Pension in Peril for State Workers

back

Pension in Peril for State Workers

By Susan M. Cover, Mainetoday.com

January 30, 2004

A conflict between state law and federal rules may cause state employees and teachers who retire early and return to work to temporarily lose their retirement benefits.

A bill passed by the Legislature in 2001 had allowed those who retired early from state service to return to work and continue to collect their pensions.
But that's not allowed under federal rules.

As a result, the Maine State Retirement System Board of Directors is considering changing its rules so they comply with Internal Revenue Service code.

State Treasurer Dale McCormick, a member of the retirement system board, said the state passed the law to encourage teachers and other experienced state workers to return to service. The IRS doesn't allow them to collect a pension and a paycheck, so a proposed rule change would force workers to give up their pensions if they want to keep their jobs.
"Many people retired under these rules knowing it was allowed, and took a lesser paying job," McCormick said.

The inconsistency between state law and IRS rules applies only to workers who retire before their normal retirement age and return to work, she said.
It's difficult to estimate how many people fall into this category, but about 300 people attended a public hearing earlier this month, McCormick said.
The board has spent time since then trying to rework the proposed rule change so it won't have such a dramatic impact on people who retired early to take advantage of the program. The board plans to reveal a revised rule at the Feb. 12 meeting, McCormick said.

One possibility is that the plan would allow those currently affected to be exempt from the changes, she said.

The state must come into compliance with the IRS or risk losing "qualified plan" status, which means everyone in the state's retirement system would have their contributions taxed, McCormick said.

"It would be very bad for everyone," she said. "Not just the people who are under normal retirement age and return to service."

Kay Evans, executive director of the Maine State Retirement System, refused to explain the proposed changes, saying that the conflict was "overdone."

Those who represent the interests of retirees say it's important to get the word out about the changes because it could affect the pocketbooks of people who came back to work as teachers or substitute teachers, or with key state agencies.

Florence Hoover, executive director of the Maine Association of Retirees, said the IRS isn't pushing the state to make the changes now.

"The feds have not made a determination on this," she said. "There's really no need to disrupt the lives of the hundreds of people who took advantage of Maine law and the Maine State Retirement System's interpretation of the law."

She said she hopes the retirement system proposes some sort of "grandfather" provision that would protect current workers.

"The Maine State Retirement System needs to step up to the plate and say we made a mistake and we'll fix it," Hoover said.

School principals and superintendents worry that they will lose some of their best substitute teachers if the rules are changed.

"The best substitutes coming back into the building are the teachers who retired and are coming back to supplement their incomes," said Rob Walker, president of the Maine Education Association. "That's how a lot of retirees are paying for their health insurance."

Public comment on the proposed rule changes will be accepted by the retirement system through Monday.