Copyright © 2018 Albuquerque Journal
SANTA FE – Finding the right medicine to ensure the future financial health of New Mexico’s two large public retirement systems could be a top priority for state lawmakers in the next several years – if not sooner – after pension concerns prompted a recent downgrade of the state’s credit rating.
But New Mexico gubernatorial candidates Michelle Lujan Grisham and Steve Pearce have different ideas on how to shore up the state’s pension funds, which combined cover roughly 110,000 active employees and nearly 90,000 retirees.
Lujan Grisham, a Democrat, says she would oppose cuts to benefits, including any reduction in the annual inflation-related pension adjustments that retired state workers and teachers receive.
“She does not believe that New Mexico needs to eliminate our defined benefit system for current or future educators and state employees and opposes any reduction in cost-of-living adjustments,” Lujan Grisham campaign spokesman James Hallinan said.
In contrast, Pearce, a Republican who will face Lujan Grisham in the November general election, said pension benefits and eligibility guidelines for those nearing retirement should be left alone, but said workers near the start of their careers should expect changes.
That could include having to pay more money into their retirement accounts to maintain current benefit levels. He also suggested possible changes that could make the pension funds function more like the retirement systems used by many private companies.
“Pensions in the private sector transformed significantly over 20 years ago,” Pearce told the Journal. “Government pensions have stayed generous and lagged many changes. At a minimum, new employees coming into the government workforce are going to have a very different system. Employees many years away from retirement are going to have to see significant changes.”
Meanwhile, he also said elected officials – including the state’s 112 legislators – should no longer participate in the state’s retirement system. Lawmakers can now participate in one of more than 30 plans operated by the Public Employees Retirement Association.
“All elected officials should exit the pension system immediately, and their elected service should not support or contribute in any way to pension benefits,” Pearce said. “This won’t solve the crisis, but it is a sign of both sharing the pain and leadership.”
New Mexico’s two retirement systems’ unfunded liabilities have increased in recent years, as 2013 solvency fixes aimed at shoring up the PERA and the Educational Retirement Board have not been as effective as intended.
Although the pension funds are set up differently, both rely on investment returns to offset the difference between incoming contributions and retirement benefits paid, and both have recently reduced their investment assumptions, partly because of volatile market conditions.
Combined, the state’s two large retirement systems had unfunded liabilities of roughly $12.5 billion as of June 2017. Unfunded liabilities represent the difference between current assets on hand and future retirement benefits owed, and both pension funds’ liabilities have increased in recent years.
The educator retirement system, which has more than 59,000 active employees and roughly 47,000 retirees, was only 62.9 percent funded as of last year and was not projected to become 100 percent funded until 2078.
The state employee pension fund, which also covers State Police, firefighters, judges and more, had about 50,000 active members and 40,000 retirees as of last year. PERA’s funded ratio at the time was 74.5 percent, but its board’s recent vote to lower the pension fund’s annual investment assumption to 7.25 percent – from an average of 7.5 percent – could mean an infinite projected time period to pay off its liabilities.
Concerns over New Mexico’s pension liabilities and deeply rooted economic challenges prompted Moody’s Investors Service, a national credit rating agency, to downgrade the state’s bond rating in June.
Even before that action, board members for both of the retirement systems had begun studying possible changes aimed at improving the pension funds’ financial footing. Proposals from both pension funds are expected to be presented to an interim legislative committee later this year.
Whoever is elected governor will take office in January, just weeks before the start of a 60-day legislative session.
Some lawmakers have said shoring up the pension funds should be on the Legislature’s to-do list for next year’s session, along with coming up with a plan in response to a judge’s landmark ruling about education funding levels.
There could also be some overlap between the two issues, as both Lujan Grisham and Pearce have criticized the handling of public schools by Gov. Susana Martinez’s administration.
Lujan Grisham, a three-term congresswoman from Albuquerque who is also a former state Cabinet secretary, has called for an increase in teacher pay and suggested that trimming retirement benefits would go against that goal.
“It is critical that we continue to retain and recruit quality educators, and cutting current and future benefits is not the way to do that,” Hallinan told the Journal.
He also said the pension funds’ fiscal condition was partly due to the state’s economic struggles during Martinez’s tenure.
Pearce, who is giving up his southern New Mexico-based congressional seat to run for governor, has joined Democrats in criticizing the Martinez administration’s handling of public schools.
Like Lujan Grisham, he suggested teachers should not be stuck with higher required retirement contributions, saying, “We cannot look to them to shoulder this burden and still attract the quality teachers we need.”
Pearce also said some of an expected budget surplus – due to a surge in oil production in southeastern New Mexico – should be earmarked for pension-related legislation.