The recent discussion in the Albuquerque Journal about proposals to keep the Public Employees Retirement System (PERA) solvent misses an important point: There is no greater incentive to attract people to state and local government service than a guaranteed and defined pension benefit based on years of service and contributions. Without it, state and local governments will be hampered in recruiting talented people and in providing meaningful, appealing employment to keep young people in New Mexico.
The private sector has largely gone to “defined contribution” retirement plans – investment accounts that transfer risk to the employee. Such plans are also portable and therefore less likely to retain workers for the long careers necessary for effective and efficient state and local public service delivery.
The simple fix proposed by the PERA Task Force will protect this incentive and should be passed by the New Mexico Legislature for four reasons:
• First, a healthy defined-benefit pension plan helps level the playing field between public and private sectors. The private sector can adjust salaries to meet supply and demand. State and local governments cannot. They depend for revenue on an economy which they do not control. Nor do public sector executives have exclusive control over wage and incentive decisions. Due to a separation of powers, in most cases they must work through legislatures, councils and commissions.
• Second, we should help public employees focus on service delivery, not managing their retirement accounts. Most of us lack the knowledge or time to optimize our investment accounts. As the Great Recession taught us, even those who know how to do this may have the rug pulled out from under them. The media have reported countless stories of people who are working longer or can never retire because their retirement plans went south with the value of GDP.
• Third, the proposed PERA Task Force fix is simple. It is based on two minor modifications. One is to increase the employee and employer contributions by 2% each over four years – a pace so gradual that both retirees and employers can absorb and budget for the changes. The other modification is to cap the cost-of-living (COLA) adjustment at a flat, uncompounded 2% – a 13th check – for three years. After that, future COLAs would be based on profit sharing.
• Finally, the task force plan is fair. It distributes the burdens and benefits equitably among the beneficiaries. It requires a minimum infusion of $76 million from the state – to be used to provide that 2% COLA to retirees for the next three years – at a time when we have the money. It asks current PERA retirees to take a slightly reduced COLA now in exchange for a potentially greater one later. And it offers current PERA-covered employees and their employers this future benefit by paying slightly more now.