The letter from Neal Patterson (April 6) describes the state retirement system as “too generous” and “not sustainable.”

Patterson presented the pensions of two “random acquaintances,” examining what they had paid into the system, and what they had been paid out of it. His figures were, indeed, unsettling.

Then I noticed the flaw in Patterson’s analysis: He had failed to factor in the effect of appreciation (like interest on a savings account) of his acquaintances’ contributions — to say nothing of the state’s contribution on their behalf — over the years. That “time value of money” is crucial in any consideration of contributions vs. payout.

I ran an analysis of a hypothetical employee, employed by the state for 25 years, then retiring and drawing a pension at half-pay — the way the retirement system works.

In my analysis, I used a constant rate of pay, the employee contribution of 7.65 percent of pay, and the state contribution of 5.5 percent of pay. I then ‘invested’ those contributions at the “conservative” 8 percent yield the retirement system uses.

The results were almost unbelievable. Even after retirement, the value of the investment continued to increase.


I tried it again at a lower yield, then lower yet. At a 6 percent yield, the employee can collect his pension for 30 years and the investment still will have money left. At 5 percent yield, the investment “goes negative” 22 years after retirement.

The only reason the retirement system is in trouble is that the state did not make its payments.

Functionally, that’s no different from the money the state owed to the hospitals when LePage took office.

He was in a rush to pay that “arrearage” but he’s taking a very different approach with the state retirees.

Harold Booth


Only subscribers are eligible to post comments. Please subscribe or login first for digital access. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.