Bill
HB 2765
The bill creates a Deferred Retirement Option Plan for eligible Downstate teachers, allowing a defined notional DROP account and temporary retirement deferral up to five years.
Status: Introduced in 2025 (sponsor: Rep. Jackie Haas). Currently listed as Rule 19(a) / re‑referred to Rules Committee. (Bill text states “effective immediately” if enacted.)
Purpose
- Establish a Deferred Retirement Option Plan (DROP) for eligible participants covered by the Downstate Teacher retirement Article of the Illinois Pension Code. The DROP is intended as a retention/transition option that allows eligible teachers to defer formal retirement while receiving the retirement annuity amount into a notional account for a limited period.
Key provisions and mechanics
- Eligibility: An “eligible member” must be an active participating employee eligible for an unreduced retirement annuity under the applicable Article, must never have received a retirement annuity from the system, and must not be subject to mandatory retirement during the DROP period.
- Availability and election deadlines:
- The retirement system must make the DROP available no later than July 1, 2028.
- Eligible members must elect participation in writing; the bill contemplates elections no later than January 1, 2030 for initial cohorts and prohibits new DROP participations after January 1, 2033.
- Participation may continue for up to five (5) years from the election date.
- Account credits while participating:
- For the DROP period the system credits a notional account on behalf of the member an amount equal to the monthly retirement annuity the member would have received had they retired on the election date (less legally required deductions).
- Automatic annual increases that would have applied to a retired annuitant also accrue to the DROP account.
- Members continue to make employee annuity contributions; these are credited to the DROP account as if they remained active.
- The notional account accrues interest annually based on the 10‑year U.S. Treasury rate in effect on January 1.
- Status while in DROP:
- DROP members are treated as active service for purposes of collective bargaining, health care, and death/disability benefit eligibility, but they do not accrue additional service credit or pensionable salary increases for service credit purposes.
- Members may not access the DROP account until participation ends (the election is irrevocable).
- Termination and payout:
- DROP participation ends early if the member terminates employment, begins collecting a disability benefit or dies. At termination/expiration the account balance is paid as a lump sum or transferred consistent with system fiduciary duty and law; retirement annuity then commences.
- Administration:
- The DROP may be administered by the respective retirement system; the bill also contemplates a DROP administered by the State Treasurer for systems that elect to transfer administrative responsibility.
- Provisions address interest crediting, administrative costs, contributions, and an advisory board. The board of the pension fund may adopt implementing rules.
- Tax and legal compliance: The bill states the intention that the DROP not jeopardize the tax‑qualified status of the pension fund and allows rules to ensure compliance.
Who is affected
- Primary: active Downstate Teacher Article participants who are eligible for unreduced retirement and meet the other eligibility criteria.
- Secondary: pension systems (administration/financial operations), school districts (worker status, benefits), and state pension fund finances (liquidity and actuarial impacts).
Potential impacts and considerations
- Workforce retention: DROP can encourage experienced teachers to remain employed while building a lump sum retirement reserve.
- Fiscal effects: Notional accounts and lump‑sum payouts may affect near‑term system cash flows and administrative workload; long‑term actuarial impacts depend on participant behavior and payout timing.
- Benefit design tradeoffs: Members retain active benefits (health, death/disability) while foregoing additional service credit; systems must guard against unintended cost or tax consequences.
Implementation timelines (per bill text)
- Make DROP available by July 1, 2028.
- Elections for initial participation by January 1, 2030; new participation not permitted after January 1, 2033.
- Effective immediately upon enactment (per bill language).
Compiled from official sources — confirm details with the bill’s official record.
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