Kathleen Chase, Maine State Representative

Saturday, July 16, 2011

Pension reform underway in Maine

From the July 14th edition of the York County Coast Star.

By Representative Kathy Chase (District #147 Wells Maine)

The first session of the 125th Legislature is over. However, impacts will be felt long after the ringing of the final session bell has faded. I served on the Appropriations and Financial Affairs Committee, which is responsible for the final version of the biennium budget. It passed June 16 by an overwhelming two-thirds vote in both the Senate and House — and was signed into law by the governor on June 20. The focus of this column will be the first of the three major components of the budget: pension reform, tax reform and welfare reform.

Pension reform was proposed primarily to address the unfunded liability that had grown to an unmanageable amount. The reasons for the increase: past legislatures bringing groups into the pension system without funding them, borrowing from the fund, postponing debt payments, and the 2008 stock market crash that caused a loss of $2.1 billion in the pension fund. These were coupled with a mid-90s constitutional mandate requiring that the pension debt must be paid off by 2028 and that experience losses (market loss) must be paid off within 10 years of loss. This created a looming fiscal disaster.

Had we done nothing, Maine taxpayers were projected to pay almost $11.3 billion to the Maine Public Employees Retirement System Pension by the 2028 date with annual payments reaching nearly $600 million by 2018 — and growing. That growth could've potentially impacted every part of our budget, forcing deep cuts in vital state programs such as education, aid to elderly and disabled, roads and bridge repair and the stability of our pension system.

What our budget pension reform package did was reduce the unfunded liability nearly in half, save $338 million in pension costs this biennium alone, and create NO additional employee contributions.

The new plan as passed has a three-year freeze on COLA, or cost-of-living adjustments, with the COLA indexed benefit cap beginning after the third year at up to 3 percent of the first $20,000 in pension; creates a new "cascade" transfer for three years (2012-2014) of up to $15 million from surplus funds to the pension fund for designation by the Legislature for payment of non-accumulative cost-of-living adjustments for the three years while the pension COLA is frozen; changes the non-vested and new hires (only) retirement age to 65; freezes salaries for two years for active employees with no additional contributions required; and ends state shutdown days (representing approximately a 4-percent pay increase to employees).

The secondary reason for reform — based on the dislike of the portability and the reduction in Social Security payments as a result of being in this pension system — is to design a new retirement plan. It will close out the current defined benefit plan and replace it with a retirement benefit plan — supplemental to Social Security — implemented no later than June 2015 and that will apply to all first-hired state employees and teachers as of that date.

One of the good impacts felt from the work of the 125th Legislature this year.