Pension reform bill passes

The Legislature has enacted a pension reform bill, consisting of mostly prospective changes, that is expected to save the state and municipalities an estimated $5 billion over the next 30 years and protect the state’s bond rating.

The governor was expected to sign the bill, which retains the three major reforms that he first laid out in January.

The bill would increase the minimum retirement age for most public employees from 55 to 60. It would also increase the age of eligibility for a full pension from 65 to 67 for non-Group 4 (police and fire) employees.

Under the terms of the bill, an employee’s pension benefit would be based on their highest five years of earnings instead of their highest three years.

Benefits would be prorated for employees who worked in several classification groups, thus preventing someone who may have only worked for a short period in a high-earning group from collecting an inflated pension.

The bill also includes “anti-spiking” provisions. For example, an employee who moves into a position with a higher pension at the end of his or her career must be in that position for at least one year in order to qualify for the higher pension. And the annual increase in pensionable earnings is limited to 7 percent.

The bill does not include a mandatory increase in the base used to calculate cost-of-living adjustments for municipal employees. Legislators noted that many communities, at local option, currently go above the $12,000 COLA base.

The next phase of pension reform will likely focus on the disability retirement system. The pension bill includes a study of disability provisions, and the MMA has a designee on that study commission.