Copyright © 2019 Albuquerque Journal
SANTA FE – A complex proposal to overhaul New Mexico’s chronically underfunded pension system for public employees won endorsement Tuesday from Gov. Michelle Lujan Grisham and several Democratic legislative leaders.
The proposal – set for a legislative hearing Wednesday – builds on the work of a task force established by the governor earlier this year, but with some changes.
The legislation would establish a “profit-sharing” model for the annual cost-of-living adjustments that most retirees now receive. Rather than an automatic 2% increase in their pensions each year, the actual amount would fluctuate – from 0.5% to 3% – depending on investment returns.
Employers and employees would also pay more into the system under a schedule that phases in higher contributions.
A number of other changes in the proposal would help retirees who are older than 75, disabled or receiving pensions of less than $25,000 a year, despite 25 years of service.
Notably, annual cost-of-living adjustments would be increased by half a percentage point, to 2.5%, for retirees who are 75 or older, a change requested by the governor.
But many retirees would receive a temporary reduction in their cost-of-living increases. For three years, they would get an extra check equal to 2% of their pension – a move that pauses the compounding effect of having each 2% build on the previous increase.
The legislation also calls for injecting $76 million in state funding into the system to cover the cost of the extra checks.
The net effect, officials say, would be an immediate $700 million reduction in the pension system’s unfunded liability.
The proposal will be taken up in the 30-day legislative session that begins next month.
A series of legislative leaders – including House Speaker Brian Egolf and Senate Majority Leader Peter Wirth, both Santa Fe Democrats – praised the proposal in written statements Tuesday.
Lujan Grisham, also a Democrat, said it’s time to address the pension system’s $6.6 billion in unfunded liabilities – a shortfall that has already damaged New Mexico’s credit rating. Acting now, she said, would prevent more painful cuts later.
“Reforming our pension system, making sure it remains one of the best in the United States, requires backbone and shared sacrifice,” Lujan Grisham said.
The retirement system’s funded ratio – the plan’s assets divided by its liabilities – is now about 70%. Tuesday’s proposal is aimed at wiping out the liability within 25 years.
Supporters say it would also put the retirement system in a better position to withstand a broad economic downturn.
Opponents, in turn, say the proposal goes too far.
Miguel Gómez, executive director of Retired Public Employees of New Mexico, a nonprofit advocacy group, said the governor and lawmakers are rushing through the consideration of complex legislation. A cautious, modest approach to revising the pension system would be better, he said.
“There’s going to be a lot of pain for a lot of folks in New Mexico,” Gómez said of the proposal, “and it’s just not necessary.”
A 91-page draft of the bill is scheduled to be heard Wednesday afternoon during a meeting of the Legislature’s Investments and Pensions Oversight Committee.
“We’ve got to show leadership and compassion to fix the problems we face,” Sen. George Muñoz, a Gallup Democrat and chairman of the committee, said Tuesday.
The regular legislative session begins Jan. 21, when the proposal would have to navigate a series of committees and win approval of the House and Senate by Feb. 20 to make it to the governor’s desk.
The proposal focuses on the Public Employees Retirement Association, which covers firefighters, police officers, and state and local government employees.
About 40,000 retirees now draw pensions from PERA, and about 50,000 employees are working and paying into the system.
“With this new plan,” Speaker Egolf said, “we will keep our promises to employees for decades to come.”
Teachers and educators are covered under a separate system operated by the Educational Retirement Board.