An IRS pension rule that conflicts with Maine law could affect hundreds of state workers.
State workers who retire early might have to choose between a pension and a paycheck, even though state law says they can have both.
The Maine State Retirement System is looking at prohibiting teachers, state troopers and others from receiving their pensions when they retire before age 60 and then return to a state job.
A Maine law passed two years ago allows workers to retire and go back to work. But that violates Internal Revenue Service policies for younger retirees.
State retirement officials hope to fix the problem before the IRS gets involved.
“There’s no need, and in fact it is probably not very wise, to draw the IRS’s attention to a problem in Maine,” said Kay Evans, the Maine State Retirement System’s executive director.
Although the IRS policy has been in place for several years, Maine officials didn’t consider it a problem when the state Legislature passed the law in 2001, Evans said.
The IRS paid close attention to private business retirement systems but it rarely looked at America’s public sector. “It wasn’t on the radar screens,” she said.
Now it is.
A disappointment
Backers of the 2001 law created it to entice retired teachers back into the classroom. They also wanted to give retirees a way to supplement their incomes.
Officials have not tracked how many employees have taken advantage of the law since 2001, but some say it’s in the hundreds.
The education commissioner is one of them. After more than 30 years in education, Sue Gendron retired as Windham superintendent last year to head Maine’s education department. At 53, her early retirement could suddenly become a problem.
“It’s clearly a disappointment,” Gendron said. “I made decisions based on retirement because that law was in effect.”
Like other state workers who took early retirement, Gendron will have to choose between work and a pension check if the Maine State Retirement System makes a new rule. She enjoys her job and plans to remain commissioner, even if that means no pension while she works. But keeping her new job means an additional problem: health insurance.
Gendron’s health insurance comes through her retirement plan. If she loses her pension, she loses that insurance.
“It’s very disturbing,” she said.
Evans said the Retirement System has received 250 phone calls from workers since it proposed changes this winter. About 200 showed up at a public hearing Jan. 8.
Rob Walker, head of the state’s largest teachers’ union, said he’s heard from dozens of concerned educators. One retired and went back to work part time so she could have the time and money to take care of her dying husband.
“I understand the need to be in compliance with the IRS, but superintendents and teachers depend on the law,” said Walker, Maine Education Association president. “We need to find a way to hold them harmless, somehow.”
Local effect
Workers aren’t the only ones affected.
Schools and state agencies could suddenly find themselves without the experienced employees they’ve come to rely on.
In Lewiston, benefits specialist Jackie Little said 24 state retirees are working for the school system as substitute teachers, adult education teachers and substitute school nurses. Six are currently under 60 years old.
Retired teachers often like working because they can do what they love without the hassles of a full-time, permanent position, Little said. The school system is happy to get them, she said, since retired teachers have decades of experience and can help fill the city’s need for substitutes.
If the Maine State Retirement System changed the rules for younger retirees, Little said, Lewiston would lose out.
“We tend to be always needing substitute teachers in the first place,” she said. “It would really hurt us.”
The Auburn School Department also has retirees working as substitutes, but Business Manager Jude Cyr could not provide numbers.
No choice
At the Maine State Retirement System, Evans said her department may have no choice but to change the rules.
If the IRS finds that Maine’s retirement system goes against federal regulations, it can revoke the state’s “qualified plan” status. Without that, state employees cannot contribute to their retirement accounts on a pre-tax basis and retirement benefits will be taxed differently.
“Being a qualified plan is very important to retirees and employees,” Evans said. “We just felt we could not ignore this issue any longer.”
The Maine State Retirement System is accepting public comment on the proposal until Feb. 2.
Evans said the system is still considering several options, including a “grandfather clause” that would allow current retired workers to continue in their jobs.
“We haven’t ruled out anything yet,” she said.
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