It’s one of those problems that are so big they’re easy to ignore and nobody really wants to talk about them. But ignoring it and spinning out platitudes won’t make it go away.
The reality is that New Mexico’s two biggest pension funds for roughly 110,000 active employees and 90,000 retirees – the Public Employees Retirement Association and Educational Retirement Board – had combined unfunded liabilities of about $12.5 billion as of June 2017.
That number represents the difference between assets and projected future benefits owed. To put it in perspective, that roughly equals the state budget for two years and would fund Albuquerque Public Schools operations for nearly two decades.
The bleak pension picture was a factor in Moody’s Investor Service downgrade of the state’s bond rating in June – meaning it will cost us more to do projects.
It’s not as though taxpayers weren’t already kicking in their fair share. The state generally pays 16.99 percent of salary into the fund for a worker covered by the PERA and 13.9 percent of salary for an educator covered under the ERB. Employees also contribute, with most of those covered by PERA kicking in 8.92 percent of their salaries and ERB-covered workers paying 10.7 percent.
But according to Ballotpedia, New Mexico’s state pension funds in 2016 paid out $2.2 billion in retirement benefits against $1.3 billion in total contributions by the state and workers. PERA and ERB also have investment income, but both recently reduced their investment assumptions, partly because of volatile market conditions. That’s responsible. After all, this isn’t gambling money.
Indeed, the state’s budget picture has brightened recently, with some estimates that new revenue will exceed $600 million. If a recent court ruling concluding that New Mexico isn’t meeting its constitutional obligation to educate its children stands, that money is already spoken for. And don’t forget employee pay raises, necessary additions to the workforce in areas like public safety and the funding struggles for the state’s higher education system. This list can go on, but the point is that despite higher oil prices and an improving economy, there aren’t the required big dollars sitting around to fix the pension system.
People who don’t work for government absolutely should not stand still for any suggestion that they need to ante up even more money for public employee retirements as they struggle to prepare for retirement themselves.
Democratic gubernatorial candidate Michelle Lujan Grisham offers no solution. Her spokesman says she opposes cuts to benefits, including reductions in annual inflation-related adjustments that retired state workers and teachers receive.
Her spokesman also says Lujan Grisham sees no reason to eliminate the defined benefit system. Of course, public employees are a key constituent group for Democrats, but keeping the current structure puts these pension programs on a path to bankruptcy – not exactly a good way to keep a promise to state employees and teachers.
Republican Steve Pearce is more grounded in reality. He correctly says the private sector has moved away from defined benefit pensions because they simply are not sustainable. And he says that while benefits must be preserved for employees in the system, particularly those nearing retirement, that at a minimum, new employees entering the public workforce should have a new system.
Utah, for example, has moved to a defined contribution plan for new employees while preserving the benefit structure for those already in the workforce. Some analysts say the prospect for insolvency in Utah’s system fell from 50 percent to 10 percent. But this isn’t one-size-fits-all. Arizona, Michigan and Pennsylvania have all tackled pension reform with a common denominator: a commitment to safeguarding their public employees’ retirement systems by enacting reforms that are fiscally responsible.
As former Utah state Sen. Dan Liljenquist, a Republican who was at the forefront of his state’s effort, said in a commentary he wrote for Forbes in 2017, “Albert Einstein once said we cannot solve our problems with the same level of thinking that created them. … For years, state and local policy makers have been trying to keep their heads above water, while ignoring the pension debt tsunami.”
As New Mexicans prepare to elect a new governor and legislators, they should press candidates to lay out exactly how they plan to keep us from drowning in pension debt. Indeed, ask them how we reach the safety of the shoreline.
This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.