PERA Solvency Could Wind Up More Daunting Than Thought

Copyright © 2012 Albuquerque Journal

SANTA FE – The solvency challenge faced by the New Mexico Public Employees Retirement Association could be on the verge of becoming even more daunting.

PERA Executive Director Wayne Propst told members of an interim legislative committee Tuesday the pension fund posted a negative return – nearly 0.4 percent – on its $12.1 billion in investments during the fiscal year that ended in June.

The Public Employees Retirement Association has an annual pension return assumption of 7.75 percent. That target represents the amount of investment income that is needed over time to make up the difference between incoming contributions and outgoing benefits.

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The investment loss will likely mean an increase in PERA’s unfunded liability, which is already pegged at $4.9 billion, when its annual accounting is released later this month.

“It’s hard to see how our unfunded liability won’t be worse later this month than it is now,” Propst told subcommittee members of the Investments and Pensions Oversight Committee.

Specifically, Sen. George Muñoz, D-Gallup, predicted the pension fund’s unfunded liability – the difference between future retirement benefits owed and assets on hand – could increase by as much as $3 billion in the updated accounting.

While the pension fund posted a positive investment return through the first three months of the current budget year and had about $12.1 billion in invested assets as of Tuesday, Muñoz and other lawmakers said last year’s losses could create a greater sense of urgency for a solvency fix to be approved during the 2013 legislative session.

The PERA board endorsed a proposal in June that calls for retirement benefits to be scaled back for retirees, future employees and more than 54,000 current government workers covered by the retirement system.

It also would increase the amounts of money that both employees and their government employers, via taxpayer dollars, pay into the retirement fund and impose stricter retirement eligibility on future workers and those hired after July 2010.

The plan, which PERA claims would erase the pension fund’s unfunded liability by 2029, must be approved by the Legislature during the 60-day session that begins in January in order to take effect.

“If we don’t do this, we’re not going to like what’s coming down the road,” said Sen. Carroll Leavell, a Jal Republican.

The state’s other large public retirement system, the Educational Retirement Board, is also dealing with solvency concerns. Its board approved a solvency proposal last month that relies more heavily on contribution increases than benefit cuts to shore up the retirement fund.
— This article appeared on page C1 of the Albuquerque Journal

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