The Maine State Retirement System functions an alternate to the Social Security system. With the exception of 16 state retirement systems, our entire country participates in the Social Security system. Under this system, the employee has 6.25 percent (4.2 percent this year as part of the stimulus plan) of his pay set aside from his paycheck, and the employer also contributes 6.2 percent. If you are self-employed, as my husband is, you pay 13.3 percent of your earnings into the Social Security system.
In Maine, state employees and teachers contribute 7.65 percent of their pay to the Maine State Retirement System. The state contributes 5.5 percent. It seems to me that if the state had been paying 7.65 percent all along, there would be no unfunded liability.
Gov. Paul LePage proposes to drop the state’s contribution to 3.5 percent. This is both an abdication of a responsibility that belongs to every employer and a very strange way of fixing a problem of unfunded liability.
There may be a perception that teachers have very generous benefits and can afford to give a little for the benefit of all. Here are some facts about teacher retirement.
Right now the average amount that retired teachers in Maine receive is about $19,000. Out of this amount, teachers pay almost $4,000 per year for their individual health insurance plan.
Did you know that most teachers are unable to collect any Social Security benefit, even if they have earned it or would normally be entitled to a spousal benefit? The Government Offset Provision and Windfall Elimination Provision eliminates or drastically reduces this benefit for all state retirees. For retired teachers, the state retirement system is all they have.
Under the current system, the increase in a teacher’s retirement benefit is capped at 4 percent per year. Each year a determination is made, based on the Consumer Product Index, of what the increase should be, and by law it can never be more than 4 percent.
Gov. LePage’s proposal is to cap the increase at 2 percent. This will make a huge difference for retired teachers and state employees. If people are fortunate enough to enjoy a long life, they may be retired for more than 20 years. With rising prices for food, fuel, gasoline, and medicine, a 2 percent cap over 20 years is going to make our retired teachers and state employees poorer and poorer.
Retired teachers in Maine receive a 45 percent health benefit. Gov. LePage’s proposal is to freeze this benefit at today’s amount and then allow it to increase by only 4 percent per year. Since health insurance costs typically rise by more than 4 percent per year, this will result in further erosion of teacher retirement.
Gov. LePage is proposing to increase the retirement age to 65 and proposing that teachers who retire before age 65 not receive any health benefit until they turn 65. Teaching is a very demanding profession that requires great energy and commitment. Tthe average age for teacher retirement is 59.
Today, a teacher who retires at 59 permanently loses 18 percent of his retirement benefit (you lose 6 percent per year for the number of years you retire before age 62), but does receive the 45 percent health benefit. Under Gov. LePage’s plan, this same teacher would lose 36 percent of their retirement benefit (6 percent times 6 years) permanently and would receive no health benefit until age 65.
The likely result of this proposal would be that many teachers would feel compelled to teach until age 65. This is not good for the individual who wants to retire; it is not good for local school districts who will be paying at the top of the salary scale for several extra years; and it is not good for young people who want to enter the field of education.
I believe that Gov. LePage’s proposals will receive a lot of scrutiny in Augusta and they should. I am hopeful that our state legislators will look at this problem from all angles and come up with a plan that provides for a reasonable retirement benefit, creates solvency in the system and distributes fairly the responsibility of paying for it between employees and the state.
Carey Donovan of Bernard is an elementary school guidance counselor in the Mount Desert Island Regional School System.