SANTA FE – Four years after New Mexico lawmakers passed solvency fixes intended to shore up the state’s two large retirements systems, the pension funds aren’t on quite as solid financial ground as was hoped.
The two funds, which combined cover nearly 200,000 active and retired New Mexico workers, are now projecting they will fall short of being 100 percent funded by 2043 – a goal set several years ago – and have reduced their expectations for annual investment gains.
More legislative changes could also be needed, though it’s unlikely those changes would be proposed before 2019, when a new governor will be in office.
At least some lawmakers have called for reducing or revising annual cost-of-living increases received by retired members of the Public Employees Retirement Association, which covers state workers, law enforcement officers and other public-sector employees.
“Something has to be done,” said Sen. George Muñoz, D-Gallup, the vice chairman of the Legislature’s interim Investments and Pension Oversight Committee. “The pension funds have too many benefits.”
Despite changes enacted in 2013, PERA’s estimated unfunded liability – the gap between future retirement benefits owed and expected future assets on hand – has increased over the past four years to $4.8 billion from $4.6 billion.
Recent investment gains have bumped the pension fund’s projected overall 2043 funded ratio – the portion of owed benefits that could be paid – up to 87.6 percent. But the plans for rank-and-file workers and municipal firefighters are projected to be less than 50 percent funded by that year.
Wayne Propst, the retirement system’s executive director, acknowledged some PERA plans are faring better than others and said the pension’s board, which has been roiled by infighting in recent months, will likely be looking at potential adjustments.
However, he said, the situation is not as dire as in 2013, when significant investment losses put the pension fund on precarious financial footing.
“We were headed toward insolvency before 2013, and now we’re not,” Propst told the Journal. “Our headwinds are manageable if we’re smart – I feel we are still on the right track.”
2013 solvency fix
The 2013 solvency fix backed by labor unions and signed into law by Gov. Susana Martinez trimmed the annual cost-of-living adjustment for all PERA members – future workers, active employees and covered retirees – while also enacting stricter retirement eligibility guidelines for future hires.
The legislation also required most employees to funnel more of their paychecks into the retirement fund and increased the level of taxpayer-funded contributions.
The changes seemed to make an immediate impact, with PERA’s unfunded liability dropping dramatically after the legislative fix.
However, persistent challenges posed by longer life expectancies and an increase in the number of retirees have made sustaining that progress difficult, at least for some of the retirement system’s plans.
Dan Klein, a retired Albuquerque Police Department sergeant, pointed out that the PERA plan for State Police officers and corrections officers is expected to be more than 100 percent funded in the coming years.
“I think the time has really come for PERA and the Legislature to say one size doesn’t fit all,” Klein said Friday. “It’s very unfair to State Police and corrections officers, because they’re paying in and they’re not necessarily getting the full benefit – it’s like taxation without representation.”
Overall, the PERA system covers 52,000 workers and 40,000 retirees.
For years, most public sector workers in New Mexico could retire at any age after working for at least 25 years, meaning many employees were able to retire in their 40s or 50s and receive pension benefits for longer than they worked.
While new employees now face stricter retirement eligibility guidelines, nearly 70 percent of the benefits PERA currently owes – or more than $13 billion – is for current retirees.
In addition, while the fund posted an 11.1 percent investment return in the most recent budget year, the pension fund has in recent years adopted a less aggressive investment strategy aimed at minimizing risk in down years.
The state’s other large public retirement system, the Educational Retirement Board, faces its own challenges.
Recent decreases in the ERB’s expected investment returns and inflation calculations have caused the system’s unfunded liability to rise to $7.4 billion – up by more than $1 billion since 2014 – and its funded ratio to drop to 61.5 percent.
In addition, the pension fund is now not expected to reach 100 percent funded status for 84 years – around 2100.
Jan Goodwin, the ERB’s executive director, said the retirement system that covers more than 59,000 active teachers, professors and other school workers, and roughly 46,000 retirees has no short-term solvency concerns, largely because of the 2013 legislation.
“It is still a good fix, because we’ll still get to 100 percent funded,” Goodwin told the Journal. “But things have happened since then.”
She said the ERB plans to launch a statewide tour at the end of this month to talk with members, and its board will begin coming up with recommendations for possible legislative changes next year.
Some possibilities could include higher pay-in rates – both in employee contributions and taxpayer-funded employer contributions – and changing how retirement benefits are calculated to encourage longevity.
$19.9 billion in future obligations
Workers making at least $20,000 annually pay at a 10.7 percent contribution rate, with a taxpayer-funded contribution rate of 13.9 percent
PERA – $15 billion in assets
$19.8 billion in future obligations
Rank-and-file state workers pay at an 8.92 percent contribution rate, with a taxpayer-funded contribution rate of 16.99 percent