AUGUSTA, Maine — State retirement system officials have told the Legislature and the LePage administration they will need from $70 million to $80 million less than expected to meet pension obligations in the next two-year budget that begins July 1.
Improvements in the stock market raised the value of the pension system’s investments, while changes made to the system by the Legislature have reduced pension costs.
“This is a significant indication that the recovery in the stock market is allowing the retirement system to come in with a lower request,” said Sen. Richard Rosen, R-Bucksport, the co-chairman of the Legislature’s Appropriations Committee. “It is an indication that the economy is improving.”
Rosen said for him the bottom line is that the reforms passed by lawmakers are having a significant effect on the cost of the system to taxpayers.
“This still protects the benefits for current retirees and for future retirees,” he said. “This was a significant achievement.”
Rep. John Martin, D-Eagle Lake, a longtime committee member, said it is “great news” that the retirement system will need less money in the next budget. He said it will mean fewer budget cuts or less new revenue will be needed to balance the next biennial budget lawmakers will get in January.
“It shows the economy is doing better than many thought,” he said, “and I think this will continue and we will see more growth and more people working in the next two years.”
The largest savings are from the package of reforms lawmakers adopted in the current two-year state budget. It froze benefits for three years and capped future increases to 3 percent a year, down from the 4 percent that had been allowed.
The changes also apply the cost-of-living increases only to the first $20,000 of yearly retirement income.
Another provision increases the minimum retirement age to 65 for all new workers and for those with fewer than five years employment with the state.
Rosen said it appears there will be money from this budget year’s surplus to fund a one-time cost-of-living increase for retirees. He said the first $15 million of the surplus, after replacing the governor’s contingency fund and providing another million dollars for the Finance Authority of Maine reserves against bad loans, has been set aside for the cost-of-living increase.
“This ad hoc increase is being paid for by the appropriation and not charged through the retirement system,” he said. “That is a savings.”
The $70 million to $80 million in retirement plan savings is approximate, noted Sandy Matheson, executive director of the Maine Public Employees Retirement System. “Instead of the $690 million we had projected, it will be around $610 [million] to $600 million.”
Matheson said an exact number will be ready in July and will be sent to the state Bureau of the Budget as it develops the next two-year state budget to be presented to lawmakers in January.
“This is a close heads up estimate with everyone guessing what the market will do,” Matheson said. “The number we give you in July will be final.”
Finance Commissioner Sawin Millett expects the state will end the budget year with a surplus at least equal to the current $24.9 million revenue surplus.
“We also have the unspent balances in accounts that will take a while to compile,” Millett said, which could be between $5 million and $10 million and add to the total surplus already allocated. After the cost-of-living increase for retirees, the next $25 million is allocated toward payments owed to hospitals, and Millett does not expect the surplus will greatly exceed $40 million in total.