Committee backs reallocation of 1% premium tax to municipal pension funds; measure sent to Finance

The Senate Banking and Insurance Committee on March 19, 2025 voted to report Senate Bill 878 to the full Senate with the recommendation that it do pass and be referred first to the Committee on Finance. Committee Counsel and witnesses described the bill as a reallocation of the 1% fire and casualty premium tax that would remove a current 10% allocation to the Teachers Retirement System Reserve Fund (TRS) and increase the Municipal Pension Security Fund share to 75%, while maintaining a 25% contribution to the Fire Protection Fund.

Committee Counsel explained how the existing tax is divided: 10% currently goes to TRS, 25% to the Fire Protection Fund (supporting volunteer fire departments), and 65% to the Municipal Pension Security Fund (for municipal police and fire pension and relief funds). Under the bill, the 10% that now goes to TRS would be redirected into the Municipal Pension Security Fund, increasing that fund's share to 75%. The counsel further said that of the 75%, 13 1/3% would be eligible to be distributed only to municipalities using the optional 1 or optional 2 actuarially sound funding methods; another 10% of the 75% would be allocated based on a municipality's average number of active and retired police officers and firefighters in the prior fiscal year.

Blair Taylor, executive director of the Municipal Pensions Oversight Board, testified that municipal plans vary widely: "Some of them are funded as low as 11% and as high as 191%." Taylor said the bill aims to incentivize municipalities to adopt actuarially sound funding (optional 1 or 2) and, if they do so, to make them eligible for additional distributions from the reallocated 10 percentage points.

Committee members pressed on fiscal details. Committee Counsel and representatives from the Insurance Commissioner's Office said fiscal year 2024 distributions from the 1% produced about $24.8 million to municipal pension plans and roughly $3.8 million to TRS; the counsel also noted that the exact calendar vs. fiscal year figures vary and that a technical change in the bill may move the effective date from July 1, 2024 to July 1, 2025. The Deputy Insurance Commissioner described the routine collection and passthrough mechanics and said the agency deposits the money to the appropriate funds but does not retain it.

Some senators voiced policy concerns about fairness: one senator argued that redirecting insurance‑based surcharges would effectively have policyholders across the state subsidize municipal pension plans that, in some cases, now collect local sales taxes and other revenues. Counsel noted there have been prior committee substitutes that would have limited the reallocation to a set period or tied eligibility to funding thresholds.

The committee adopted the motion to report the bill to the full Senate with the recommendation that it pass and to refer it first to the Committee on Finance. The committee record indicates the matter will proceed to Finance for technical cleanup and further consideration.