All New Mexicans agree that we want effective state services. In the interest of attracting and retaining the best state employees at all levels, state-guaranteed defined pensions are provided to state employees as a condition of employment. Defined pensions are an earned safety net guaranteed each employee upon completion of a determined number of years of dedicated service. Retirement is the time of life when we all become the most vulnerable.
New Mexicans have rightly expressed the need for properly funded state employee pensions (PERA/ERA.) Clearly, most agree that these pension funds must address unfunded liabilities in order to correct for past mistakes and questionable investment missteps. The first step, however, should not be a radical modification of the most essential guarantee within the pensions, that of progressive compounding inflation protection. This essential inflation protection has been an integral portion of our state pensions since their inception and is modeled on Social Security and all other federal pensions.
Why would the legislative task force investigating methods to ensure our state’s retirement funding, with the governor’s blessing, suggest removing this most fundamental element within New Mexico state employees’ pensions? It is irresponsible to place the most punitive burden of their recommendations to be absorbed by current retirees. Retirees are the least fiscally able to adjust to these unconscionable changes. Further, this regressive recommendation is being made at a time with so much new oil and gas revenues now available to easily correct the deficiencies of the past.
The best example of how this key practice helps current retirees control progressive inflation is central to Social Security and all responsible pensions, where a year-upon-year accumulation of the cost of living – inflationary adjustment is compounded to protect against rising prices – serving as the new basis for each additional cost-of-living adjustment (COLA.) The COLA is not designed to gain financial growth, but is instituted to assist the retiree to minimally maintain purchasing power. As we all experience, cost-of-living increases in the real world build upon the prior year’s increases. The task force, contrarily, promotes an experimental practice of assigning a single cost-of-living increase each year, to be assigned to the retiree’s fixed base income, thereby not allowing the essential COLA to accumulate. This action freezes the COLA’s ability to address real ongoing price increases. Eliminating this compounding effect defies economic common sense. … It is absolutely essential to protect against ever-increasing silent inflationary costs. Since the inception of the state employee retirement pensions, cost-of-living adjustments have been correctly assigned, allowing for compounding by permanently adding to a retiree’s yearly current pension to address inflation. This practice is the absolute center of all retirement – not just an arbitrary item to be determined upon by some passing political or investment whim.
Yes, we need to remedy the financial woes of our state pensions, but certainly not at the expense of existing retirees. Those who retired under the guaranteed methodology were assured the COLAs were progressively applied so as to not have them experience a massive erosion of their pension’s purchasing power. If this methodology – present in all acknowledged state and federal pensions – is removed as an experiment to correct investment deficiencies, all retirees will suffer from this irresponsible action. Long-term retirees and spouses with reduced benefits will experience in reality a pension reduction. … Those monies are essential to retirees for basic quality-of-life needs. Most retirees cannot take alternative actions or seek additional employment.