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State pension plan may miss target for the year

Copyright © 2019 Albuquerque Journal

SANTA FE – New Mexico’s underfunded pension plans already face steep financial challenges.

And this year’s investment returns aren’t likely to help.

The top executive at one of New Mexico’s pension plans for public employees warned lawmakers Wednesday that the agency isn’t on track to hit its target for investment returns this year.

Wayne Propst, executive director of the Public Employees Retirement Association, told lawmakers that missing the investment target by just 2.25 percentage points this year – a possible outcome – could have a serious impact on the long-term financial projection for the plan.

It would be enough to push the plan’s projected funded ratio in 2043 from 74% to 69%, he said. The agency’s goal has been to reach 100% funding by that year.

The outsized impact of one year’s investment return illustrates the financial challenges facing New Mexico’s two main pension systems – one for educators and the other for general public employees.

Last month, financial experts warned New Mexico officials to prepare for the possibility of poor investment returns or other circumstances that could damage the health of the pension systems further.

Wednesday’s presentation by Propst appeared to reinforce that message.

“We can’t invest our way out of this,” state Sen. George Muñoz, D-Gallup, said Wednesday after the legislative meeting.

The financial warnings come as a task force established by Gov. Michelle Lujan Grisham works on recommendations to improve the financial health of the Public Employees Retirement Association.

The task force met in public last month and has three private work sessions scheduled this month and in July, before meeting again in public Aug. 8. Its recommendations are due later that month.

Propst, meanwhile, told legislators at Wednesday’s meeting of the Investments and Pensions Oversight Committee that investment gains this year might come in at 3% to 5%, not the standard 7.25% target used by many pension plans throughout the United States.

A 5% return this year would be enough to reduce the projected funding ratio in 2043 from 74% to 69%, he said.

The challenge, he said, isn’t unique to PERA, which handles a $15 billion pension fund.

“This has been a very volatile year in the markets for public pension plans across the country,” Propst said.

Executives of New Mexico’s other main public pension system – the Educational Retirement Board, for teachers and educators – said Wednesday that it’s too early to predict whether they will reach the 7.25% investment target this year.

In any case, officials at both pension plans stressed that the 7.25% target is a long-term goal.

It’s natural, of course, for some years to be higher and some to be lower.

Propst said his agency, in fact, has generated about 10% in annual investment gains on average over the past decade.

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