3 for the board's review at its regularly scheduled meetings.
4 All returns on investment shall be reported as net returns
5 after payment of all fees, commissions, and any other
6 compensation.
7 (b-5) Each contract described in subsection (b) shall also
8include (i) full disclosure of direct and indirect fees,
9commissions, penalties, and other compensation, including
10reimbursement for expenses, that may be paid by or on behalf of
11the investment adviser or consultant in connection with the
12provision of services to the pension fund and (ii) a
13requirement that the investment adviser or consultant update
14the disclosure promptly after a modification of those payments
15or an additional payment.
16 Within 30 days after the effective date of this amendatory
17Act of the 95th General Assembly, each investment adviser and
18consultant providing services on the effective date or subject
19to an existing contract for the provision of services must
20disclose to the board of trustees all direct and indirect fees,
21commissions, penalties, and other compensation paid by or on
22behalf of the investment adviser or consultant in connection
23with the provision of those services and shall update that
24disclosure promptly after a modification of those payments or
25an additional payment.
26 A person required to make a disclosure under subsection (d)

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1is also required to disclose direct and indirect fees,
2commissions, penalties, or other compensation that shall or may
3be paid by or on behalf of the person in connection with the
4rendering of those services. The person shall update the
5disclosure promptly after a modification of those payments or
6an additional payment.
7 The disclosures required by this subsection shall be in
8writing and shall include the date and amount of each payment
9and the name and address of each recipient of a payment.
10 (c) Within 30 days after appointing an investment adviser
11or consultant, the board shall submit a copy of the contract to
12the Division of Insurance of the Department of Financial and
13Professional Regulation.
14 (d) Investment services provided by a person other than an
15investment adviser appointed under this Section, including but
16not limited to services provided by the kinds of persons listed
17in items (1) through (4) of subsection (a), shall be rendered
18only after full written disclosure of direct and indirect fees,
19commissions, penalties, and any other compensation that shall
20or may be received by the person rendering those services.
21 (e) The board of trustees of each pension fund shall retain
22records of investment transactions in accordance with the rules
23of the Department of Financial and Professional Regulation.
24 (f) Upon the initial transfer of assets and investment
25authority of an eligible pension fund under subsection (b) of
26Section 3-135 or subsection (b) of Section 4-128 of this Code,

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1and thereafter in perpetuity, the Board of Trustees of the
2Illinois Municipal Retirement Fund shall provide all
3investment services for that eligible pension fund. Any fees
4for these services shall be paid from the respective pension
5funds.
6 The Board of Trustees of the Illinois Municipal Retirement
7Fund shall not be held liable by or indemnify any individual
8annuitant or beneficiary of any eligible pension fund
9established under Article 3 or Article 4 of this Code for
10nonpayment of benefits by the eligible pension fund.
11(Source: P.A. 95-950, eff. 8-29-08; 96-6, eff. 4-3-09.)
12 (40 ILCS 5/1-113.6)
13 Sec. 1-113.6. Investment policies.
14 (a) Except as provided in subsection (b), every Every board
15of trustees of a pension fund shall adopt a written investment
16policy and file a copy of that policy with the Department of
17Insurance within 30 days after its adoption. Whenever a board
18changes its investment policy, it shall file a copy of the new
19policy with the Department within 30 days.
20 (b) Beginning 24 months after the effective date of this
21amendatory Act of the 101st General Assembly, or upon the
22transfer of its investment authority under Section 1-113.05,
23whichever occurs first, the requirement to maintain and file an
24investment policy under subsection (a) ceases to apply to the
25board of trustees of an eligible pension fund established under

HB1568- 20 -LRB101 06696 RPS 51723 b
1Article 3 or Article 4 of this Code.
2(Source: P.A. 90-507, eff. 8-22-97.)
3 (40 ILCS 5/1-113.7)
4 Sec. 1-113.7. Registration of investments; custody and
5safekeeping.
6 This Section does not apply to investments that have been
7transferred under Section 1-113.05.
8 The board of trustees may register the investments of its
9pension fund in the name of the pension fund, in the nominee
10name of a bank or trust company authorized to conduct a trust
11business in Illinois, or in the nominee name of the Illinois
12Public Treasurer's Investment Pool.
13 The assets of the pension fund and ownership of its
14investments shall be protected through third-party custodial
15safekeeping. The board of trustees may appoint as custodian of
16the investments of its pension fund the treasurer of the
17municipality, a bank or trust company authorized to conduct a
18trust business in Illinois, or the Illinois Public Treasurer's
19Investment Pool.
20 A dealer may not maintain possession of or control over
21securities of a pension fund subject to the provisions of this
22Section unless it is registered as a broker-dealer with the
23U.S. Securities and Exchange Commission and is a member in good
24standing of the National Association of Securities Dealers, and
25(1) with respect to securities that are not issued only in

HB1568- 21 -LRB101 06696 RPS 51723 b
1book-entry form, (A) all such securities of each fund are
2either held in safekeeping in a place reasonably free from risk
3of destruction or held in custody by a securities depository
4that is a "clearing agency" registered with the U.S. Securities
5and Exchange Commission, (B) the dealer is a member of the
6Securities Investor Protection Corporation, (C) the dealer
7sends to each fund, no less frequently than each calendar
8quarter, an itemized statement showing the moneys and
9securities in the custody or possession of the dealer at the
10end of such period, and (D) an independent certified public
11accountant conducts an audit, no less frequently than each
12calendar year, that reviews the dealer's internal accounting
13controls and procedures for safeguarding securities; and (2)
14with respect to securities that are issued only in book-entry
15form, (A) all such securities of each fund are held either in a
16securities depository that is a "clearing agency" registered
17with the U.S. Securities and Exchange Commission or in a bank
18that is a member of the Federal Reserve System, (B) the dealer
19records the ownership interest of the funds in such securities
20on the dealer's books and records, (C) the dealer is a member
21of the Securities Investor Protection Corporation, (D) the
22dealer sends to each fund, no less frequently than each
23calendar quarter, an itemized statement showing the moneys and
24securities in the custody or possession of the dealer at the
25end of such period, and (E) the dealer's financial statement
26(which shall contain among other things a statement of the

HB1568- 22 -LRB101 06696 RPS 51723 b
1dealer's net capital and its required net capital computed in
2accordance with Rule 15c3-1 under the Securities Exchange Act
3of 1934) is audited annually by an independent certified public
4accountant, and the dealer's most recent audited financial
5statement is furnished to the fund. No broker-dealer serving as
6a custodian for any public pension fund as provided by this Act
7shall be authorized to serve as an investment advisor for that
8same public pension fund as described in Section 1-101.4 of
9this Code, to the extent that the investment advisor acquires
10or disposes of any asset of that same public pension fund.
11Notwithstanding the foregoing, in no event may a broker or
12dealer that is a natural person maintain possession of or
13control over securities or other assets of a pension fund
14subject to the provisions of this Section. In maintaining
15securities of a pension fund subject to the provisions of this
16Section, each dealer must maintain those securities in
17conformity with the provisions of Rule 15c3-3(b) of the
18Securities Exchange Act of 1934 (Physical Possession or Control
19of Securities). The Director of the Department of Insurance may
20adopt such rules and regulations as shall be necessary and
21appropriate in his or her judgment to effectuate the purposes
22of this Section.
23 A bank or trust company authorized to conduct a trust
24business in Illinois shall register, deposit, or hold
25investments for safekeeping, all in accordance with the
26obligations and subject to the limitations of the Securities in

HB1568- 23 -LRB101 06696 RPS 51723 b
1Fiduciary Accounts Act.
2(Source: P.A. 92-651, eff. 7-11-02.)
3 (40 ILCS 5/3-127) (from Ch. 108 1/2, par. 3-127)
4 Sec. 3-127. Reserves.
5 (a) The board shall establish and maintain a reserve to
6insure the payment of all obligations incurred under this
7Article excluding retirement annuities established under
8Section 3-109.3. The reserve to be accumulated shall be equal
9to the estimated total actuarial requirements of the fund.
10 (b) In the case of an eligible pension fund that has
11transferred its investment authority to the Board of Trustees
12of the Illinois Municipal Retirement Fund under Section
131-113.05 of this Code, the assets invested by the Board of
14Trustees of the Illinois Municipal Retirement Fund on behalf of
15the pension fund, and the dividends and other investment
16earnings attributable thereto, shall be considered as part of
17the reserve for the purposes of this Section.
18 The Board of Trustees of the Illinois Municipal Retirement
19Fund shall report to the board of each such fund, at least
20annually and upon the reasonable request of an eligible pension
21fund, the financial information on the invested assets and
22earnings attributable to that pension fund so that the board
23may make the determinations required under this Article.
24 (c) If a pension fund has a reserve of less than the
25accrued liabilities of the fund, the board of the pension fund,

HB1568- 24 -LRB101 06696 RPS 51723 b
1in making its annual report to the city council or board of
2trustees of the municipality, shall designate the amount,
3calculated as a level percentage of payroll, needed annually to
4insure the accumulation of the reserve to the level of the
5fund's accrued liabilities over a period of 40 years from July
61, 1993 for pension funds then in operation, or from the date
7of establishment in the case of a fund created thereafter, so
8that the necessary reserves will be attained over such a
9period.
10(Source: P.A. 91-939, eff. 2-1-01.)
11 (40 ILCS 5/3-132) (from Ch. 108 1/2, par. 3-132)
12 Sec. 3-132. To control and manage the Pension Fund.
13 (a) In accordance with the applicable provisions of
14Articles 1 and 1A and this Article, the board of trustees of
15the pension fund shall have the authority to control and
16manage, exclusively, the following:
17 (1) the pension fund, and
18 (2) investment expenditures and income, including
19 interest dividends, capital gains and other distributions
20 on the investments, and
21 (2) (3) all money donated, paid, assessed, or provided
22 by law for the pensioning of disabled and retired police
23 officers, their surviving spouses, minor children, and
24 dependent parents.
25 All such money received or collected shall be credited by

HB1568- 25 -LRB101 06696 RPS 51723 b
1the treasurer of the municipality to the Illinois Municipal
2Retirement Fund's account of the pension fund and held by the
3Illinois Municipal Retirement Fund for purposes of investment
4pursuant to Article 7 of this Code.
5 (b) Pursuant to rules adopted under Article 7 of this Code,
6the board of trustees of an eligible pension fund shall make
7periodic written application to the Board of Trustees of the
8Illinois Municipal Retirement Fund for receipt and deposit of
9reserves into the pension fund. Reserves in the amount of 3
10months' current liabilities, including annuity and benefit
11payments and operational expenses owed by the fund, shall be
12held by the treasurer of the municipality subject to the order
13and control of the board. The treasurer of the municipality
14shall maintain a record of all money received, transferred, and
15held for the account of the board.
16 (c) In case of any dispute that may arise between the board
17of trustees of the eligible pension fund and the Illinois
18Municipal Retirement Fund pursuant to subsection (b) of this
19Section, the board of trustees of the eligible pension fund
20shall appeal the dispute to the Director of the Illinois
21Department of Insurance. If the Director finds that there
22exists a good faith dispute between the parties, the Director
23may hold a hearing in accordance with the rules of the Illinois
24Department of Insurance.
25(Source: P.A. 90-507, eff. 8-22-97.)

HB1568- 26 -LRB101 06696 RPS 51723 b
1 (40 ILCS 5/3-135) (from Ch. 108 1/2, par. 3-135)
2 Sec. 3-135. To invest, manage, and transfer funds.
3 (a) Except as provided in subsection (b), Beginning January
41, 1998, the board shall invest funds in accordance with
5Sections 1-113.1 through 1-113.10 of this Code.
6 Any pension fund that does not meet the definition of
7eligible pension fund under Section 1-101.6 of this Code shall
8retain the authority to control and manage investment
9expenditures and income, including interest, dividends,
10capital gains, and other distributions on the investments.
11 (b) The board of an eligible pension fund that receives a
12certified investment asset list under Section 3-135.1 shall
13cease investment activities upon receiving the certified
14investment asset list and shall transfer all investment assets,
15minus assets needed to comply with subsection (b) of Section
163-132, to the Board of Trustees of the Illinois Municipal
17Retirement Fund in the manner prescribed by rules adopted by
18the Board of Trustees of the Illinois Municipal Retirement Fund
19under Article 7. Upon completion of the transfer described in
20this subsection, the investment authority of the board shall
21terminate.
22(Source: P.A. 90-507, eff. 8-22-97.)
23 (40 ILCS 5/3-135.1 new)
24 Sec. 3-135.1. Certified investment asset list.
25 (a) Within 24 months after the effective date of this

HB1568- 27 -LRB101 06696 RPS 51723 b
1amendatory Act of the 101st General Assembly, the Department of
2Insurance shall audit the investment assets of each eligible
3pension fund established under this Article to determine a
4certified investment asset list. The audit shall be performed
5by a certified public accountant. The board of each pension
6fund shall defray the expense of the audit.
7 (b) Upon completion of the audit, the Department shall
8provide the certified investment asset list to the eligible
9pension fund and the Board of Trustees of the Illinois
10Municipal Retirement Fund. The Department may adopt rules
11governing the creation and distribution of the certified
12investment asset list.
13 (40 ILCS 5/3-135.2 new)
14 Sec. 3-135.2. To transfer investment funds. At each
15quarterly meeting of the Board, the Board of trustees of any
16eligible pension fund shall transfer any available funds for
17investment to the Board of Trustees of the Illinois Municipal
18Retirement Fund in accordance with provisions of Article 7 of
19this Code. Each transfer shall be made within 30 days of the
20end of the fiscal year quarter and written notice of the
21transfer shall be given to the Board of Trustees of the
22Illinois Municipal Retirement Fund.
23 (40 ILCS 5/4-120) (from Ch. 108 1/2, par. 4-120)
24 Sec. 4-120. Reserves.

HB1568- 28 -LRB101 06696 RPS 51723 b
1 (a) The board shall establish and maintain a reserve to
2insure the payment of all obligations incurred under this
3Article. The reserve to be accumulated shall be equal to the
4estimated total actuarial requirements of the Fund.
5 (b) In the case of an eligible pension fund that has
6transferred its investment authority to the Board of Trustees
7of the Illinois Municipal Retirement Fund under Section
81-113.05 of this Code, the assets invested by the Board of
9Trustees of the Illinois Municipal Retirement Fund on behalf of
10the pension fund, and the dividends and other investment
11earnings attributable thereto, shall be considered as part of
12the reserve for the purposes of this Section.
13 The Board of Trustees of the Illinois Municipal Retirement
14Fund shall report to the board of each such fund, at least
15annually and upon the reasonable request of an eligible pension
16fund, the financial information on the invested assets and
17earnings attributable to that pension fund so that the board
18may make the determinations required under this Article.
19(Source: P.A. 83-1440.)
20 (40 ILCS 5/4-123) (from Ch. 108 1/2, par. 4-123)
21 Sec. 4-123. To control and manage the Pension Fund.
22 (a) In accordance with the applicable provisions of
23Articles 1 and 1A and this Article the board of trustees of the
24pension fund shall have the authority , to control and manage,
25exclusively, the following:

HB1568- 29 -LRB101 06696 RPS 51723 b
1 (1) the pension fund, and
2 (2) investment expenditures and income, including
3 interest dividends, capital gains, and other distributions
4 on the investments, and
5 (2) (3) all money donated, paid, assessed, or provided
6 by law for the pensioning of disabled and retired
7 firefighters, their surviving spouses, minor children, and
8 dependent parents. All such money received or collected
9 shall be credited by the treasurer of the municipality to
10 the Illinois Municipal Retirement Fund's account of the
11 pension fund and held by the Fund for purposes of
12 investment pursuant to Article 7 of this Code.
13 (b) Pursuant to rules adopted under Article 7 of this Code,
14the board of trustees of an eligible pension fund shall make
15periodic written application to the Board of Trustees of the
16Illinois Municipal Retirement Fund for receipt and deposit of
17reserves into the pension fund. Reserves in the amount of 3
18months' current liabilities, including annuity and benefit
19payments and operational expenses owed by the fund, shall be
20held by the treasurer of the municipality subject to the order
21and control of the board. The treasurer of the municipality
22shall maintain a record of all money received, transferred, and
23held for the account of the board.
24 (c) In case of any dispute that may arise between the board
25of trustees of any eligible pension fund and the Illinois
26Municipal Retirement Fund pursuant to subsection (b) of this

HB1568- 30 -LRB101 06696 RPS 51723 b
1Section, the board of trustees of the pension fund shall appeal
2the dispute to the Director of the Illinois Department of
3Insurance. If the Director finds good faith dispute between the
4parties, the Director may hold a hearing in accordance with the
5rules of the Illinois Department of Insurance.
6(Source: P.A. 90-507, eff. 8-22-97.)
7 (40 ILCS 5/4-128) (from Ch. 108 1/2, par. 4-128)
8 Sec. 4-128. To invest and transfer funds.
9 (a) Except as provided in subsection (b), Beginning January
101, 1998, the board shall invest funds in accordance with
11Sections 1-113.1 through 1-113.10 of this Code.
12 Any pension fund that does not meet the definition of
13eligible pension fund under Section 1-101.6 of this Code shall
14retain the authority to control and manage investment
15expenditures and income, including interest, dividends,
16capital gains, and other distributions on the investments.
17 (b) The board of an eligible pension fund that receives a
18certified investment asset list under Section 4-128.1 shall
19cease investment activities upon receiving the certified
20investment asset list and shall transfer all investment assets,
21minus assets needed to comply with subsection (b) of Section
224-123, to the Board of Trustees of the Illinois Municipal
23Retirement Fund in the manner prescribed by rules adopted by
24the Board of Trustees of the Illinois Municipal Retirement Fund
25under Article 7. Upon completion of the transfer described in

HB1568- 31 -LRB101 06696 RPS 51723 b
1this subsection, the investment authority of the board shall
2terminate.
3(Source: P.A. 90-507, eff. 8-22-97.)
4 (40 ILCS 5/4-128.1 new)
5 Sec. 4-128.1. Certified investment asset list.
6 (a) Within 24 months after the effective date of this
7amendatory Act of the 101st General Assembly, the Department of
8Insurance shall audit the investment assets of each eligible
9pension fund established under this Article to determine a
10certified investment asset list. The audit shall be performed
11by a certified public accountant. The board of the pension fund
12shall defray the expense of the audit.
13 (b) Upon completion of the audit, the Department shall
14provide the certified investment asset list to the eligible
15pension fund and the Board of Trustees of the Illinois
16Municipal Retirement Fund. The Department may adopt rules
17governing the creation and distribution of the certified
18investment asset list.
19 (40 ILCS 5/4-128.2 new)
20 Sec. 4-128.2. To transfer investment funds. At each
21quarterly meeting of the Board, the Board of trustees of any
22eligible pension fund shall transfer any available funds for
23investment to the Board of Trustees of the Illinois Municipal
24Retirement Fund in accordance with provisions of Article 7 of

HB1568- 32 -LRB101 06696 RPS 51723 b
1this Code. Each transfer shall be made within 30 days of the
2end of the fiscal year quarter and written notice of the
3transfer shall be given to the Board of Trustees of the
4Illinois Municipal Retirement Fund.
5 (40 ILCS 5/7-226 new)
6 Sec. 7-226. Transfer from Article 3 or 4 fund.
7 (a) Upon receipt of a certified investment asset list
8provided under Section 3-135.1 or 4-128.1 of this Code for an
9eligible pension fund, the Board of the Illinois Municipal
10Retirement Fund shall, as soon as practicable, initiate the
11transfer of assets from the board of trustees of the eligible
12fund, and the board of trustees of the eligible fund shall
13transfer to the Board of Trustees of the Illinois Municipal
14Retirement Fund for management and investment all of its
15securities including securities for which commitments have
16been made, and all funds, assets, or money representing
17permanent or temporary investments, and cash reserves
18maintained for the purpose of obtaining income thereon.
19 (b) Upon the transfer of securities and assets from a board
20of trustees under this Section, the custody and control of the
21Board of Trustees of the Illinois Municipal Retirement Fund
22over the present and future assets of the pension fund shall
23take effect. The transfer shall be receipted for in detail by
24the Board of the Illinois Municipal Retirement Fund and the
25receipt shall be provided to the board of trustees of the

HB1568- 33 -LRB101 06696 RPS 51723 b
1pension fund within 30 days of the effective date of the
2transfer.
3 (c) Each pension fund established under Article 3 and 4 of
4this Code that is under the investment authority of the Board
5of Trustees of the Illinois Municipal Retirement Fund shall
6report to the Board of Trustees of the Illinois Municipal
7Retirement Fund, at the end of each quarter of the pension
8fund's fiscal year, the amount of funds available for
9investment. These amounts shall be transferred within 30 days
10of the end of the quarter to the Board of Trustees of the
11Illinois Municipal Retirement Fund in a manner prescribed by
12the Board. Notice to the Board of Trustees of the Illinois
13Municipal Retirement Fund of each such transfer shall be given
14by the pension fund as the transfer occurs.
15 (40 ILCS 5/7-227 new)
16 Sec. 7-227. Audit of transition. Within 6 months of the
17completion of the transfer of investment assets from an
18eligible pension fund established under Article 3 or 4 of this
19Code to the control of the Board, the books, records, accounts,
20and securities of the board shall be audited by a certified
21public accountant designated by the Illinois Auditor General.
22The audit shall include, but is not limited to, the following:
23(i) a full description of the investments acquired, showing
24average costs; (ii) a full description of the securities sold
25or exchanged, showing average proceeds or other conditions of

HB1568- 34 -LRB101 06696 RPS 51723 b
1an exchange; (iii) gains or losses realized during the period;
2(iv) income from investments; (v) administrative expenses of
3the board; and (vi) the proportion of administrative expenses
4allocable to each pension fund. The audit report shall be
5published on the Board's website and filed with the Illinois
6Department of Insurance.
7 Section 90. The State Mandates Act is amended by adding
8Section 8.43 as follows:
9 (30 ILCS 805/8.43 new)
10 Sec. 8.43. Exempt mandate. Notwithstanding Sections 6 and 8
11of this Act, no reimbursement by the State is required for the
12implementation of any mandate created by this amendatory Act of
13the 101st General Assembly.

HB1568- 35 -LRB101 06696 RPS 51723 b
1 INDEX
2 Statutes amended in order of appearance
3 40 ILCS 5/1-101.6 new
4 40 ILCS 5/1-101.7 new
5 40 ILCS 5/1-113.05 new
6 40 ILCS 5/1-113.1
7 40 ILCS 5/1-113.2
8 40 ILCS 5/1-113.3
9 40 ILCS 5/1-113.4
10 40 ILCS 5/1-113.4a
11 40 ILCS 5/1-113.5
12 40 ILCS 5/1-113.6
13 40 ILCS 5/1-113.7
14 40 ILCS 5/3-127from Ch. 108 1/2, par. 3-127
15 40 ILCS 5/3-132from Ch. 108 1/2, par. 3-132
16 40 ILCS 5/3-135from Ch. 108 1/2, par. 3-135
17 40 ILCS 5/3-135.1 new
18 40 ILCS 5/3-135.2 new
19 40 ILCS 5/4-120from Ch. 108 1/2, par. 4-120
20 40 ILCS 5/4-123from Ch. 108 1/2, par. 4-123
21 40 ILCS 5/4-128from Ch. 108 1/2, par. 4-128
22 40 ILCS 5/4-128.1 new
23 40 ILCS 5/4-128.2 new
24 40 ILCS 5/7-226 new
25 40 ILCS 5/7-227 new

HB1568- 36 -LRB101 06696 RPS 51723 b