AUGUSTA, Maine — The Maine Public Employees Retirement System has disbursed millions of dollars to towns, cities, water districts and libraries in recent months.
Given that for decades Mainers have been told the government pension system was underfunded, why is money flowing out?
The retirement system was in peril for years. In 1972, under Gov. Ken Curtis, the shortfall was $263 million. Twelve years later, under Gov. Joe Brennan, the shortfall had surpassed $1 billion. The spike in the unfunded liability resulted from the fact that, for years, the state was not making its required contributions to the system, which continued in the 1980s and 1990s under Govs. John McKernan and Angus King.
Voters said ‘fix it’ in 1995. In a referendum that year, voters overwhelmingly supported a constitutional amendment that required full funding by 2028 of the system’s unfunded liability, which is the gap between what the system will take in over the years and what it has to pay out.
Retirement funds across Maine were consolidated in the 1990s. Following the recommendations of a state-level study commission and the passage of a law in 1993, most of the 270 retirement plans across Maine in cities, towns, schools and water districts were consolidated within the state’s system. Before that, the plans each had unique details, including various employee payment and employer matching schemes.
Bean counters at the time calculated where each plan stood after the consolidation was completed in 1996. Some had a surplus because they had been contributing too much to their plans over the years; others had a deficit.
The retirement system has managed the surplus money for years. The retirement system invests its pool of money in the stock market and other funds with the intention of growing the size of the retirement fund over the years. That money is separate from the surplus money the system was handed in the 1990s, but the system agreed to manage and invest the surplus money anyway. The surpluses were because of factors ranging from exceptional performance of investments to a reduced number of employees in the system.
But changes were recommended. In recent years, the independent Governmental Accounting Standards Board has modified how it expects public entities to handle and account for public money. John Milazzo, general counsel and chief deputy director of the system, said the new GASB requirements led to a decision by the retirement system to refund the surplus money to the employers.
“The last straw was the GASB reporting requirements about how those funds should be displayed,” Milazzo said. “From our perspective, there are no strings attached at all on how the money can be spent.”
There are nearly 50 entities receiving refunds that range in size from hundreds of dollars to millions, according to a representative of the Maine State Retirement System.
“It’s just a miracle to us that this amount of money could have been generated by very good investments by the Maine State Retirement System,” Pittsfield Town Manager Kathryn Ruth said of the more than $1.9 million the town would receive. “Our budgeting in recent years has been very, very conservative. We’re starting our budget process and this money has come at just the right time.”
