BOSTON – Salary spiking and other manipulations of the pension system that lead to excessive costs to the state would be shut down under final legislation approved yesterday by the Senate and the House of Representatives. The legislation, which now goes to the Governor for his signature, is projected to save the Commonwealth more than $5 billion over 30 years.

"I am pleased that we have taken another positive step at reforming our pension system. These are commonsensical approaches to saving the Commonwealth's taxpayers money while adding more credibility back into the public sector. I am proud of the Massachusetts Legislature for tackling pension reform for a second time," stated Senator Jennifer L. Flanagan (D-Leominster).

The legislation prevents inappropriate salary spiking first by increasing the career "look back" period from 3 years to 5 years to more accurately reflect an employee's career earnings and provide a more equitable calculation of retirement benefits. Second, in calculating the average annual rate for retirement compensation, regular earnings in any year cannot include pay that exceeds average earnings from the previous two years by more than 10 percent.

The legislation also expands on a reform passed by the legislature two years ago which eliminated the so-called "Section 10" loophole that allowed elected officials to claim a "termination allowance" based on the failure to be nominated or re-elected. That option is eliminated entirely for all new employees. Additionally, a retirement benefit cannot be received until the individual has reached the minimum retirement age.

The legislation also increases the retirement age for all new employees:

• Group 1 (elected officials and most general employees): Increases the retirement age to 60-67 from the current 55-65;
• Group 2 (employees with titles reflecting hazardous duties): Increases the retirement age to 55-62 from the current 55-60;
• Group 4 (firefighters, police officers, some corrections officers): Increases the retirement age to 50-57 from the current 45-55; and
• For state police employees to maximize their benefits, the bill raises the required minimum time of service to 30 years from the current 25 years.

The legislation also establishes a mandatory retirement age of 65 for state police, which is consistent with the current mandatory retirement age for municipal police officers, firefighters and correctional officers.

For long-term Group 1 employees and teachers who have worked for at least 30 years, the legislation moderates the impact of reforms by easing early retirement penalties and lowering the salary contribution rate by 3 percent.

Additionally, the legislation increases the cost-of-living allowance base for state retirees and teachers from $12,000 to $13,000. Current law provides an annual COLA increase up to 3 percent on a base of the first $12,000 of benefit. The current $12,000 base became effective in 1998.

The legislation also requires that any member seeking to retire from Group 2 or Group 4 must be in active service in that Group for at least 12 months before retirement. Currently, benefits are determined based on the Group classification of the position held on the last day of active service.

Another significant piece of the legislation states that anyone who does not report federal wages that supplement a salary cannot count those wages as regular compensation for the calculation of benefits.

The legislation also does the following:

Pro-rates benefits based on entire employment history of employees who have worked in more than one service Group rather than calculating benefits only by the Group from which the employee retires;
Increases the minimum retirement benefit from $10,000 to $15,000;
Requires retired employees who are elected to a new office or become a judge and reenter the system to repay received benefits with buyback interest;
Clarifies that retirement boards must require retirees convicted of a criminal offense to repay all benefits received since the date of the offense, not just the date of conviction;
Provides an option for retirees who married a person of the same sex, within the first year after it became legal, to change their retirement option in order to provide a benefit to their spouse; and
Establishes a special commission to study the Massachusetts public employees' group classification system and make recommendations for changing it.

Changes in the legislation would take effect for new employees beginning April 2, 2012.