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Taxpayers Lose $3,000 Each

By   /   June 30, 2010  /   No Comments

The Institute for Truth in Accounting has calculated that every Maine taxpayer has lost an average of $3,000 during the economic recession due to investment losses at PERS. Here are some excerpts from the post:  

Many Maine taxpayers’ investment accounts, including their retirement accounts, experienced huge losses during the recent downturn in the market.  But unknown to them, the downturn in the market hit them even harder.  Their share of the investment losses of the states’ retirement plans was more than $3,000.

In the June 30, 2009 financial report of the Maine Public Employees Retirement System, the system’s Executive Director, Sandra J. Matheson noted, “The defined benefit and group life insurance portfolio experienced a second year of negative returns, following five consecutive years of positive returns, with an overall return of negative 18.8%. Total value of the portfolio declined to $8.3 billion at June 30, 2009 from $10.5 billion at June 30, 2008.”  By May 30, 2010 the portfolio value had rebound to $9.1 billion.

She also highlighted, “The design of defined benefit plans presupposes that the return on invested contributions will supply a significant amount of the benefit funding resources of such plans.  When the investment markets do not provide the return expected, the resulting funding shortfall must be made up by employer contributions.”  This is the main reason corporations have turned away from defined benefit plans.

What Ms. Matheson fails to mention is the employer is the state and tax revenues pay the contributions.  Therefore the taxpayers are on the hook for downturns in the market.

To make matters worse, the presupposed return on investments used by the pension plan actuaries is 7.8%.  It is highly unlikely even in good times the plan’s assets will earn such a high rate of return.  A study by the U.S. Government Accountability Office indicated that historically pension plans earn a 4.5%.  The taxpayers must make up the difference.

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