Unfunded pension liability is a ticking time bomb for many states, including Maine, which faces a 2028 deadline to clean up about $4.4 billion in debt.

The ticking sound becomes louder and louder as the years go by, as the state is forced to contribute more and more money annually to retiring that debt.

Unless Maine soon adopts some plan changes, the repayments will quickly start to crowd out funding of other state services.

Other states are taking a variety of approaches to this problem, but one of the things Maine should do now is switch future state employees from a traditional pension plan to a 401(k)-style program.

Government work is among the last bastions of old-fashioned pension programs in which workers are promised certain levels of benefits depending upon their longevity.

This might have made sense when state workers were paid less than those in the private sector. Now, however, state wages and benefits exceed those offered in the private sector for similar jobs.

The traditional programs are cherished by unions but have been steadily abandoned by employers.

The reasons are obvious and well-illustrated by Maine’s current predicament.

States, including Maine, have relied upon constantly advancing stock market returns to fund their promises to future retirees. Many states, including Maine, have projected unrealistically high rates of return that did not materialize.

In fact, the returns of the past decades were wiped out in the crash of 2008. Obligations to retirees, meanwhile, just kept growing.

The second problem has been the tendency of state politicians everywhere to use their pension funds like optional piggy banks.

In other words, there is a strong temptation to completely fund pension payments in good years and choose not to in bad years.

Under pressure not to raise taxes, and with competing demands for education and health care, states have gradually fallen further and further behind.

During that time, the nature of our economy has also changed. Most private-sector employees have many employers throughout their careers as they take advantage of different opportunities.

State pension programs tend to reward only employees who don’t take those chances and stick with their state jobs throughout their careers.

This shortchanges people who do leave early, before earning retirement benefits.

Sure, some people gain experience and become better employees over time. Many, however, stick with a job they no longer enjoy simply to obtain their pension benefits.

With a defined-contribution plan, such as a 401(k), employees have greater flexibility to take advantage of other job opportunities and to take their retirement savings with them.

A year ago, Utah, one of the best-managed states in the country, replaced its defined-benefit plan with a 401(k) plan for all new employees.

The state contributes a generous 10 percent of each worker’s wages and employees choose their own contribution rate. All workers are also enrolled in the federal Social Security system.

Maine’s system must change, and it must change dramatically.

Switching to a more realistic retirement system for future state employees would be a good start.

editorialboard@sunjournal.com

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