Task force wants to break pensions' COLA promise - Albuquerque Journal

Task force wants to break pensions’ COLA promise

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.

There are too many other options that can guarantee the needed stabilization of our pension funds to even consider modifying the very essence of the programs. Let’s not make burdensome changes for our present retirees that constitute a broken promise, break bona fide legal guarantees that N.M. state employees worked for and contributed to in anticipation of a pension with a clearly established COLA practice. We must try new directions and methodology to ensure PERA/ERA stability, and it should begin with new retirees, where if there are alternative methods of directing and dispensing funds, it will be openly stated within their projected pensions.

If the irresponsible action to remove the “compounding inflation protection” as suggested is followed, not only will our present retirees be wrongly exposed to unnecessary long-term risks, but our future state employees will be guided by the knowledge they are probably at risk for catastrophic changes, future forfeited guarantees and promises. …

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