AUGUSTA — A group that represents retired state workers and teachers filed a lawsuit Monday to challenge retirement system reforms implemented last year to save money.

The Maine Association of Retirees, which has 15,000 members statewide, is suing the state retirement system because of the elimination of cost of living adjustments for three years, a new cap on the cost of living increase and limits on future adjustments to 3 percent on the first $20,000 of a retiree’s pension.

The class action suit was filed Monday in federal District Court in Bangor, according to the association.

“The effect of denying cost of living adjustments can be devastating to the purchasing power of retirees’ pensions over a long period of time, at a time in the retirees’ lives when they will not be in a position to replace the losses by returning to work,” according to a statement from the group.

The suit alleges that the state “made a solemn contractual commitment” under the contract clauses of the U.S. and Maine constitutions “never to alter certain sections of the public employee retirement statutes.” For 34 years, the Legislature has not broken that promise, the suit alleges.

But the move to freeze benefits for three years and then cap future increases at 3 percent, instead of 4 percent, breaks that promise, according to the suit. The plaintiffs are asking the court to grant the cost of living adjustments retroactively.

The COLA freeze saved the state $48 million over two years, according to the lawsuit. The plaintiffs also object to $88 million in income tax cuts enacted in the same budget.

Attorney James Kilbreth of Verrill Dana filed the suit on behalf of the retirees.

“The Legislature is clearly struggling with difficult financial circumstances,” he said. “It’s looking for ways to save money however it can. There are some things they are constitutionally prohibited from doing and there are other ways to save money without breaking their promises to retired public school teachers and workers.”

The class action suit seeks to represent the 28,000 retired state workers and teachers affected by the changes approved by the Legislature last year. To try to blunt the impact of the COLA freeze, lawmakers added a provision that would allow a payment in lieu of the COLA if there are enough funds leftover in the state budget.

The changes were part of the state budget that attempted to lower the long-term debt in the state retirement system. A series of changes implemented to the system lowered the long term debt from about $4 billion to about $2.3 billion. Maine is unusual in that it must pay off all retirement system debt by 2028 because of a constitutional requirement.

Chris Quint, executive director of the Maine State Employees Association, which also represents retirees, said they were not asked to join the lawsuit. He said they were reviewing the suit to determine whether they would want to participate.

Sandy Matheson, executive director of the Maine Public Employees Retirement System, said she could not comment on the lawsuit.

Part of the retirement system reforms approved last year called for a plan to implement a new retirement system for future employees.

Matheson appeared before the Legislature’s Appropriations Committee Monday to outline a proposal for a new retirement system starting in 2015. Lawmakers created a working group last year to explore options that get away from the traditional defined benefit plan that the state now offers.

The group is proposing a hybrid system that includes Social Security, a defined contribution system similar to a 401(k) and the continuation of a small portion of the defined benefit plan.

As it is now, state employees and teachers do not contribute to — or benefit from — Social Security. Lawmakers directed Matheson to come back with a proposal that would require state workers and teachers to be part of Social Security, along with another supplemental plan.

The new system would apply only to state workers and teachers first hired after June 30, 2015.

Matheson is expected to release a full report on the plan in the coming weeks.

Susan Cover — 620-7015

[email protected]

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