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Room 332, State House
2 State House Station
Augusta, Maine 04333-0002

Phone: (207) 287-1440

For Immediate Release

Date: 06/21/11

Public pension changes to save taxpayers $3.155 billion

AUGUSTA - Maine taxpayers will save $3.155 billion in paying off the public pension debt as a result of changes made in the new biennial budget. The calculation, made by the Maine Public Employees Retirement System (MainePERS), reflects taxpayer savings from July 1, 2011 through June 30, 2028, the constitutional deadline for repaying the debt.

"These huge savings will effectively put money in the wallets of Maine residents," said House Majority Leader Phil Curtis (R-Madison). "This is money that will not have to be raised through taxation. At the same time, we're protecting future pension benefits by paying off the debt. It's important to note that retiree benefits do not go down under the new system, and employees' costs do not go up."

Changes to MainePERS will reduce the so-called unfunded actuarial liability (UAL) from $4.1 billion to $2.4 billion. When factored for future inflation, the total estimated UAL payments drop from $9.63 billion to $6.475 billion - an estimated savings of $3.155 billion.

Over the 2012-2013 budget cycle, for example, savings total $338 million, primarily from a three-year suspension in cost-of-living allowances (COLA).

"Those savings enabled the Legislature to increase funding for public education beyond expectations and handle the surge in MaineCare enrollment," said Rep. Andre Cushing (R-Hampden), the assistant House majority leader. "We also passed a $150 million tax cut, the largest in Maine's history. Virtually every taxpayer will receive an income tax reduction, while 70,000 low-income filers will see their income tax liability vanish to zero."

The 2012-2013 budget makes a number of changes to enhance the pension fund's long-term stability. For one thing, it freezes state employees' pay for the next two years, thus impacting pension benefits, which are calculated partially on the average of an employee's highest-earning years. It also caps future COLA increases at 3 percent annually after the three-year freeze ends, instead of the current 4 percent maximum. Thereafter, COLAs will be paid on the first $20,000 of pension income, with the $20,000 cap indexed for inflation.

The COLA freeze for 2012, 2013 and 2014 may be mitigated by a potential transfer of $15 million annually. If the funds materialize, the Legislature can designate this money for payment of non-cumulative cost-of living adjustments.

The retirement age also has been raised. Currently, state employees are eligible to retire at 60 or 62. For new hires and employees not yet vested, the retirement age will be 65.

Finally, the new budget calls for a working group to develop a plan to close the current defined-benefit system and replace it with a retirement plan that would supplement Social Security. State workers and teachers do not participate in Social Security under the current setup. Instead, they pay 7.65 percent of their wages to the MainePERS fund.###

Jay Finegan
Maine House Republicans
Tel: (207) 287-1445