Being employed as a public servant with the state of New Mexico is an honor. Our state employee family has the privilege of making a direct impact on our communities and contributes toward making the state of New Mexico a better place for everyone. State Police keep our highways safe, social workers help families access food and child care, and our economic and workforce departments are turning the state’s economy around. State employees receive a steady paycheck, great health care benefits and one of the best pension plans in the country. The last is why it is so important that the Legislature pass SB 72 to reform the Public Employees Retirement Association (PERA) plan this year.
Why is this important? Currently, PERA is insolvent, which means there is more money going out of the fund than coming into it. If the unfunded portion of PERA isn’t fixed, current and future employees won’t be able to rely on the system for their retirement – and it is not going to get better by ignoring the facts. There are no pots of gold at the end of the rainbow here; we must come together and find a way to correct the current trajectory.
Most of us remember the financial crash of 2008; the Brookings Institution estimates that there is only a 15% chance that stock market investment growth will cover the increased costs of the PERA system. The Brookings research also categorizes PERA as one of the most vulnerable pension plans in the country – in the bottom 25% for debt stabilization. In short, simply hoping for PERA to grow without changing our contribution strategies is not good public policy.
What is proposed in the legislation is for the state to take a balanced, moderate approach to funding PERA, where the increased responsibility to keep PERA safe is shared by employers, current employees, and retirees. How?
SB 72 asks public entities like the state, cities and counties to contribute more to the fund. The state would be the largest contributor, making a one-time cash infusion of $76 million into the system.
Next, SB 72 asks current employees to put in another 0.5% of their paychecks per year for four years, the same exact amount that their employers would contribute. Sharing the burden for the increased costs is the most equitable approach.
Lastly, it asks for most retirees to freeze their yearly cost of living compounding formula (COLA) for three years; they will still receive a flat 2% increase for those years. After that, COLA increases will reflect how well the fund does as a whole. That means the pension will pay for future increases, like on a debit card rather than a credit card – in a responsible and clear-eyed manner. Low-income, disabled and elderly retirees are completely exempt, meaning those that can least afford to receive a reduced benefit will be free from the plan’s cost increases.
This isn’t a new problem, and it won’t go away on its own. Both the PERA Board and the Legislature’s Investment and Pensions Committee have looked at it extensively for three years. Continuing to kick the can down the road has its own risks. New Jersey and Illinois have worse problems than we do and have already started to lower benefits for new workers. Other states, such as West Virginia, Alaska and Michigan, have switched over to systems more like a 401(k) plan. They’re cheaper, but force workers to rely completely on the stock market for payments rather than on a set amount, which decreases retirement security for government workers.
Gov. Michelle Lujan Grisham is committed to protecting and rewarding state employees who spend their lives making the communities we love better. SB 72 asks everyone to contribute a little more to keep one of the country’s best pension funds financially solvent. Acting this year will make life better for generations of state, city and county government employees, and the people they serve, for years to come. We can weather this financial storm by beginning PERA reform this year.