SANTA FE – Gov. Michelle Lujan Grisham is backing a complex proposal to overhaul New Mexico’s chronically underfunded pension system for public employees.
The proposal – set for debate this session – builds on the work of a task force established by the governor last year, but with 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.
A series of legislative leaders – including House Speaker Brian Egolf and Senate Majority Leader Peter Wirth, both Santa Fe Democrats – have praised the proposal.
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%. The proposal backed by the governor 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.”
The pension proposal focuses on the Public Employees Retirement Association, which covers firefighters, police officers, and state and local government employees.
Teachers and educators are covered under a separate system operated by the Educational Retirement Board.