January 31, 2017: Maine Public Employees Retirement System

Sandy Matheson, Executive Director of the Maine Public Employees Retirement System (MEPERS) spoke with the Appropriations committee to provide an overview of the retirement system.

The system manages retirement for state employees, teachers, judges, legislators and various local employees through a range of different plans with varying degrees of funding.

Health of plans

Every plan is above 80% funded today compared to 36% funded in 1991:

State/Teacher plan- 80.4% funded
Legislator plan- 148.5%
Judicial plan- 100.9%

The percent of funding represents how much of the total funds needed to fulfill the state’s pension obligations in the long term

The difference between that percentage and the total is known as the unfunded actuarial liability (UAL)

The health and recovery of Maine’s retirement system is remarkable among state retirement systems.

Earnings assumptions

6.875% assumed rate of return on investments, 6th lowest in the nation

In 2009 rate was assumed to be 7.75%

MEPERS internal thinking is that the correct rate may be between 6%-6.5%, there is no current plan to reach this goal

Asked why the rate is assumed to be in the neighborhood of 6% when current returns are near 5.2%, Director Matheson clarified that the higher rate is a long-term earnings assumption shared by many investment advisors

Costs in the new biennium

$120M increase in costs over the upcoming biennium (to $720M) related to market volatility in recent years

Maine uses a ten-year amortization for managing losses and liabilities, this creates huge swings as the plan approaches 100% funding

To manage that volatility MEPERS recommends moving to a 20 year amortization schedule

Cost of living adjustment

The cost of the 2.2% cost of living adjustment (COLA) freeze proposed by the governor is $60-65M over the biennium

Rep. Martin asked what the cost would be to increase the pension base upon which COLAs are determined by $5,000 as well as providing a COLA to employees instead of using those funds for further UAL payments as proposed by the governor

Asked if the extra $60-65M payment on the $2.5B UAL as envision in the governor’s proposal would have a significant impact on the UAL payment schedule, Matheson indicated that it would not, but is uncomfortable with the word “significant”

Part HH of the biennial budget relating to retiree COLAs will be heard on March 8th

Appropriations will hold a work session on LD 302, the supplemental budget at 1:00PM on Wednesday

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