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Copyright © 2019 Albuquerque Journal
SANTA FE – A task force established by Gov. Michelle Lujan Grisham released preliminary recommendations Thursday aimed at wiping out the $6 billion unfunded liability in New Mexico’s pension system for municipal, county and state workers.
The complex proposal would require public employees and the agencies they work for to pay more into the retirement system, and it would reduce the cost-of-living adjustments available to retirees over the next three years.
Eventually, the state would abandon the annual 2% raises that retirees now get in their pensions and instead establish a profit-sharing model – with the raises fluctuating each year based on investment returns and the financial health of the retirement system.
The ideas are a preliminary recommendation, and the task force took no action on them Thursday. Legislative approval would be required to change the retirement system.
“This debate is far from over,” said Diego Arencón, chairman of the task force and Lujan Grisham’s deputy chief of staff. “This is just the beginning.”
The governor’s task force is focusing on the Public Employees Retirement Association, not the pension system for educators.
About 40,000 retirees now draw pensions from PERA, and about 50,000 employees are working and paying into the system.
Dozens of retirees packed into a committee room at the Capitol to listen to the presentation. Many slammed the proposal, arguing that they had already given up some of their pension benefits in 2013 legislation.
Rita Sanchez, a retired city of Albuquerque employee, said retirees depend on their annual cost-of-living increases to keep up with inflation and other price increases.
“To skim from the bottom of the pot, there’s nothing left,” she told the task force. “We don’t make a lot of money – please, leave our cost of living alone.”
A representative of local governments also expressed concern.
Leandro Cordova, a former Taos County manager who now works for the New Mexico Association of Counties, said the recommendations for increased employee and employer contributions would reduce the take-home pay of employees and increase costs for taxpayers. Cordova is a member of the task force.
It wasn’t clear Thursday how much the increased contributions would cost the state and local governments.
Nevertheless, others at the meeting – including a few firefighters – said the recommendations are a reasonable way to keep the pension fund solvent.
They noted that the pension benefits would be better, in some cases, under the recommendations.
Retirees, for example, would have to wait only two years, not seven, to start receiving their annual cost-of-living adjustments. And if investments were strong and the health of the pension fund improved, the profit-sharing component of the proposal would boost the annual raises above the 2% retirees typically get now.
Employees could also receive increased pension benefits – retiring at their full salary or more – if they worked long enough.
Sen. George Muñoz, a Gallup Democrat and member of the task force, said lawmakers should proceed cautiously on the recommendations, given their complexity and the need to explain the potential changes to retirees and current employees.
But he also said it’s unrealistic to expect investment returns alone to generate the revenue needed to turn around the pension system.
“Changing pensions is not any fun,” Muñoz said. “It should be a slow, well-thought-out process.”
There are a variety of exceptions built into the complex proposal to help lower-income retirees and spare police and correctional officers from some of the changes.
But the new system would put the PERA on track to wipe out its $6.1 billion unfunded liability within 25 years, based on projections by actuaries working for the task force. The unfunded liability represents the difference between assets on hand and future retirement benefits owed.
Under the recommendations, the funded ratio of the retirement system would climb from about 70% this year to about 100% in 2043, based on the median projection by actuaries.
New Mexico has struggled for years with underfunded pension systems – one for educators and another for other public employees.
Pension liabilities, in fact, have already prompted a national credit rating agency to downgrade the state’s bond rating.
Lujan Grisham established the task force in February after pension legislation stalled in the legislative session.
• Require most employees to dedicate more of their paychecks to the retirement plan. Their employers would pay more, too. Each side would pay an extra 2% of the employees’ salary, with the increased contributions phased in over four years.
• For the next three years, suspend the current 2% cost-of-living adjustment that retirees receive in their pensions. Instead, they would receive a lump sum at the end of each year equal to 2% of their annual pension, which saves the pension system money because it avoids the compounding effect, in which each 2% increase builds on the previous year’s 2%.
• After the first three years, move to a profit-sharing model for the annual cost-of-living adjustments. The adjustment would generally fluctuate between 0.5% and 3% each year, depending on the performance of the retirement system’s investments and its overall financial health.
• Low-income retirees, State Police officers and correctional officers would be exempt from some of the changes.
By the numbers
$700 million Immediate reduction in pension plan’s unfunded liabilities if recommendations are approved.
$76 million One-time appropriation Legislature would be asked to make to fund the cost-of-living adjustments in first three years.
2043 Estimated year by which the pension system’s funded ratio would reach 100%.
Source: Staff presentation to PERA Pension Solvency Task Force.