New Allies to Help "Fix" the Cliff

The Maine Public Employees Retirement System Board of Trustees came up with a funding mechanism that would allow the State Legislature to reduce the early retirement penalty from 6% to 3% without tapping into scarce resources from the State’s General Fund, and without adding to the long term liability of the State’s retirement system. Following an explanation by MePERS Executive Director Gail Wright and a presentation from pension fund actuaries, the Trustees voted unanimously to support this new funding idea. According to MEA President Chris Galgay, "This is the first time since the ‘Retirement Raid of 1993’ that the full Board of Trustees of the Maine Public Employees Retirement System have joined with us to help find a solution to the ‘Cliff’ issues."

The Maine Education Association (MEA) and the Maine State Employees Association (MSEA) have been working together for the past two years to make LD 1693, "An Act to Restore Equity to the Maine State Retirement System," a top priority for the Maine Legislature. Although many legislators agree that the inequities exist and that they should be remedied, the money to fix the cliff that was created when then-Governor John McKernan raided the State’s retirement system to balance the State Budget has not been available.

While MEA and the MSEA worked to develop two possible funding solutions, both raised possible constitutional questions. This new funding mechanism, as approved by the MePERS Trustees, avoids such constitutional issues. Now MEA members and MSEA members may aggressively advocate for the passage of LD 1693 without having constitutional questions thrown up as obstacles.

To learn more about LD 1693, here are some frequently asked questions:

Q. What is the "Cliff"?


A. Effective July 1, 1993, the state employee/teacher retirement plan was changed to reduce benefits for all MePERS state employee and teacher participants who did not have 10 years of creditable service on that date. The reduction was so substantial that many observers characterized the benefit levels as having fallen off a cliff, which gave rise to the "Cliff" reference. All new employees hired after July 1, 1993 are considered to be subject to the Cliff benefit reductions. Participants with 10 years of service on July 1, 1993 were unaffected by the Cliff, whereas participants with fewer than 10 years of service on July 1, 1993 are subject to the Cliff reductions.

Q. What does L.D. 1693 do?

A. L.D. 1693 has been called "The Cliff Correction Bill" because it seeks to correct a portion of the benefit reductions made by the Legislature in 1993 for state employee and teacher members of the Maine Public Employees Retirement System (the "MePERS").

Q. Can all of the Cliff reductions be corrected in 2008?

A. No. The cost to correct all of the Cliff benefit reductions is too high to gain passage in the Legislature in 2008. Therefore, L.D. 1693 focuses on reducing the "early retirement reduction factor", from 6% to 3% annually for anyone retiring prior to reaching their normal retirement age.

Q. How would L.D. 1693 help?

A. L.D. 1693, "the Cliff Correction bill" would reduce the early retirement reduction factors from 6% to 3% per year. This means that a participant retiring at age 60 would get 94% of his or her age 62 pension. More importantly, a participant retiring at age 55 would get 79% of his or her age 62 pension (versus 58% now), meaning that a $1,500 monthly pension would only be reduced to $1,185 per month. This would be a major improvement to Cliff participants desiring to retire before age 62.

Q. How will L.D. 1693 be funded?

A. L.D. 1693 will be funded in two parts: (1) the past service cost, and (2) the future cost. The MePERS Board of Trustees voted at its January 2008 meeting to make a one-time adjustment in the State’s payment to the Retirement System to free up the amount needed to reduce the early retirement penalty. The future cost will be paid by a small increase in the annual cost of the Plan, called the "normal cost." No money is needed from the State’s General Fund in 2008 – 2009 to pay for the cost of The Cliff Correction Bill.