A retirement system is a pension plan that a state or other local government uses to help its public employees save for retirement. The systems requires members to contribute during their careers so that when they retire, there is a large enough fund for them to receive monthly benefits. This works similarly to Social Security benefits. There is a retirement system in each state but they vary in size and scope.
The system in Maine is called the Maine Public Employees Retirement System, or MainePERS. Read on to learn about how this system works and who it covers. You can also jump start your retirement planning with SmartAsset’s financial advisor matching tool. It pairs you with financial advisors near you so that you get the guidance you need.
How the Maine Retirement System Works
MainePERS is the state’s retirement system, but it’s broken down further to cover specific employees. At the same time, all of the plans and programs work similarly. For one, they are all defined contribution plans. Employees contribute a set percentage of their salaries into a fund. System management then invests the money in the fund with the goal of growing it enough to cover lifetime retirement benefits for members of MainePERS.
All contributions to the system are pre-tax. Members don’t pay income tax on the money until they withdraw it or until they receive it as retirement benefits. As with other state retirement plans, MainePERS’ plans qualify with the IRS as 401(a) plans.
As mentioned, MainePERS breaks down into multiple plans and programs, with each covering a certain group of workers. The table below breaks down who each plan covers.
|Maine Retirement Plans|
|MainePERS State Plan||Standard retirement plan, covering most public employees|
|MainePERS Teacher Plan||Part of the MainePERS State Plan, but tailored specifically to help public school teachers understand their benefits|
|Maine Legislative Retirement Program||Covers all legislators who began serving on or after December 3, 1986|
|MainePERS Judicial Retirement Program||Covers all judges and justices who serve in Maine|
|MainePERS for Participating Local Districts||Applies to employees who work for a local government that participates in MainePERS|
Overview of Maine’s Retirement Systems
MainePERS State Plan – This is the standard retirement pension plan and it covers the majority of public employees. Once you become a state employee, you need to become a member. You will also begin contributing to the plan as soon as you receive your first paycheck. Members contribute 7.65% of their salaries to the plan.
To receive retirement benefits, you will need to earn a certain amount of service credit and reach a certain age. Service credit is simply the amount of time you have worked as a member. In general, one year of full time work equals one year of service credit. It you are a part-time worker, the credit you earn is the ratio of how much time you worked versus how much time a full-time employee would work. For example, if you work half as many hours in one year as a full-time member employee works for the same job, then you will earn half the amount of service credit.
If you had at least 10 years of service credit before July 1, 1993, you can retire with full benefits at the age of 60. For those who became members after July, 1, 2011, you can expect to work until 65 before you can retire with full benefits. If you had less than 10 years of service credit before July 1, 2011, you may be eligible to retire at age 62 with full benefits.
To calculate your retirement benefit, you can use the following formula:
Retirement Benefit = Average Final Compensation x Years of Service Credit x Accrual Rate
Your average final compensation is the average of your three highest years of compensation. Your years of service credit are the number of years that you worked in a position that required you to contribute to MainePERS. The accrual rate is currently 2%.
MainePERS Teacher Plan – The Teacher Plan is nearly the same as the MainePERS State Plan. The biggest difference is that this plan is specifically for teachers. Any public teacher must become a member of the plan upon starting his or her teaching position.
Another difference to note between the Teacher Plan and State Plan is that for teachers, one year of service credit equals one school year (not one calendar year as with other public employees).
Maine Legislative Retirement Program – All legislators in Maine must become members of (and make contributions to) the Legislative Retirement Program. This plan works similarly to the previous two plans with some key differences.
One year of service credit is equal to one year of your legislative term. Your eligible retirement age works in much the same way as the State Plan. You normally need at least 10 years of service in order to retire at age 60. More recent employees may be vested after five years.
There is a unique formula for legislators to calculate their retirement benefits:
Retirement Benefit = Average Final Compensation ÷ 50 x Years of Service
As mentioned earlier, your average final compensation is the average of your three highest years of compensation.
MainePERS Judicial Retirement Program – All judges and justices must become members of and contribute to the Judicial Retirement Program. The exact contribution rates are determined by the Board of Trustees of the MainePERS. Otherwise, this plan works like the MainePERS State Plan. One major difference is the formula for calculating your retirement benefits.
Retirement Benefit = Average Final Compensation x Years of Service Credit since July 1, 1998 x 3%
MainePERS for Participating Local Districts (PLDs) – The retirement plan for PLDs works in the same way a the State Plan but applies to local employees. The MainePERS Board of Trustees determines the exact contribution rates for employees.
Retirement Taxes in Maine
Contributions that you make to MainePERS are pre-tax. That means you make your contributions before you pay income taxes on them. You will still need to pay income taxes, but not until you withdraw the money from the plan or until you receive your retirement benefits.
The easiest option for paying income tax is to let the IRS withhold the tax. However, this options isn’t available for all types of retirement income. It also doesn’t give you as much control over your taxes as some people want. For instance, it will likely result in the IRS withholding more than is necessary so that you get a tax refund during tax season.
If you want more control over what you pay in taxes (or if you cannot elect for the IRS to automatically withhold taxes), you should make estimated tax payments. These are quarterly tax payments that you send to the IRS.
You can also gain more control over your money by moving it into another retirement account. For example, you could rollover your pension money into a 401(k) or individual retirement account (IRA). The thing to be sure of is that you move money from a tax-deferred account into another tax-deferred account. If you move the money into something like a Roth IRA, which takes post-tax money, you will have to pay income taxes as soon as you move the money.
As our Maine retirement friendliness page will show you, Maine is not the most tax-friendly state for retirees. The state taxes income from retirement accounts and from pensions, such as from MainePERS.
There may be a silver lining, though. The state does not tax Social Security income and it also provides a $10,000 deduction for retirement income. This could save you from paying some tax on your MainePERS benefits. However, that deduction is reduced by the amount of your Social Security income. So if you earn $6,000 from Social Security, you can only make a deduction of $4,000 for other retirement income. If your Social Security benefits are $10,000 or more, you cannot deduct any of your other retirement account income.
Current Financial Health of the Maine Retirement System
MainePERS manages about $13 billion in pension benefits and has generally done well to cover everything it owes its members. It has recently covered more than 80% of the benefits it owes. This is an improvement from years past and the system shows promising signs as it works to cover its full dues.
Tips to Help Your Retirement Planning
- The best way to plan for retirement is to have a plan. If you know how much you need to save and how you’re going to get there, you can put yourself in a position to succeed. If you’re unsure how to create a plan or just want a second opinion on your current savings strategy, talk to a financial advisor. An advisor is an expert who can look at your whole financial situation with you and then help you make the best decisions. SmartAsset’s financial advisor matching tool can save you time by quickly pairing you with as many as three advisors in your area.
- If you just want to see how your tracking and how much your current savings could be over time, try our free retirement calculator.
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