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“A crisis is quietly growing in New Mexico.”
– “Solving the Hidden Crisis: Achieving Retirement Security for all New Mexicans,” from Think New Mexico
Two-thirds of New Mexicans who work in private industries don’t have access to an employer-provided retirement fund, matched or unmatched.
The state’s public-employee pension funds for government workers are significantly underfunded.
Nearly 80% of New Mexicans have less than $10,000 in savings at all.
Around 12.2% of New Mexico’s senior citizens are living in poverty, compared to the national average of 9.3%.
And there’s evidence to suggest that, without intervention, these problems will get worse. Don’t forget, more baby boomers – the youngest who are 55 this year – are hitting retirement age every day.
Something’s got to give.
Enter Think New Mexico. Journal capital bureau chief Dan Boyd reported Oct. 6 the Santa Fe-based think tank has a three-pronged plan to fundamentally change the landscape for current and prospective retirees for the better. Executive director Fred Nathan’s recommendations not only make sense – they make a strong argument that would attract more retirees while helping ensure retirement is more comfortable for our current and future senior citizens. Think the reforms would only help older folks? You’re forgetting those residents can either be self-sufficient and contribute to the local economy, or require more social services just to get by.
Stop taxing Social Security
New Mexico is one of only 13 states that tax Social Security payments as income, and the second toughest after Utah. Think New Mexico estimates that getting rid of that tax – which any retiree with an income over $28,501 pays in full – would make a difference of nearly $700 per year for the average New Mexico senior. For those nervous about the $73 million in state revenue the repeal would cost, the organization suggests a mid-level measure that would repeal the tax for lower- and middle-income New Mexicans drawing Social Security.
It’s worth pointing out repealing New Mexico’s tax on Social Security income wouldn’t likely make much difference for the poorest seniors in the state, who are exempt already. But many of these changes could go a long way in making our state more attractive to middle- and upper-class seniors from elsewhere in the country – and who would offer significant contributions to our local economy if they chose to enjoy their retirement here.
Set up private-sector retirement accounts
Not all employers are in a position to set up retirement plans for their employees, much less offer a matching contribution. But those of us fortunate enough to have retirement contributions automatically deducted from our paychecks know that if we don’t see the money, we are unlikely to miss it.
Think New Mexico has built on a smart proposal from AARP and makes a strong case to make it easier for employers to set up an opt-out contribution plan for workers. Think it’s not needed? Look at the stats above.
Here’s one way it might work: The state could create an incentive to companies to set up automatic Individual Retirement Accounts, perhaps offering a waiver covering the cost of setting up the automatic payroll deductions. Employees would be automatically enrolled, with the ability to opt-out, and employers would not be required to match contributions.
It has worked impressively well elsewhere. Oregon has more than 2,600 employers and 52,000 employees participating, with almost $11 million socked away for retirement. That beats New Mexico’s status quo of too many seniors trying to live on $13,000 in annual Social Security checks
Tackle public pension woes
The most complex part of Think New Mexico’s plan for retirement security has to do with bolstering the state’s public pension plans. As Boyd reported, the Public Employment Retirement Association and the Educational Retirement Board had a combined unfunded liability of $13.5 billion in 2018. For the layperson, that means the state has committed to $13.5 billion more in current and future benefits than it has lined up in assets.
Of course, pension plans don’t really need to be 100%-funded to be sustainable. After all, how likely is it that every pension-eligible public employee retires tomorrow? But the current gap – PERA is funded at 71.6% and ERB at 63.5% – is too wide for comfort. So New Mexico could:
⋄ Make a one-time gift or loan to PERA. Infusing $700 million in cash into PERA now – while the Permian is freely giving up its treasures – will shore up the cash-flow problems the fund has, while also generating long-term investment returns as long as PERA meets its investment return goals. And it would preclude the state going back to already strapped taxpayers to ask them to shoulder an even bigger annual share of public employee pension contributions.
⋄ Consolidate the plans’ investment management. While PERA and ERB are not governed by the same board, at least six states have consolidated their investment management since 1970, and Indiana, for one, saved around $370 million in its first five years. Managing funds together cashes in on economies of scale, removes paying for duplicative services and gets lower fees and better returns on investments.
⋄ Raise the bar for board members governing PERA and ERB. This one just makes sense. Pensioners deserve qualified money managers making sound investment decisions, and qualifications are sorely lacking. While it’s important to have someone on the board who answers to the voters, it’s essential members understand the complex investment landscape for taxpayers and pensioners alike.
Unlike free college and legal recreational marijuana, retirement funding for an entire state isn’t the sexiest topic for legislators to tackle. Political turf battles abound. Pension solvency has been a bitter pill for years, with small prescriptions doled out here and there that do little to treat a looming epidemic.
But the long-term financial, physical and mental health of New Mexicans deserves proper shrift. Our legislative class of 2020 has the opportunity to emerge as champions for putting a little more green into New Mexico retirees’ golden years.
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.