SANTA FE – New Mexico’s retirement system for state workers, law enforcement officers and other public-sector employees is gaining better financial footing due to a solvency fix passed this year by the Legislature, according to figures released Thursday.
The Public Employees Retirement Association has an estimated unfunded liability – a figure that measures the gap between future retirement benefits owed and assets on hand – of $4.6 billion, based on the PERA’s annual accounting.
That figure is down from $6.2 billion last year, due in part to legislation that, among other things, cut how much money retirees receive as part of their annual inflation-related pension adjustment.
“It’s not anywhere near time to pop champagne corks, but it does appear the legislation is accomplishing what we hoped it would do,” PERA Executive Director Wayne Propst told the
The pension system, covering 55,000 workers and nearly 34,000 retirees, had faced a solvency crunch that was largely caused by investment losses, a swell in the number of retirees and longer life expectancies.
To address the problem, the legislative changes signed into law in April by Gov. Susana Martinez trimmed retirement benefits for future workers, active employees and covered retirees, while also enacting stricter retirement eligibility guidelines for future hires.
They also required most employees to funnel more of their paycheck into the retirement fund and increased the level of taxpayer-funded contributions.
However, scaled-back pension benefits have been controversial in New Mexico.
A group of retired educators has mounted a legal challenge to benefits enacted this year for the state’s other large public retirement system, the Educational Retirement Board.
The state Supreme Court heard oral arguments in that case on Sept. 4 but has not yet issued a ruling. A decision in the retirees’ favor would likely lead to a similar challenge being filed against the PERA solvency plan, attorneys say.
The ERB, which uses a different formula for calculating pension benefits for retirees than PERA does, will unveil its own annual accounting today.
Meanwhile, Sen. George Muñoz, D-Gallup, who sponsored this year’s PERA legislation, said the solvency medicine appears to be working.
“We’re headed down the right trail,” Muñoz said Thursday.
In addition to the improved unfunded liability figure, the retirement plans run by the Public Employees Retirement Association also showed gains in other solvency measures.
For instance, the overall funded ratio for PERA retirement plans improved from 65.3 percent in the 2012 fiscal year to 72.9 percent in the 2013 budget year. The funded ratio is another way of measuring assets versus benefits owed.
While the pension fund has targeted a 100 percent funded ratio within the next 30 years, the improvement in a one-year period was better than expected, Propst said.
He also said the reduction in the annual cost-of-living adjustment – or COLA – that most retirees receive was primarily responsible for the improved solvency figures, though the pension fund also posted double-digit investment gains during the most recent budget year.
“This is the first opportunity we’ve had to test the impact of (the solvency bill), and it’s very positive,” Propst said, before later adding, “It’s nice to have some good news for a change.”
PERA board chairwoman Patricia French also touted the recent improvements, but cautioned the pension fund is still dealing with steep investment losses from 2008 and 2009.
“The board will urge all of those who care about PERA to be patient while the legislative reforms are implemented to ensure that we are truly on a sustainable path to long-term solvency,” she said in a statement.