The state should ensure that pension systems are portable, flexible and fair to all teachers.
Maine only offers a defined benefit pension plan to its teachers as their mandatory pension plan. This plan is not fully portable, does not vest until year five and does not provide any employer contribution for teachers who choose to withdraw their account balances when leaving the system. It also limits flexibility by restricting the ability to purchase years of service. However, the state is commended for offering a fully portable supplemental savings plan.
Vesting in a defined benefit plan guarantees a teacher's eligibility to receive lifetime monthly benefit payments at retirement age. Nonvested teachers do not have a right to later retirement benefits; they may only withdraw the portion of their funds allowed by the plan. Maine's vesting at five years of service limits the options of teachers who leave the system prior to this point.
Teachers in Maine who choose to withdraw their contributions upon leaving only receive their employee contributions plus interest. This means that those who withdraw their funds accrue no benefits beyond what they might have earned had they simply put their contributions in basic savings accounts. Therefore, teachers leaving the pension system would have saved only 7.65 percent of their salary plus interest (see Goal 4-H), which is significantly below the level conventionally recommended by retirement advisers for individuals not also contributing to Social Security.
While Maine's mandatory contribution rate allows for flexibility in teachers' retirement savings, it also means that the state needs to educate teachers on what happens if they leave the system and encourage savings in other portable supplemental plans. Further, teachers who remain in the field of education but enter another pension plan (such as in another state) will find it difficult to purchase the time equivalent to their prior employment in the new system because they are not entitled to any employer contribution.
Maine limits teachers' flexibility to purchase years of service. The ability to purchase time is important because defined benefit plans' retirement eligibility and benefit payments are often tied to the number of years a teacher has worked. Maine's plan allows teachers to purchase time for previous teaching experience, up to 10 years. While better than not allowing any purchase at all, this provision disadvantages teachers who move to Maine with more teaching experience. The state's plan also grants 30 days of creditable service per year for each unpaid leave of absence but does not allow teachers to purchase the full time for leaves of absence, which is a tremendous disadvantage to any teacher who needs to take a leave for paternity or maternity care, or for other personal reasons.
The state is commended for offering a fully portable supplemental savings plan, known as MaineSTART. MaineSTART consists of a 457 deferred compensation plan and a 401(a) defined contribution plan, both ways to enhance teachers' retirement savings.
Offer teachers a pension plan that is fully portable, flexible and fair.
Maine should offer teachers for their mandatory pension plan the option of either a defined contribution plan or a fully portable defined benefit plan, such as a cash balance plan. A well-structured defined benefit plan could be a suitable option among multiple plans. However, as the sole option, defined benefit plans severely disadvantage mobile teachers and those who enter the profession later in life. Because teachers in Maine do not participate in Social Security, they have no fully portable retirement benefits that would move with them in the event they leave the system.
Increase the portability of its defined benefit plan.
If Maine maintains its defined benefit plan, it should allow teachers that leave the system to withdraw matching employer contributions. The state should also allow teachers to purchase time for approved leaves of absence and decrease the vesting requirement to year three. A lack of portability is a disincentive to an increasingly mobile teaching force.
Offer an employer contribution to the supplemental retirement savings plan.
While Maine at least offers teachers the option of a supplemental defined contribution savings plan, this option would be more meaningful if the state required employers also to contribute.
Maine recognized the factual accuracy of this analysis.