SANTA FE — Some pension experts are warning that proposed changes to shore up one of the state’s two retirement funds — criticized by some lawmakers as too harmful to retirees — actually don’t go far enough.
“Our (system) is getting to the point that the patient is critical — he’s not in satisfactory condition anymore,” said Brad Day, a retired financial planner and member of the Educational Retirement Board.
In an interview Monday, Day pointed out that taxpayers already pay more than $300 million annually into the educator retirement fund and said slashing retirement benefits for current and future workers is the only way to ensure it remains solvent.
A New York investment manager also testified during a recent legislative hearing that the condition of New Mexico’s pension funds is more dire than previously believed. Sean McShea of Ryan Labs Asset Management said the debt levels incurred by the pension funds could hurt the state’s future credit rating.
However, state lawmakers have found enacting pension changes to be a political minefield. A prominent teachers union has said the latest proposal involving the teachers fund is unacceptable and suggested affected employees might take legal action against the state if the plan is approved by the Legislature.
A Senate committee postponed a vote on the ERB measure Monday, with lawmakers expected to retool the proposal before it is brought back for consideration on Wednesday.
“There’s no easy way to do this,” said Senate Education Committee Chairwoman Cynthia Nava, D-Las Cruces.
The ERB measure, SB150, would trim the annual cost-of-living increases for both current and future retirees and would also impose, down the road, a minimum retirement age of 55.
The fiscal challenges facing the state’s two pension funds, the ERB and Public Employees Retirement Association, are stark: The retirement funds had combined unfunded liabilities of more than $9 billion as of mid-2011. The ERB itself had about $15.4 billion in liabilities and about $9.5 billion in assets, or an unfunded liability of $5.9 billion.
An unfunded liability is the difference between current assets on hand and future retirement benefits due to be paid out.
The situation has worsened in recent years, largely due to several factors: market-driven investment losses, workers retiring younger and living longer, and a state budget crunch that has prompted legislators to delay approved contribution hikes.
While other states, including Colorado and Rhode Island, recently have enacted sweeping changes to their state pension plans, the bill backed by the ERB would make modest alterations. The PERA board did not endorse any legislative changes this year.
In addition to trimming benefits, the ERB plan would also increase the amount of money taxpayers pay into education workers’ retirement funds.
Taxpayer-funded state contributions into the fund totalled about $308 million during the last fiscal year, ERB Executive Director Jan Goodwin said. The proposal on the table would, over a period of seven years, increase that number by an additional $113 million per year, she said.
Sen. Bernadette Sanchez, D-Albuquerque, voiced strident opposition Monday to cutting retirement benefits.
“I have great concerns about doing that, because that’s impacting our seniors,” Sanchez said.
However, Day said more dramatic steps might have to be taken to shore up the fund, such as enacting a minimum retirement age of 62 and eliminating the annual cost-of-living increases.
“There is so much debt that you cannot believe it,” Day said. “We’re insolvent right now.”
Other members of the ERB board have balked at such ideas. But they have expressed concern, saying some changes are needed.
In a recent letter to the Journal, board Chairwoman Mary Lou Cameron said the proposal on the table is fair.
“There is no practical way to solve the problems with which we are presented without affecting every member of the education community — whether they are approaching retirement or not,” Cameron wrote. “A careful review of these changes shows that they are indeed modest changes, especially when compared to what other retirement systems have done.”
The teacher pension fund covers roughly 97,000 working and retired teachers, school workers and higher education employees.
— This article appeared on page A1 of the Albuquerque Journal
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