SANTA FE – Does New Mexico’s Constitution bar, or at least limit, the state’s public retirement systems from trimming the benefits of retirees and vested workers?
Some legal experts, including former state Supreme Court Justice Joseph Baca, say the answer is yes and claim such benefit cuts probably would have significant consequences.
“I think it is the absolute last sort of thing that can be done and all other measures have to be looked at first in order to maintain the actuarial soundness,” said Baca, who served on the Supreme Court from 1989 until 2002.
He goes so far as to suggest the Constitution would prohibit cutting benefits – specifically the annual cost-of-living adjustments received by retirees – without the state owing hefty settlements to those affected.
However, backers of a plan to shore up the cash-strapped Public Employees Retirement Association disagree, saying the Constitution allows for retirement benefits to be scaled back if necessary to keep the pension funds solvent.
They also point out that court rulings in Colorado and Minnesota, among other states, have upheld the ability of states to trim retirement benefits.
“From our perspective, we believe changes can be made, especially because those measures that have been proposed are not considered to be part of the base benefit,” PERA Executive Director Wayne Propst said recently.
The PERA board in June endorsed a plan that, among other things, calls for retirement benefits to be scaled back for retirees, future employees and current government workers covered by the retirement system. The cuts would not alter the retirement formula used by PERA, but instead would trim the annual cost-of-living adjustments intended to offset inflation.
The plan is expected to be a hot-button issue during the state’s next legislative session, which begins Jan. 15.
With the 60-day session approaching, Baca and University of New Mexico professor emeritus F. Lee Brown wrote a recent guest editorial asserting that retirement benefits for public workers are a “property right” under the state’s Constitution that can be cut or done away with only as a last resort to maintain solvency.
“Existing property rights must … be preserved as long as reasonable alternative paths to solvency remain available,” Baca and Brown wrote in their letter. “Otherwise, compensation for lost property is required.”
The New Mexico Constitution says a public sector worker who has met the requirement for retirement shall acquire a “vested property right with due process protections” under the state and U.S. constitutions.
Such language is unique to New Mexico, and eroding the value of such a right would require the government to provide compensation, Baca said.
But the constitutional language on pension benefits also says, in Article XX, Section 22, “Nothing in this section shall be construed to prohibit modifications to retirement plans that enhance or preserve the actuarial soundness of an affected trust fund or individual retirement plan.”
Propst cited that language in arguing that the solvency crunch facing the retirement system is justification for benefit cuts.
“I think it is difficult for anyone to argue that our fund is not facing challenges,” Propst said.
PERA, which currently covers roughly 54,000 workers and 24,000 retirees, is facing a $6.2 billion unfunded liability that has grown rapidly in recent years. The unfunded liability represents the difference between future benefits owed and assets on hand.
The worsening financial situation is largely due to investment-driven losses, a growing number of retirees and longer life expectancy rates.
Sen. George Muñoz, D-Gallup, chairman of the interim legislative committee that studied and ultimately endorsed the PERA pension solvency plan, said he expects a court challenge to be filed if the Legislature approves the proposal and Gov. Susana Martinez signs it into law.
Muñoz said that the constitutionality issue has been studied and that he feels confident the plan would be upheld.
“If we thought there were any constitutional problems with the plan, we wouldn’t include that,” he said of the proposal to trim retirement benefits.
In addition to scaling back benefits, the PERA solvency plan would increase the amounts of money that both employees and their government employers, via taxpayer dollars, pay into the retirement fund and impose stricter retirement eligibility guidelines on future workers.
The state’s other public retirement system, the Educational Retirement Board, is also dealing with solvency concerns. Its board endorsed a separate solvency fix in September that relies more heavily on contribution increases than benefit cuts.
— This article appeared on page A1 of the Albuquerque Journal