AUGUSTA — Voters on Nov. 7 will be asked to approve an amendment to the Maine Constitution “to reduce volatility in state pension funding requirements caused by the financial markets by increasing the length of time over which experience losses are amortized from 10 years to 20 years, in line with pension industry standards.”

By voting yes, the financial impact on the state’s annual budget for funding the state pension plan would be reduced.

According to an overview by the Maine Attorney General Janet Mills, the Maine constitution requires the state to fund the “normal cost” of all retirement and ancillary benefits provided to system participants annually on an “actuarially sound basis.”

According to the AG’s analysis in the Citizens Guide to the Referendum Election, the proposal would authorize an amendment to the constitution to extend the maximum period of time over which net losses in the market value of the state-funded retirement plans administered by the Maine Public Employees Retirement System must be retired or funded. That period is now 10 years, the amendment would extend it to 20 years.  

“If there are net losses in the market value of the retirement system’s investments that would create an ‘unfunded liability’ — such as a situation in which the benefits that the system is obligated to pay would exceed the capacity of the fund — then those net losses (referred to as “experience losses”) amortized over a specified period of time must be replenished by the state through general fund appropriations or other means in the state budget,” according to the document.

The guide notes experience losses are currently amortized over a 10-year period under a constitutional amendment adopted in 1995.

Sandra Matheson, executive director of the Maine Public Employees Retirement System told legislators during a March public hearing before the Appropriations Committee that the current 10-year amortization was adopted when the plan, at less than 28 percent funded, was one of the three lowest funded plans in the country. 

“Without aggressive measures, the plan at that time was in potential danger of not being able to pay benefits into the future,” Matheson said. Now, she added, the plan is funded at 80 percent.

Having a larger state fund means that the obligation to recover market losses over a 10-year period can trigger a much greater dollar effect on the state’s annual budget, the AG’s Office analysis continued. Under the proposed amendment, the obligation to retire unfunded liabilities caused by such losses would remain the same, but the financial impact on the state’s annual budget would be reduced by paying back the net losses over a longer period of time. 

Sen. Roger Katz, who sponsored L.D. 723 that resulted in the referendum vote, spoke briefly at the public hearing.

“I believe this bill makes sense,” Katz said. “Anything we can do to reduce volatility in the state pension system deserves our thoughtful consideration.”

— Senior Staff Writer Tammy Wells can be contacted at 324-4444 (local call in Sanford) or 282-1535, ext. 327 or twells@journaltribune.com.