The unfunded liability in Maine’s public employee pension funds is suddenly getting a lot of well-deserved attention.

The Legislature’s budget committee heard a report last week with the troubling news that just meeting the constitutional requirement to pay back the money owed to the fund over the next two years will be more than $900 million. That’s over and above the $90 million needed to pay benefits to retired state workers and teachers.

In response, lawmakers and some gubernatorial candidates have proposed redesigning the retirement plans offered to public employees, possibly raising the retirement age, changing from defined benefit to defined contribution plans, like the private sector’s 401(k), or moving Maine into the Social Security system. (Public emloyees here do not currently participate in the federal retirement program.)

Those might be good ideas, but no one should be confused. Maine could do any or all of them tomorrow, and it would not make a single penny’s difference in the budget hole created by the state pension system’s unfunded liability.

That’s because the debt was incurred years ago — as early as the 1970s. There is nothing Maine could do to the pension plan design that would make it go away any faster.

And, as a result of a 1995 constitutional amendment that requires the state to retire its unfunded liability by 2028, the Legislature can’t do anything besides pay it.


The state has made tremendous progress since the early 1990s when raids to the pension fund left the liablity only 36 percent funded. Now we are nearly 70 percent funded, but as more workers enter the system, paying off the unfunded liability will require even more effort.

And that effort has been made even more difficult by the economic downturn, which has created a double whammy for the state budget.

As the return on the pension fund’s investments stagnates, more is required from state taxpayers to fully fund the pension system. But because of the recession, tax collections have declined (although they now appear to be stabilizing), meaning that other programs will suffer as the state keeps up with its obligation to retirees.

Even though they won’t help in this budget year, it’s worthwhile looking at changes to the state pension system that would affect state employees and teachers who have not yet been hired, or current employees who have not yet become vested in the state system.

They are the ones who have the most to lose under the current arrangement and would benefit from changes, particularly a move into the Social Security system, which would make their retirement benefit portable as they changed jobs.

The way things work now, a state worker or teacher can hold a public sector job more than four years without becoming vested in the state system, and get no credit toward Social Security.


Turnover in the public sector is much higher than many people believe, and nearly half of newly hired state workers and 60 percent of teachers leave their jobs before they are vested in the system on their fifth anniversary on the job.

Only about 25 percent of state employees and 13 percent of teachers stay on the job for more than 25 years and retire with a full benefit. Since so many workers are paying into the system without receiving benefits, the current setup is less expensive to operate than a Social Security-based system, but not a fairer one.

Changes in pension design that would make the plan less costly in the long run combined with adjustments to make benefits more portable could be a good long-term strategy to better control future growth of the pension system.

But nothing will change the commitment the state has to current retirees and vested employees. And nothing, besides paying it off, will reduce the debt.

Unless the next governor and Legislature are willing to drum up public support to change the constitutional amendment, commitments made to present and future retirees are going to compete with priorities such as economic development, transportation, education and social services.

As concern about the future demands of the pension system become part of this year’s campaigns, candidates should be clear about which problem their proposals are actually trying to solve.