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Maine Pensions Revealed in New Website 

There’s a new feature to the website www.maineopengov.org.Users can now see how much pensions are for close to 26,000 Maine state and local government retirees.The Maine Heritage Policy Center is behind the website.They announced the latest addition at a press conference in Brewer Monday.The group has concerns about how much is being put into the account as opposed to how much is being paid out.According to their figures, current retirees are receiving nearly $15, 400,000,000. But, they’ve only contributed about $882,000,000.”We were completely shocked,” says Tarren Bragdon, CEO of The Maine Heritage Policy Center. “Because what it means is that for every dollar that a retiree had withheld from their paycheck, that they paid into the retirement system, on average they’re getting back $17 dollars.”Bragdon says 2,100 government retirees are set to receive more than $1,000,000 in lifetime pension payouts.Sandy Matheson is the Executive Director for the Maine Public Employees Retirement System.She gave us the following statement. “The State of Maine does not participate in Social Security for state employees and teachers. The State is required to offer an IRS approved retirement plan to these employees in lieu of Social Security participation. The State does not contribute 6.2% of payroll to Social Security as do private sector employers. It contributes 5.5% of payroll for annual costs while employees contribute 7.65% of payroll which is higher than if they participated in Social Security (6.2%). The State also contributes approximately 15% of payroll to pay off past under funding of the plan. This under funding was increased by the 2008 market losses. The State’s contribution to pay this debt off will increase in future years depending on future economic conditions. The State’s defined benefit plan works similarly to 401(K) plans. Employees generally receive back more than what they put in because of additional contributions by their employer and compound interest or investment return on those combined contributions over time. The difference between these types of plans is that the State assumes the investment risk because it sponsors a defined benefit plan, and employees assume the investment risk in a 401(K) plan. The majority of public employees are in the State Employee and Teacher Retirement Program which is currently funded at 66%. This plan is required to be fully funded by 2028. The additional cost pressure the State is currently experiencing is from having to recover 2008 investment losses by this date. · 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 billion is not a number that has ever been calculated or suggested by our actuary. The State of Maine is what is called a non-Social Security state for state employees and teachers. While working for the state or as a teacher, neither these employees nor the state contribute to Social Security on their behalf. The State of Maine is required to offer a retirement plan in lieu of Social Security participation that meets IRS approval because no one can be left without basic retirement protection. While working as a state employee or teacher, employees do not earn Social Security credits during their state or teacher tenure, and any Social Security benefits they do earn from other employment are generally reduced when they retire based on their length of service in Social Security employment. Retirement plans are designed to pay the member back more than their contributions, as are Maine’s defined benefit plans, because of compound interest or investment return on their contributions over time. Defined contribution, or 401(K), plans work in a way similar to the state’s defined benefit plans. The employee contributes and combined with any contribution their employer might make, the money is invested, and the individual receives a combination of their contribution, their employer’s contribution, and investment earnings when they retire. The difference between these types of plans is 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. The trust fund accumulated on behalf of the State of Maine to pay benefits to retirees has experienced the same investment losses and gains that virtually everyone across the country has experienced in the last two years. The cost of the State Employee and Teacher Retirement Program consists of two contributions. The first is the normal cost, or the cost for the new benefits earned each year. Employees pay approximately 60% of this cost, or 7.65% of each dollar they earn which is higher than if they participated in Social Security at 6.2%. The State of Maine pays approximately 40% or currently 5.5% of each payroll dollar earned. This compares to 6.2% paid by employees and employers who are covered by Social Security, which state employees and teachers are not.The second part is repayment by the State of costs that were not funded in the past for various reasons. This includes recent investment losses from the 2008 market downturn. This is called the Unfunded Actuarial Liability or UAL. The State of Maine has a constitutional requirement that these costs be paid off by 2028 so that the plan is fully funded. At that time the total cost of the plan is expected to be in the range of the current normal cost of 5.5%.The majority of public employees are in the State Employee and Teacher Retirement Program which is currently funded at 66%. The State of Maine has made steady progress over the last 20 years in funding this plan. The funding level, or assets available to pay the liabilities, was 36% in 1991. This level grew to 74% in 2007, and has been reduced by the 2008 market downturn to 66%. One of the outcomes of the market downturn is that it had the same effect on the plans Maine administers as it did on individual’s 401(K) plans. The increase in contributions from 1991 has to be viewed in terms not only of the growth of costs, but the growth in the value of the dollar. Contributions to pay down the UAL have remained a steady percentage of total payroll. Looking at the increases as dollar amounts only does not account for the effects of inflation. For example, if you compare a dollar spent today to a dollar spent in 2028, you have to adjust for inflation to get a true comparison.”