SANTA FE – Inflation-related pension benefit increases would be trimmed for roughly 40,000 New Mexico retired state workers in the coming years – and suspended altogether for three years – under a plan approved Tuesday by the Public Employees Retirement Association’s board.
The board, which also voted to ask lawmakers for a $200 million lump sum appropriation to shore up the pension fund, approved the solvency plan in a 7-5 vote after a contentious meeting in which some board members railed against a perceived lack of transparency.
“I think we’re being manipulative and sneaky … and I don’t like being a part of it,” PERA board member Patricia French of Albuquerque said at one point during Tuesday’s meeting.
However, other board members described the action as necessary, saying the Legislature probably will come up with a solvency plan for the pension fund during the coming 60-day legislative session with or without a proposal from the PERA board.
“It’s a good starting point for us,” board Chairman James Maxon, the Sandoval County fire chief, said in an interview after Tuesday’s meeting. “It makes us all responsible for ensuring there’s (future) solvency.”
He also said the plan would be shared with all PERA members and retirees in the coming days.
Concerns about New Mexico pension liabilities have intensified in recent years – despite a 2013 solvency fix aimed at putting the retirement fund on more solid ground – and prompted a national credit rating agency to downgrade the state’s bond rating in June.
Gov.-elect Michelle Lujan Grisham, a Democrat, said on the campaign trail that she would oppose cuts to benefits, including any reduction in the annual cost-of-living adjustments that retired state workers and teachers receive.
Currently, those annual inflation-related increases are set at 2 percent for most PERA retirees.
Under the plan endorsed Tuesday, those annual increases would not begin until age 65 for most retired state employees and at 60 for retired law enforcement officers and firefighters. In addition, the annual increases would be suspended until July 2022 – and after that date would be determined based on inflation rates and the pension fund’s fiscal health.
The plan also calls for an increase in both how much employees pay into their retirement funds and taxpayer-funded employer contributions, at least until PERA’s funded ration improves.
PERA officials have said the pension fund can’t rely on investment returns alone to make up the sizable gap between outgoing benefits and incoming contributions. The pension fund had an estimated unfunded liability of roughly $6 billion as of this summer.
“We really have a math problem and a cash-flow problem,” PERA Executive Director Wayne Propst told lawmakers during a hearing last month at the state Capitol.
Meanwhile, the request for a $200 million appropriation comes as state lawmakers are weighing possible options for an unprecedented $950 million projected budget surplus for the budget year that ends in June.
Duffy Rodriguez, secretary of the state Department of Finance Administration, said during a legislative hearing this week that a one-time infusion of cash into New Mexico’s pension funds won’t necessarily satisfy the credit-rating agencies that watch state finances.
“When they mention pension reform,” she said, “they do not mean taking a pile of money and dumping it into those funds. … The rating agencies want to see changes to the system for them to be convinced that the state is finally addressing the long-term liabilities that exist.”
In other words, broader changes are needed to set the pension funds on a path to full funding, Rodriguez told members of the Legislative Finance Committee on Monday.
During the same meeting, Sen. George Muñoz, D-Gallup, said the state’s pension funds are vulnerable to an economic recession, making it all the more critical to take quick action.
“We know we have to do pension reform,” he told his LFC colleagues.
The 2013 solvency fix backed by labor unions and signed into law by Gov. Susana Martinez, who leaves office at the end of the year, enacted stricter retirement eligibility guidelines for future hires. It also required most employees to funnel more of their paychecks into the retirement fund and increased the level of taxpayer-funded contributions.
The changes made an immediate impact, but challenges posed by longer life expectancies and an increase in the number of retirees have made sustaining that progress difficult. The pension fund also recently lowered its annual investment target to 7.25 percent.
The state’s other large public retirement system, the Educational Retirement Board, which covers teachers and other education professionals, has already proposed its own plan for the upcoming legislative session that begins Jan. 15.
Journal Capitol Bureau reporter Dan McKay contributed to this report.