Articles By Peter Mills
Imprisoned by Public Pensions
Kennebec Journal OpEd by Senator Peter Mills
May 28, 2008
We should grant Maine's newly hired teachers and public employees access to Social Security -- and the freedom to move in and out of public service that comes with it.
Today's economy is competitive and constantly shifting. High school seniors are routinely advised to prepare themselves to work in six to 10 different careers before they retire. Yet the teacher delivering that message is caught in a pension system with completely contrary incentives -- designed so that someone hired at age 22 will feel compelled to continue in the same work for 40 years.
Because our 27,000 teachers and 14,000 state employees are required by state law to join a Maine retirement system outside of Social Security, their benefits are not portable. It is difficult for them to leave their public jobs, even temporarily.
As a result, members often feel trapped in their professions. Those who want to leave can't. Those who should leave won't -- fortified by grievance protections. Many well- meaning employees feel compelled to stay well past the time when they might prefer to retire or try something else.
If state retirees do qualify for Social Security, either through a spouse's income or through their own supplemental earnings from the private sector, their federal benefits are steeply reduced by offsets that Congress passed in 1983 to control the cost of Social Security.
Even worse, Maine's pension fund makes money for itself by shortchanging thousands of young teachers and state workers who don't stay. Those who leave the system before retirement usually relinquish all the contributions that the state has made on their behalf.
And neither do they get any Social Security credits. When members cash out, they receive back only what they themselves contributed, plus interest. All state contributions are forfeited to the fund to help pay benefits for those who stay until they retire.
Unlike Social Security, state pension benefits are not the least bit progressive. Well-paid senior people are rewarded in exact proportion to their highest earnings times a multiple for years of service. Workers with low earnings often find it difficult to survive on their public pensions.
Social Security, by contrast, pays its poorer members proportionately more than those who are better off.
Most other states and the University of Maine converted long ago to pensions that are based on Social Security and are less reliant on forfeitures. Benefits are portable and transparent. Earnings from all lifetime sources are fully credited under Social Security. Employees move in an out of public service freely and with fewer penalties. Even though it costs more to run such a system, portability and fairness are worth the price.
It is difficult, expensive and nearly impossible to change Maine's pensions retroactively for current employees, but there is no excuse for failing to start clean with new hires.
I proposed in April to put all new hires into a completely revamped benefit system based on Social Security plus a supplemental package of defined benefits. This measure was added by amendment to a union bill that had proposed an expensive early retirement option for existing members. Although my amendment garnered little enthusiasm from union lobbyists, it was endorsed overwhelmingly by both the House and Senate.
On the last day of session, the Appropriations Committee rejected the bill as a whole because the pension improvement sought by the unions was unaffordable.
Regardless of what the state might later do -- or not do -- to improve benefits for those already hired, Maine should implement a revamped program for new hires without delay.
Calcified personnel policies that trap people into permanent public employment constitute a major impediment to effective public service.
It is a shame to continue hiring new workers and teachers into the existing outmoded system that so exploits the young and ensnares the old.