Pension Sustainability: Maine

Analysis of Maine's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Maine's pension system for teachers is 65.9 percent funded and has an amortization period of 17 years. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 17 years to pay off its unfunded liabilities. While its amortization period meets regulatory benchmarks, Maine's funding level is too low. The state's system is not financially sustainable according to actuarial benchmarks.

In addition, Maine commits excessive resources toward its teachers' retirement system. The current employer contribution rate of 17.28 percent is too high. The rate is determined by the Maine constitution, Maine statutes and the system's funding policy, which mandate employer contributions to be the normal cost plus periodic payments sufficient to fully fund, on an actuarial basis, the State Employee and Teacher Retirement Program by the year 2028. In addition, the state of Maine is required by law to contribute "a percentage of its unallocated General Fund Surplus, if sufficient, at the end of its fiscal year to the System, in order to reduce any unfunded pension liability for state employees and teachers." While this rate allows the state to pay off liabilities within the required 30-year period, it does so at great cost, precluding Maine from spending those funds on other, more immediate means to retain talented teachers. The mandatory employee contribution rate to the defined benefit plan of 7.65 percent is reasonable.

Citation

Maine Public Employees Retirement System, Comprehensive Annual Financial Report, For the Fiscal Year Ended June 30, 2010; http://www.mainepers.org/PDFs/other%20publications/10cafr.pdf

Recommendations for Maine

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded to allow more protection during financial downturns. However, Maine should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.

State response to our analysis

Maine recognized the factual accuracy of this analysis.