State Treasurer Bruce Poliquin said last week that he is losing sleep over a problem that has been years in the making. Maine must eventually address a large funding gap in the state’s Public Employees Retirement System.

It is an expensive problem that is tempting commentators to consider dire solutions. Some have argued that Maine must move away from a fixed benefit retirement system, not recognizing that state pensions are an alternative, not a supplement, to Social Security.

Others have focused on reducing cost-of-living increases or cutting benefits. This approach would make school and state employment considerably less attractive to potential employees, as well as being unfair to teachers and state employees, since Social Security benefits will likely remain indexed to inflation.

Maine’s pension liability amounts to $4.3 billion, Poliquin said, and the mandate to pay it off by 2028 will be a growing fiscal burden. The cost for the next fiscal year alone will reportedly be $450 million, far more than Maine’s entire budget for higher education.

The problem is not the level of benefits paid to employees. It arose over many years when politicians failed to budget adequately for the state’s pension obligations. It was greatly exacerbated in 2008, when the financial collapse reduced the value of pension fund investments.

The same problem faces many states, though Maine’s prudent approach to debt has left it better off than most. “We can fix this problem,” Poliquin said at a press conference this week, and he is right.

One fix that Poliquin has not recommended is simply to extend the repayment period beyond 2028. The Maine Center for Economic Policy urged consideration of this approach, comparing it to an individual refinancing his home in hard times. As MCEP points out, Maine has a relatively low level of debt and an excellent credit rating.

Taking longer to meet this self-imposed deadline is an approach that should be considered. The goal of achieving full funding by 2028 was set by a constitutional amendment adopted in 1995, and it was a good-faith effort to solve the persistent problem of underfunding the state’s pension obligations.

Although Poliquin said he wants to solve this problem soon, the solution should not impose an undue burden on pension fund beneficiaries.

Questions? Comments? Contact Managing Editor Nick Cowenhoven at nickc@journaltribune.com.