Lawmaker eyes state retirement overhaul
Oxford Republican: State should consider switching systems
By Susan M. Cover scover@mainetoday.com
MaineToday Media State House Writer
AUGUSTA -- An Oxford Republican wants the state to look at changing the state retirement system with the goal of avoiding the creation of a new unfunded liability.
Rep. Jim Hamper, R-Oxford.
Maine.gov
Rep. James Hamper said Thursday he'd like lawmakers to consider switching to a contribution-based system such as a 401(k), or to having the state join Social Security.
Changes made now won't help the state cope with the current unfunded actuarial liability, which is debt that began piling up in the 1970s. But Hamper said the state should look toward the future when thinking about what kind of retirement benefit to offer to new hires.
Hamper's proposal to switch retirement funding was first reported this week in The New York Times.
"My bill is to get the conversation going," he said Thursday. "Let's start talking about this."
Hamper's bill follows action two years ago to create a task force to study the retirement system. Sen. Peter Mills, R-Cornville, sponsored the legislation and said his interest continues to be in making the system more responsive to the needs of modern-day workers who tend to switch jobs frequently.
As it is now, Maine is one of two states in New England that does not participate in Social Security, which means workers who switch from the private sector to state work -- or vice versa -- get reduced benefits when they retire.
Also, Mills said the current system doesn't reward lower-paid state workers as much as Social Security does.
"I've never suggested this would save money," he said.
A task force report released in March showed that changing from the current system to anything else would cost the state more money. The group did not recommend any changes, but outlined the different options and what each would cost. As it is now, the state pays 5.5 percent of payroll into the retirement system. Social Security would cost the state 6.2 percent, but would continue to benefit workers whether they are employed by the state or not.
Under the current system, the state saves money because fewer than half of employees -- who contribute 7.65 percent of their pay to the system -- eventually retire from the state and receive a monthly benefit.
Maine has a defined benefit plan, which means employees who reach retirement age are guaranteed a fixed monthly amount when they retire. All of the investment risk is borne by the state, not the employee.
Defined contribution plans, such as a 401(k), place the risk in the hands of employees, who make their own investment decisions and are not guaranteed a certain level of benefit when they retire. If the state switched to Social Security and a 401(k), the cost to the state would be a 9.2 percent annual cost, compared to the 5.5 percent cost of the current plan, according to the retirement system.
Appropriations Committee members said they are aware of the looming debt in the retirement system -- and complaints from some workers -- but they do not believe there's a lot of traction in the Legislature to overhaul the system. Appropriations Committee House Chairwoman Emily Cain, D-Orono, said it will be up to the new governor and newly elected Legislature to decide whether this is an issue that should be tackled.
Regardless of the long-term plan, the state will be required to pay $916 million into the system in the next budget cycle -- an increase of $287 million from the last two-year period, according to the retirement system.
The amount of the unfunded liability changes depending on the stock market. The retirement system saw losses of nearly 19 percent in 2009.
"There are some frustrations from people in the system about the incompatibility with Social Security, but I'm not sure anyone has any concrete proposal moving through the process," Cain said.
Hamper, a member of the Labor Committee, said that, if he's re-elected this fall, he wants to get the state thinking beyond 2028, when the current unfunded liability must be paid.
"I think the unfunded liability is very important in the grand scheme of things," he said."That bill's coming due. This is not going to affect that bill."
Susan Cover -- 620-7015
scover@mainetoday.com
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22 COMMENTS
Graham said...
Excellent review of the retirement system problem. The first I have heard of the additional costs of joining social security. I was eligable to receive over $1,200 a month based on earlier employment out side Maine but only receive $278.00.
July 23, 2010 at 5:11 AM Report abuse
DTOM said...
"The proposal may meet resistance, however, because it does not fill the gaping hole in the state’s pension fund. A shift into the federal program is also hard to plan because Social Security has a financial imbalance — one that will worsen as the population ages. At some point, Congress is expected to either raise taxes or cut benefits." ++++ http://www.zerohedge.com/article/social-security-tackle-state-pension-woes ++++ ++++ "It may be here sooner than you think, what with Andy Stern on Obama's new commission." ++++ http://www.seiu.org/2009/03/seiu-coalition-partners-launch-retirement-usa-initiative.php ++++ ++++ MSEA/SEIU ---- "Task Force Report: Current Public Employee Pension System Is More Affordable Than Social Security for State of Maine" (for the Task Force's 82-page Report...) ++++ http://www.mseaseiu.org/Story36.html ++++ http://www.mseaseiu.org/bulletin/030910TaskForceReport.pdf
July 23, 2010 at 6:07 AM Report abuse
HesterPrynne said...
Graham, I'm in the same place, bu there here not realizing the issue. So I'm screwed no matter which way I turn now. I'd love to see them go to SS. It makes sense.
July 23, 2010 at 7:33 AM Report abuse
Cruisin said...
Another example of the rocket scientists we have representing us. Spend more money to fix a problem another governor caused. Before it was illegal to do so we had a governor borrow (steal) from the retirement. Why spend more money now! If it saves money to keep what they have now, keep it! Social Security is a failed program. This representative does not even have a clue that most people that pay in to SS will never have a positive return on their money.
July 23, 2010 at 7:46 AM Report abuse
Hipupchuck said...
Yes, flush the unstable irresponsible banks with even more money. Real smart. Maybe they can turn your retirement funds into junk bonds or turn it all into bad paper. Republicans are always thinking.
July 23, 2010 at 7:53 AM Report abuse
Viki O said...
I find it very odd that the NYTimes was the first to report this....where is our Maine media?
July 23, 2010 at 8:24 AM Report abuse
said...
Yeah, sure, Hester, Make the state employees pay into the system that the Congress has turned into their own personal piggy bank. SS is the biggest ponzi scheme in recorded human history. The state retirement system would be fine if it hadn't been for the common thieves that stole from it in the early 90's. Once again state workers are potentially being forced to pay for a situation that they did NOT create. I've said it many times, the public hates state workers, the legislature resents state workers and state management doesn't like state workers. they get it from all sides.
July 23, 2010 at 8:33 AM Report abuse
said...
Thank you, Cruisin, and you did beat me to the punch - if Jock (what a dumb nickname for an ex-governor) John Mckernan (the lucky hubby of Olympia Snow) hadn't borrowed/stole money from the Maine State Retirement System, the State would not have to still be paying back that huge debt today! And seriously, why would any bright politician, obviously not Jim Harper, even suggest that any retirement system switch over to the most publicized failing retirement system in this country - social security! And furthermore, who wants to invest their retirements into junk bonds, which may end up being less valuable than Confederate currency at the end of the Civil War......
July 23, 2010 at 8:34 AM Report abuse
maineilove said...
Not sure what happened but that last comment - the one that starts with, "Thank you, Cruisin," was written by me, maineilove, not "anonymous."
July 23, 2010 at 8:43 AM Report abuse
ayuh23 said...
Seems to me there was a move to privatize SS not too long ago- and then the stock market bottomed out. Where would those people be now? I'm highly suspicious of anything that combines retirement funding for state workers, social security and republicans in the same article. They were screwed by McKernan once and Mills has demonstrated no respect for the state workers or teachers. If there's a way to undercut their retirement and "privatize" their pensions (i.e. give it to my republican bank buddies to profit from) he'll find it. He just has a new friend working on his side- wonder what Mr Hamper does for a living?
July 23, 2010 at 8:51 AM Report abuse
Andie said...
Perhaps rather than look at changing the state retirement system, they should look at phasing out the health insurance benefit paid for state retirees. Most employers do not pay the full (or even partial)cost of health insurance once an employee retires. While it's a wonderful benefit, it is one this state can no longer afford.
July 23, 2010 at 8:59 AM Report abuse
ayuh23 said...
A quick google search reveals that Mr Hamper is a carpenter.
July 23, 2010 at 9:09 AM Report abuse
Fred said...
So Rep. James Hamper introduces a bill containing changes that non partisan professionals have already determined will cost the state MORE money and claims it is a "cost savings measure". Was this guy an ENRON accountant in a prior life?
July 23, 2010 at 9:22 AM Report abuse
Dee said...
Whatever they do or not do should not affect the retired state employees. The retired state employees should be grandfathered.
July 23, 2010 at 9:25 AM Report abuse
sam said...
Andie - I believe that the health care provisions in the Maine State retirement system require that retirees sign up for and use Medicare benefits first before any state benefits kick in. Since only a small % retire prior to Medicare eligibility this may not be anywhere near the cost most folks think it is.
July 23, 2010 at 9:25 AM Report abuse
said...
In several Native American tribes when the elderly considered themselves of little or no use to the tribe as a whole they would go outside in inclement weather to die of exposure. Maine certainly has the weather for this sort of thing.
July 23, 2010 at 10:59 AM Report abuse
wingnut said...
If the stinking governors would keep their greedy hands out of the fund there wouldn't be a problem!
July 23, 2010 at 1:37 PM Report abuse
UKkitty said...
Quote: "Maine has a defined benefit plan, which means employees who reach retirement age are guaranteed a fixed monthly amount when they retire. All of the investment risk is borne by the state, not the employee. Defined contribution plans, such as a 401(k), place the risk in the hands of employees, who make their own investment decisions and are not guaranteed a certain level of benefit when they retire. " Somehow I feel better about a team of experts (MSRS Trustees) managing my retirement system rather than me.
July 23, 2010 at 2:25 PM Report abuse
ontherun said...
Hey Baldacci! Since the state is $70 mil to the good, how about giving back the $27 mil you stole from retirement and gave to dirigo....or did that slip your mind?
July 23, 2010 at 5:35 PM Report abuse
workingclass said...
So we have a "surplus" this year, but a massive looming debt due in 2028? Sooooo, I have a "surplus" when I get paid, and an "unfunded liability" when my mortgage is due? Is that how this works? .
July 23, 2010 at 6:04 PM Report abuse
Chris said...
State pension reform includes a wide range of issues, but most frequently it means revising the pension formula for new employees in order to extend the date they can retire with a full pension. As people live longer, the qualification for a full retirement needs to be edged up as well. This year Mass. also enacted a package of pension reforms following a series of investigations by the Boston Glove. Those problems tended to involve “double dipping” by retired state employees, and also state employees gaining creditable years toward their state pension based on working in municipal government and other activities. I recall in one case the Boston Globe found someone was given credit toward his state pension for being elected selectman. Also the Mass. pension reform addressed a long-term problem where MBTA employees were eligible for full retirement after working only 20 years.
July 23, 2010 at 10:20 PM Report abuse
reddevil974 said...
about time maybe state workers need to put in to a 401K like the rest of us and pay for their medical God knows they are like vampires sucking the life out of everyone around them
July 24, 2010 at 12:25 AM Report abuse