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2010 Public Safety Pension Reform

In December 2010, the General Assembly and Governr too the critical first step to reforming public safety pensions by passing Public Act 96-1495 (Senate Bill 3538). Senate Bill 3538 was approved by the House 95-18 before clearing the Senate 46-4-2. The bill was signed by Governor Quinn on December 30, 2010.  Highlights of Senate Bill 3538 include:
 
Modified Pension Benefits for Police and Firefighters Hired After January 1, 2011
·         Normal retirement age 55 (was age 50)
·         Early retirement age 50 with ½% reduction for each month prior to age 55, up to 30% reduction if pension taken at age 50 (currently no early retirement penalty)
·         10 year vesting (current vesting 8 years for police and 10 year for fire)
·         Earn 2.5% pension for each year of service with maximum of 75% at 30 years (slight change in formula for fire)
·         Pension salary cap of $106,800 with annual CPI adjustments (no current cap)
·         Final Average Salary for pension is average of final best 8 of 10 years of service (now final day/month salary)
·         Cost of Living Adjustment is lesser of 3% or ½ CPI-U, non-compounded (was 3% compounded)
·         COLA begins at age 60 (was age 55)
·         Surviving spouse benefit 66 2/3% of pension at time of annuitant death with new COLA formula also beginning at age 60 (currently 100%)
Actuarial Changes
·         30 year closed amortization period with funding goal of 90% by the end of municipal fiscal year 2040 (was 40 year closed period with goal of 100% due by 2033)
·         Level percent of payroll formula remains in effect
·         Allows 5 year smoothing of actuarial gains and losses incurred after 2011
Expanded Investment Authority
·         Allows funds with over $10 million in assets to expand investment opportunities
Funding Compliance Mechanism
·         State-shared revenue diversions to pension funds beginning in fiscal year 2016 equaling any difference between the employer contribution and the required actuarial contribution
·         Three year phase-in with up to 1/3 of state-shared revenue diverted in fiscal year 2016, up to 2/3 in fiscal year 2017 and up to the full contribution difference beginning in fiscal year 2018
Commission on Government Forecasting and Accountability Studies
·         Investment pooling
·         In-depth study on each pension fund including: fund balances, historical contribution rates, actuarial formulas used, available funding sources, impact of revenue limitations including tax caps and existing compliance measures
·         Required to be released in 2013
Please see link below for the actual legislation:  Senate Bill 3538
 
Although the legislation is far from perfect and does not address the burden of funding benefits for current public safety employees, PA 96-1495 represents a major first step toward pension reform. The extension of the amortization deadline from the current 100% funded by 2033 to 90% funded by 2040 will initially produce a significant savings on unfunded liability payments thus providing a measure of relief for taxpayers. The introduction of modified benefits for new employees will produce growing savings in future years once new employees are brought on board. Pension funds with over $10 million in assets will be able to expand their asset investment opportunities.