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By a vote of 95 to 18 in the House and 47 to 4 in the Senate, the Illinois General Assembly passed Senate Bill 3538 on Dec. 2, enacting some police and firefighter pension reforms. The bill has not yet been signed into law by the Governor. 

In a press release issued on Dec. 2, the City of Evanston said it “was disappointed that these reforms did not go far enough, leaving intact a broken system where the pension benefit level is still set by the state and paid for by Evanston residents. Nevertheless, the reforms enacted do provide relief contrary to the alternatives proposed earlier which could have been much worse for the City.”   

Under existing law the City was required to fully fund its police and firefighter pension funds by 2033. As of March 1, 2010 the City had an unfunded liability to the pension funds in the amount of about $176 million. 

Under SB 3538, the City is given an eight-year extension to fund the pensions, and the new target is to fund 90% of the unfunded liability by 2041. If the City does not fund the pensions properly, according to actuarial standards, then it could lose state shared revenue dollars based on what is owed to the pension funds. 

The bill also includes provisions that should on an overall basis reduce the City’s pension obligations for police and firefighters hired after January 1, 2011. Changes that affect new hires include: 

  • The normal retirement age will be 55, rather than the current age of 50.
  • The early retirement age will be 50, with a 6% reduction in pension payments for each year retired prior to age 55. There is currently no early retirement penalty.
  • There will be pension salary cap $106,800, with annual adjustments to the cap based on the consumer price index. There is currently no cap.
  • A final average salary used to calculate a pension will be the average of the best 8 of the last 10 years. (It is now based on the salary at the retirement date). The pension is 2.5% of the final average salary for each year of service up to a maximum of 75%.
  • A survivor benefit of 66 2/3%, rather than the current 100%.
  • Cost-of-living increases will be less, and will begin at age 60 for retirees (rather than age 55) and survivors. 

The bill will also allow pension funds with more than $10 million in assets to increase the percentage of their investment in equities. Assuming equities perform better than fixed income investments, this will help reduce the unfunded liability to the funds, albeit with greater risk to the funds’ assets. 

“Police and firefighters perform a valuable service, keeping Evanston residents safe on a daily basis,” said the City in a press release. “Their efforts are greatly appreciated by residents, and for their service, the City recognizes that there is an obligation to help provide for their retirements. These changes will take many years to effectively control costs but should help out future generations. 

“Senate Bill 3538 did offer some needed solutions; it did not move to address parts of a larger broken system. Ultimately, the Illinois State Legislature controls public safety pension benefits, but the state is not obligated to contribute funding for these benefits. That burden falls on Evanston taxpayers. 

“This is a first step towards long-term public safety reform, but even more harm could have been done without the efforts of the City of Evanston and other municipalities. The City will continue to pursue further reforms to address existing pension costs that persistently strain the City’s budget.”