AUGUSTA — Officials say the state will owe the retirement system about $80 million less than had been expected over the next two years, giving state workers and teachers hope that proposed changes to the system might be scaled back.

The Maine Public Employees Retirement System board of trustees voted Thursday to approve two key changes to how the system’s short- and long-term debts are calculated, retirement system Executive Director Sandy Matheson told the Legislature’s Appropriations Committee Friday.

First, they lowered the assumed inflation rate from 4.75 percent to 3.5 percent. Second, the board adjusted its projected earnings rate on investments from 7.75 percent to 7.25 percent. When taken together, the changes reduce the amount the state needs to pay toward the retirement system in the next two years from $916 million to $836 million.

Over the long term, it lowers the state’s unfunded pension liability from $4.3 billion to $4.1 billion, she said. The state constitution requires the state to retire the long-term debt by 2028.

The retirement system board made the changes in response to a recent study that examined the demographics and economic assumptions upon which the retirement system bases current and future costs. Matheson cautioned that the numbers are a “high-level estimate” and could change by a few million dollars one way or another before she can make a final recommendation.

“There’s no one more than us that wishes there was a formula that tells us exactly what to do,” she said.

Lawmakers welcomed the update as good news as they prepare to launch into serious negotiations on the two-year, $6.1 billion budget after they return from next week’s April vacation. Changes to the retirement system that address both the short-term and long-term costs are a major part of the budget as proposed by Gov. Paul LePage.

The budget would require teachers and state workers to increase their contributions to the system by 2 percentage points, which corresponds with a nearly 2 percentage point drop in the state share. It freezes cost-of-living increases for retirees for three years and caps them at 2 percent thereafter. The current cap is 4 percent.

It increases the retirement age for new hires and those with fewer than five years of service from 62 to 65.

In addition, LePage is proposing changes to health insurance that include requiring anyone who retires after Jan. 1 to pay for health insurance until age 65.

Union lobbyists said Matheson’s update gives them hope.

“It’s good news for our collective members, and hopefully less draconian cuts are needed to get to a productive end result,” said Mary Anne Turowski, who represents the Maine State Employees Association.

Steve Crouse of the Maine Education Association said he and the MSEA are working together to present a compromise plan to lawmakers sometime during the week of April 25. He too welcomed the updated figures.

“It makes the process a little easier to deal with,” he said. “It lowers the anxiety and the need for the extreme recommendation of the governor’s package.”

However, LePage’s chief budget writer cautioned against reading too much into the numbers, saying it’s not yet clear how much it would save the general fund versus other funds.

Sawin Millett, commissioner of the Department of Administrative and Financial Services, said the updated numbers probably will be part of a package of budget changes that will be presented sometime during the week of May 2-6.

“I would say it’s premature to try to tie any reduction in (retirement system) billing to a specific change package proposal,” he said.


Susan Cover — 620-7015

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