BY MECHELE COOPER
Staff Writer
Legislators concerned with the impact of budget cuts on state workers say the state retirement system is misunderstood.
Sen. Peggy Rotundo, D-Lewiston, said the biggest misunderstanding is with the pensions system.
State employees receive a pension instead of Social Security, and Rotundo says Gov. Paul LePage’s budget proposal requires state employees to pay a greater percentage of their salaries than they would if they received Social Security.
“It also puts retired state employees at a disadvantage,” Rotundo said. “They are receiving less than what people are getting under Social Security. And he’s putting a cap on (cost-of-living allowances), which doesn’t exist in Social Security.”
She said state retirees have not received a cost-of-living adjustment for two years. The adjustment currently is capped at 4 percent.
Sandra Matheson — executive director of the Maine Public Employees Retirement System, which administers state workers’ pension plan — said LePage’s proposal would freeze cost-of-living adjustments to state and teacher retirees’ pensions for three years, and cap subsequent adjustments to their pensions at 2 percent, effective Jan. 2, 2014.
She said people who work for private companies get Social Security, then often are offered a supplemental retirement plan such as a 401(k).
“Maine is one of 14 states that do not participate in Social Security in addition to a state pension,” Matheson said. “That means that neither the state nor employees pay that 6.2 percent of their income in Social Security. State employees actually pay more into their pension. They pay 7.65 percent and also pay an additional 1.45 percent for Medicare.”
Mary Anne Turowski of the Maine State Employees Association said a federal pension offset and windfall elimination provision reduces the Social Security state workers earn during a time in their lives when they might have worked in the private sector.
“If you had another job and paid into Social Security, and then go to work for the state, the more years you had into Social Security, the pension impacts are lessened, but they can still take away up to two-thirds of your Social Security benefits,” Turowski said. “If you spend your entire life in state government and don’t pay into Social Security, there’s no Social Security benefit. You’ll only get a state employee pension.”
She said the federal provision has a more “egregious” impact on widows and widowers, especially women.
“If a woman works in state government and raises a family first, so she started late, she has a pension, but a small one,” she said. “Say her husband worked in the private sector and he dies. She receives absolutely nothing because of her state pension. A lot of times, this leaves women living in poverty. They’re thinking they’re going to receive a benefit, and for the most part, are ineligible for most of his Social Security.”
Dan Demeritt, spokesman for Gov. LePage, said 52,529 state workers and teachers are retired or are within 10 years of retirement.
He said most will not receive Social Security and are too close to retirement to make other financial arrangements. So the governor’s proposal is a way to save the pension system.
“We borrowed from the pension system, and by not paying the contributions we should have been paying back in 1991, we had just 35 percent of the assets needed to meet our retirement obligations,” Demeritt said. “(The state retirement system) was dramatically underfunded.”
Without reform, LePage said the state would need to appropriate $926 million over the biennium to meet its pension obligations.
Demeritt said the giant unfunded liability is the problem.
The debt was caused by understating the cost of benefits, overstating future funding, enhancing benefits without paying for them and deferring payments, according to a study released in March 2010 by the Maine Unified Retirement Plan Task Force.
An amendment to the Maine Constitution amendment requires the state to pay off all the debt by 2028. The recent downturn in the stock market caused losses in the fund of nearly 19 percent in fiscal year 2009, and a gain of 11 percent thus far in 2010, according to the retirement system.
“By 2007, we had reached the point where we had a funding ratio of 74 percent,” Demeritt said. “With the 2008 stock market declines, we dropped back down to a 66 percent funding ratio by 2010, meaning we have just two out of every three dollars required to fund our retiree obligations.”
Mechele Cooper — 623-3811, ext. 408
mcooper@centralmaine.com
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