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Pension Costs Rise

By   /   October 25, 2010  /   No Comments

The Maine Heritage Policy Center (MHPC) in Bangor this morning held a press conference to announce upgrades consisting of increased state pension data to its transparency website MaineOpenGov.org. 

Tarren Bragdon, the CEO of the conservative think-tank, said that the expansion of the website will “let taxpayers finally understand and personalize this government pension issue, and its impact on Maine families.”

Bragdon said: “For every $1 withheld from his or her paycheck while working for the government, the average government retiree will receive $17 in lifetime pension benefits.” 

Sam Adolphsen, Director of MHPC’s Center for Open Government, chalked the pension liability up to generous payments to retirees.  According to his Center’s research, some 26,000 current government retirees have paid $900 million in the retirement system, but the projected lifetime benefits for retirees is estimated to be $15.4 billion.

In a statement, Maine’s Public Employees Retirement System (MainePERS) said: “We are not able to comment on the cost calculations or projections in this report.  Specifically the calculation that employees enrolled in MainePERS plans will receive over $15.4 billion is not a number that has ever been calculated or suggested by our actuary.”  

The statement said that retirement plans, whether the state’s defined plan or a 401(K), are specifically designed to provide back more than a person contributes: “Retirement plans are designed to pay the member back more than their contributors, as are Maine’s defined benefits plans, because of compound interest or investment return on their contributions over time.” 

Sandy Matheson, the Director of MainePERS, said that Maine is “on track to pay off the debt, but the costs will increase in large part due to the 2008 market downturn.”

The pension costs for the upcoming biennium are projected to be $916 million, or $287 million more than the $629 million cost during the previous biennium. 

Maine’s most recent total biennial budget was nearly $6 billion. 

The statement clarified that there are two types of pension plans: “A defined contribution plan is designed so that the individual bears the investment risk, and a defined benefit plan is designed so that the employer, or in this case the State of Maine, bears the investment risk.”

Because MainePERS has experienced investment losses during the recession, the State of Maine, as the risk-bearer, must supply additional money from the General Fund to make the payments necessary to eliminate Maine’s unfunded liabilities by 2028, per constitutional mandate.

Additional contributions, however, will compete with appropriations for other state programs and services, so some state legislators and gubernatorial candidates have entertained the idea of restructuring the debt over a longer period of time, though no specific proposals have surfaced yet. 

Matheson said: “The Legislature has asked MainePERS for further information about how pension costs work, and we are in the process of preparing that information now.  We are not sure of the date by which we can complete this work.”

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