The Illinois Senate is poised to vote Wednesday on solutions to the state's public safety pension system that would reduce the benefits of future downstate and suburban police officers and firefighters, and penalize municipalities who fail to meet financial obligations.

The measure, sponsored by State Rep. Kevin McCarthy (D-Orland Park) and State Sen. Kwame Raoul (D-Chicago), was approved in the House Tuesday after a final round of negotiations and sent to the Senate on a 95-18 vote.

Most notably, the age of retirement for all police and firefighters hired after Jan. 1, 2011, would be raised from 50 to 55. Public safety workers hired after Jan. 1, 2011 would be eligible to retire at 52, but with a 6-percent reduction in benefits per year until they reach 55.

Instead of a full paycheck, surviving spouses would receive about 67 percent of the employee's pension, which would be calculated based on the average of his or her eight highest salaried years. Also, a pensionable salary cap would be placed at $106,800 and cost-of-living cap at 3 percent, or one-half of the urban consumer price index, whichever is less.

In return, municipalities would need to fund at least 30 percent of their pension system or face penalties from the state, including the withholding of revenue and funding.

State Sen. Terry Link (D-Waukegan) has introduced his own set of changes in the Senate that would force less concessions from unions, though some lawmakers doubt it will ever make it beyond the committee level.

Earlier last month, the residents from 45 communities passed an advisory referendum that called for full-scale pension reform, contending that ever-increasing payments are unfair. In every instance, it passed with more than 70 percent.

Oak Lawn firefighters union, AFFI-IAFF 3405, supported the change.

"We are in favor of the bill," said Bob Lanz, secretary treasurer. "It does have some of the amendments we were looking for…and there's basically some stuff we don't like, but that's life and that's what the (compromise) process is all about."

The Illinois Municipal League, which aids and represents the state legislative affairs of municipalities, estimates that these reforms could save the entire state between $500 million and $1 billion a year in financial obligations.

McCarthy could not be reached for comment.

"These are extremely complex negotiations, not only because of the financial implications but the political implications as well," State Sen. Ed Maloney (D-Chicago) said. "In the case of the previous pension reform bill, it's clear that it's saved the financial stability of the system."

In April, the state legislature created a two-tier system for all municipal and state employees—including teachers and state lawmakers—hired after Jan 1, 2011. Police and fire were included in an earlier draft but removed shortly before the vote. For the others, retirement was raised to 67.

Blame Game

Some downstate and suburban mayors have prophesized financial disaster, while others say their towns face drastic layoffs or cuts in services, if public safety pension benefits aren't changed. This summer, members of the Southwest Conference of Mayors—which includes Oak Lawn, Orland Park and Palos Hills who pushed for those advisory referendums—blamed the police and fire union presence in Springfield with impeding total reform.

In return, unions point a finger back at municipalities, citing an annual non-partisan Commission on Government Forecasting and Accountability report that shows how many municipalities for years failed to properly funded their pension systems.

"It's pretty obvious there's a problem, but all of the problem does not lie with (retirement) benefits," said Lanz, noting that Oak Lawn firefighters do not have "longevity spikes" in their contracts which substantially boost pension payments the day before retirement. "Approximately 20 percent of the problem is probably due to benefits. The other 80 percent is due to incomplete or inaccurate funding by the municipality."

Lanz said taxpayers kept fronting the money, while most local government spent it on other services, thereby intensifying debt and kicking the can.

Gerald Bennett, Palos Hills mayor and Southwest Conference president, contends that independent pension boards are the problem.

"(Municipalities) do not increase (or decrease) salary benefits," he said. "We have no authority over when and how we're required to pay them."

In the last decade, these local five-member boards—more than 600 across the state, each equipped with lawyers and financial advisors—have doubled the share that municipality's owe, while holding worker's contributions constant, Bennett said.

"When pensions were created in the 1950s, local governments were supposed to pay for it through property taxes," he said. "In the mid 1990s, (the state) put a cap that limited municipalities who weren't home-ruled. The only way we can fund this now is to use other (general) revenue sources and that's not the way it was set up."

Bennett said the simplicity of the system was lost in the last decade as benefits rose and the economy tanked. To off-set the drop in the pension boards' investment returns, municipalities—many of whom were not paying enough to begin with—become responsible for the discrepancy.

In 2009, suburban public safety funds, on average, had just 52 percent of the assets needed to be fully funded, according to Department of Insurance data analyzed by the Chicago Tribune. The suburbs, alone, have dug a $5 billion hole for its taxpayers.

The table below shows the 2009 funding levels for Palos-area police and firefighter pension funds. The information comes from the Chicago Tribune's analysis of Department of Insurance data. To view the full searchable database click here.

According to the analysis, the average public safety fund in Illinois is funded at 52 percent.