June 19, 2018
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Pension Problems Not Workers’ Fault

Proponents of Maine Gov. Paul LePage's proposals to change the pension system


Supporters of Gov. Paul LePage, including the Maine Heritage Policy Center, have done a good job of spinning a tale that lays blame for the state pension system’s financial problems at the feet of state workers. “Lavish” benefits, high state wages and “greedy” unions are to blame, they argue. So, state workers must “share the responsibility” in fixing the problem, they — and more important, Gov. Paul LePage — say.

This isn’t true, however. State workers are not to blame for the large gap between what the state has promised to its retirees and the amount of money the state has actually set aside.

State workers had their contributions toward their pension taken out of their paychecks for decades. They didn’t raid the pension fund. Rather, it was previous governors and legislators who chose to use that money for other purposes.

Now, Gov. LePage and others argue that state workers must step up to the plate to fix this problem.

That’s like telling your young son that if he puts $10 a month into a college savings account, you’ll put in $50 a month. The kid faithfully socks away his share, but over the years there were mortgage payments to be made, a convertible that you really wanted to buy and the family needed a vacation, so your $50 a month, well, it just didn’t make it to the college savings account.

So, junior — now a senior in high school — if you want to go to college, you’d better share the responsibility and get a job so you can put more money into your college fund.

The state does have a big pension problem, but there are ways to tackle it without putting the entire burden on state workers.

First, the number being thrown around — $4.3 billion — was a measurement of the state’s so-called unfunded actuarial liability — the difference from what the state has set aside to pay pension benefits compared with what those benefits are expected to cost — at a low point.

The stock market collapse erased, on paper, $2 billion in pension fund assets. As the market recovers, however, the assets are rebuilding. In the last six months, the fund has recovered $1 billion. This in itself will shrink the unfunded liability.

Second, the state’s actuarial liability is calculated assuming there will be a 4 percent cost-of-living adjustment for retirees each year. The historical average is 2.8 percent. Using this number instead will also significantly reduce the liability gap.

Instead, the governor has proposed that state employee contributions be raised by 2 percent — and the state’s dropped by 2 percent. Currently, employees contribute 7.65 percent of their salary and the state puts 5.5 percent of the salary into a pension account. If the unfunded liability were truly the problem, you wouldn’t reduce the state’s contribution because the more money put into the system, the smaller the liability becomes.

In addition, the governor, in his budget, proposes to forgo cost of living adjustments for retirees for three years and then cap them at 2 percent.

Again, employees are being asked to pay more to solve a problem they didn’t cause.

This isn’t shared sacrifice. It is passing the buck.

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