Copyright © 2020 Albuquerque Journal
SANTA FE – The state House endorsed a complex plan Monday to strengthen the finances of New Mexico’s retirement system for police, firefighters and other public employees – a top legislative priority of Gov. Michelle Lujan Grisham’s.
The proposal, Senate Bill 72, passed the Senate last week, but it must go back to that chamber for approval again because of a technical change made to the bill by the House.
After that, it would head to Lujan Grisham, who convened a task force last year to examine ways to firm up the finances of the retirement system.
Rep. Phelps Anderson, a Roswell Republican and co-sponsor of the bill, told his colleagues Monday that he knew supporting the legislation wasn’t easy. The changes, while painful, would ensure the state can continue to meet its obligations to tens of thousands of retirees, he said.
“New Mexico has overpromised,” Anderson said. “Today we’ve got to step up and deal with that overpromise.”
Under the proposal, employees and employers would have to pay more into the system, resulting in less take-home pay for workers and less budget flexibility for government agencies.
Retirees, meanwhile, have turned out in force this session to blast a provision that would substantially revise how their annual cost-of-living adjustments are calculated.
Opponents said there’s no immediate need to make drastic changes. They pointed out that the pension fund was in far better shape before the Great Recession, and they suggested it will recover as time goes by.
“I’m just not a doomsday guy,” Rep. Antonio “Moe” Maestas, D-Albuquerque, said. “We’re not going to owe $6 billion tomorrow.”
The debate didn’t fall along party lines, with Republicans and Democrats on both sides of the vote.
It won House approval 40-28 after three hours of debate.
Anderson said this year’s session was a rare opportunity to set the Public Employees Retirement Association on a path to solvency. The pension system, he said, now faces well over $6 billion in unfunded liabilities.
The legislation would freeze many retirees’ cost-of-living adjustments for two years and then move to a “profit-sharing” model. Annual raises would fluctuate from 0.5% to 3%, depending on investment returns and the financial health of the pension fund. Most retirees now get a 2% raise each year.
There would also be phased-in increases in how much most employees and their employers must pay into the system as a percentage of the workers’ salaries. But some of the increases would be rolled back if the pension system’s health improves.
A budget bill moving through the Legislature would make a one-time $76 million injection of cash into the system.
Supporters say the cash infusion and changes outlined in Senate Bill 72 would result in a $700 million immediate reduction in the plan’s unfunded liabilities.
Rep. Christine Chandler, D-Los Alamos, said it was a difficult vote but important to stabilize the pension fund.
“Yes, there are some difficult elements to this plan where we are asking our employees and our retirees to absorb some financial distress – a financial hit,” she said. But “we have a responsibility to shore up the financial stability of our retirement plans for our employees and our retirees.”
New Mexico has one of the most generous public pension systems in the country. But the state has also struggled to fully fund the system in recent years, contributing to damage to the state credit rating.
Employees can generally retire at 90% of their salary.
About 40,000 retirees now draw pensions from PERA, and about 50,000 employees are working and paying into the system.