March 11, 2012

State considers freezing enrollment in public-worker pension system

By John Richardson jrichardson@pressherald.com
Staff Writer

AUGUSTA - The state's 70-year-old pension system may soon be retired.

After dealing with decades of underfunding and the 2008 stock market crash, lawmakers are considering freezing enrollment in the $10 billion retirement system.

Current public employees and retirees wouldn't be affected, but future employees could be shifted into the Social Security system and a smaller supplemental retirement plan.

Among the advantages of the new system, lawmakers say, is that workers who move between the public and private sectors would no longer be penalized through reduced Social Security benefits.

A report submitted last week to the Legislature describes one possible option for a new system, which could take effect as soon as June 2015. The Legislature's Appropriations Committee is expected to discuss the report in the coming weeks, although a decision is not likely until next year.

Phasing out the pension system would be a big move for Maine, one of 14 states that have a public workers' pension system totally separate from Social Security.

"It could be a big step," said Sen. Dawn Hill, D-Cape Neddick, a member of the Appropriations Committee. "The new economic reality seems to dictate that we at least take a look."

There are 27,800 retirees now enrolled in the state's Public Employees Retirement System, according to a database of members obtained through a Freedom of Access Act request.

Those collecting pensions include retired teachers and school administrators, state employees, municipal workers, legislators and judges.

Individual pension benefits range from $20 a month for people who worked only briefly in the public sector to $9,607 a month, or $115,284 a year, according to the data. The retiree who earned the state's top pension is Ulrich Jacobsohn, an 83-year-old forensic psychiatrist who was clinical director at the Augusta Mental Health Institute and director of the State Forensic Services.

The average state pension is about $19,693 a year for retired school and state employees, the largest category of retirees in the system.

Maine's retirement plan for school employees and state workers is what's called a defined-benefit plan. Payouts are based on years of service and salary, not how well the stock market does while the money is building up.

Public workers can expect a benefit equal to 2 percent of their highest average income, multiplied by the number of years worked.

So, for example, a 20-year employee who earned an average of $40,000 in his three highest paid years would get $1,333 a month, or $15,996 a year.

The benefits are paid for by a combination of worker contributions, state contributions and the investment income earned by the massive retirement fund.

Workers contribute 7.65 percent of their salaries. The state has historically kicked in 5.5 percent as its regular share, plus an additional amount to correct for past underfunding. That underfunding put the pension system in financial jeopardy in the 1990s, when Mainers passed a constitutional amendment to fully fund the system by 2028. The financial rebuilding plan was largely on track until the 2008 stock market crash reduced the pension fund's assets again.

To get the rebuilding back on track, the Maine Legislature last year raised the retirement age from 62 to 65 and reduced future cost-of-living increases, among other changes. That effectively reduced the amount of employer contribution needed from the state to 2.9 percent of salaries, and reduced the amount needed to correct underfunding from 14.5 percent to 12 percent.

Appropriations Committee Chairman Sen. Richard Rosen, R-Bucksport, said it is a good time to consider a new start now that the existing pension system is stabilized.

Rosen said the change won't save the state money, especially in the beginning. He likes the idea mostly because it will help Maine's public workers, who change jobs and careers much more than they used to, he said.

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