Here’s a scenario:
A state district judge, who earns $112,000 a year, retires with a monthly pension of $7,000. Divorced with adult children, he designates his only grandchild, a 4-year-old girl, as the survivor beneficiary for his pension.
The judge dies, and the child then receives 75 percent of the judge’s pension, or $5,250 a month – for life.
If the child lives to her life expectancy of 81 years, the state will pay out more than $4.8 million to her.
It’s not. All that is possible under the laws that govern the retirement plans for judges and magistrates.
The plans’ provisions dealing with designated survivor benefits are far different from and more generous than the survivor provisions in the other pension plans run by the state Public Employees Retirement Association.
Judges and magistrates can designate anyone they wish as survivor beneficiaries without any reductions in their pensions, and beneficiaries receive 75 percent of the pensions for life should the retirees die.
Other PERA retirees also can designate anyone they wish as survivor beneficiaries, but their pensions are reduced based on their life expectancies and those of their beneficiaries. That means a retiree who designates a 4-year-old granddaughter as his survivor beneficiary is going to receive a very small pension, and the benefit for the child is also going to be very small once the retiree dies.
Arthur Pepin, director of the Administrative Office of the Courts, said he was unaware that a retired judge or magistrate could designate anyone as a survivor beneficiary and that the beneficiary, regardless of age, would receive 75 percent of the pension for life should the retiree die.
“We’ve been working on pension reform for a while, and I wasn’t aware of this,” Pepin said. “It might be reasonable to do something.”
One possibility is adjusting the designated survivor benefit based on life expectancy should a judge designate someone other than a spouse as a survivor beneficiary, he said.
The intent of the provisions dealing with designated survivor beneficiaries is to provide financial protection for a retiree’s spouse, not a lifetime annuity for a grandchild should the retiree die, he said.
Pepin said he would be surprised if many judges have designated survivor beneficiaries other than spouses. “You might cost the state millions of dollars for bringing this up,” he joked.
It isn’t clear why the Legislature, in enacting the retirement funds decades ago, decided to treat judges and magistrates differently from other public employees.
One theory is that, at that time, judges and magistrates generally came to the jobs in mid-career, giving them less time to build pensions, and were largely married to nonworking spouses. A lawyer must be at least 35 to serve as a judge; magistrates have to be at least 18.
Like other retirement plans for public employees and educators, the pension plans for judges and magistrates are struggling.
A colleague reported in April that the magistrate retirement fund – the less secure of the duo – is headed for bankruptcy in 14 years.
Together, the retirement plan for judges and Supreme Court justices and the separate plan for magistrates have an unfunded liability – that’s the gap between assets on hand and future benefits owed – of about $100 million.
Based on the numbers, there isn’t much prospect for improvement. As of June 2012, the magistrate plan had 42 members contributing and 85 retirees drawing benefits; for the judges’ plan, the numbers were 118 working and 127 retirees. Both gaps will continue to grow as more judges and magistrates retire, and the number working remains relatively unchanged.
In April, Gov. Susana Martinez vetoed a solvency plan for the judges and magistrate pension funds.
The plan called for a suspension of cost-of-living increases in pension benefits, increased employer and employee contributions and changes to age and service requirements.
In vetoing the plan, Martinez said it wasn’t serious enough reform and relied too heavily on increased contributions from the state.
Pepin said his guess is that the next reform proposal for the judges and magistrate pension plans will include changes in the designated survivor benefits.
UpFront is a daily front-page news and opinion column. Comment directly to Thom Cole at firstname.lastname@example.org or 505-992-6280 in Santa Fe. Go to ABQjournal.com/letters/new to submit a letter to the editor.