Earlier this spring, the General Assembly created a modified two-tier pension system for many of the state’s public funds to address the state’s mounting pension obligations. The move (SB 1946) is expected to save the state over $250 billion over the next 35 years.

Municipalities have also struggled to pay for their public safety related pension funds. Many rely on property taxes to fund the systems. Senate Bill 3538 will help financially struggling municipalities reduce cost by establishing a more fiscally responsible pension system for the state’s police and firefighters hired after the New Year.

The legislation:

• Changes the standard retirement age for police and firefighters from age 50 to age 55. Police and firefighters could retire early starting at age 50, but would lose 6 percent for each year before 55.
• Leaves intact current provisions allowing firefighters and police to retire with maximum pension benefits of 75 percent of their salaries after 30 years of service. Police will continue to contribute 9.91 percent of their salaries and firefighters will continue to contribute 9.45 percent of their salaries to their pensions.
• Caps the maximum salary upon which a pension can be based at $106,800. That number will increase annually at half the urban consumer-price index.
• Seeks to end the “spiking” of salaries through late-career raises and promotions by basing pensions on the employee’s final average salary, which will be calculated by using an employee’s highest paying eight years out of the last 10 years they worked. Today, police and fire pensions are based on the employee’s salary on the last day worked.
• Cost of living increases will be based on 3 percent or half the urban consumer-price index, whichever is less. Today, COLAs are an automatic 3 percent.
• Requires cities to have the systems 90 percent funded by 2041.
• Starting in 2015, it allows the pension funds to petition the state comptroller to subtract funds from tax money owed to the cities by the state if a city does not make complete payments to the system.
• Requires the Commission on Government Forecasting and Accountability to assess the status of the 636 police and fire pension funds and the feasibility of pooling those funds. Mayors believe the pension funds would be more solvent if they were combined into one or two funds. COGFA’s report is due Jan. 1, 2013.

The Senate also passed a trailer bill (SB 550) sponsored by Senate President John Cullerton to makes technical changes to last year’s pension overhaul. The legislation is heralded by the state’s pension systems who’ve been meeting all summer to improve the bill.