Editorial: Much-lauded state pension 'fix' is really just a Band-Aid - Albuquerque Journal

Editorial: Much-lauded state pension ‘fix’ is really just a Band-Aid

There was plenty of self congratulation when the Legislature passed and the governor signed New Mexico’s latest “fix” for the state’s chronically underfunded public employee pension system. It pumps in a one-time cash infusion of 55 million in tax dollars, freezes and limits cost-of-living adjustments for two years, moves to a profit-sharing model for COLAs – based on investment success – and bumps up contributions by both employees and government employers – aka taxpayers.

“By paying out more than it was taking in,” the governor said, “PERA was on a path to eventual bankruptcy. Now we’ve reversed course, and I’m confident New Mexico can keep its promises to current and future retirees.” Sen. George Munoz, D-Gallup and a pension-fix co-sponsor, said “we’re watching after everyone’s future.” Rep. Phelps Anderson, R- Roswell and a co-sponsor, told colleagues “New Mexico has overpromised, (and) we’ve got to step up and deal with that. …”

They were half right. We have overpromised. But this isn’t the long-term fix needed. If it feels like you’ve seen this movie before, you have. You’re likely going to see it again – especially if markets continue to reel under the impact of oil prices and coronavirus. Fund solvency is tied to investment success.

Lawmakers “fixed” PERA in 2013, using many of the same tools – increasing contribution rates and trimming benefits.

PERA Executive Director Wayne Propst said in November 2013 he was optimistic but it was too early to “pop the champagne corks.” No kidding. PERA’s unfunded liability has climbed from $4.6 billion to more than $6 billion since then. (And in 2019 the Legislature approved a $5.5 million infusion – described as a small step for pension reform.)

This year’s legislation grew out of a governor’s task force and drew heated opposition from retirees, who understandably feel promises should be kept. Approval wasn’t easy.

But declaring victory and achieving it are different things.

When this legislation is fully implemented in 2023, government will contribute 19.24% of each salary under the main plan for PERA-covered workers, who will contribute 10.92%.

The “fix” didn’t implement the vital structural change needed for long-term solvency – changing when workers can start drawing benefits. At a time when life expectancy has increased, as a general rule state workers can retire after 25 years and draw benefits of up to 90% of their best three years’ salary for life.

It’s worth noting in 2013 the state had about 55,000 employees and nearly 34,000 retirees. This year? Workers are about 50,000, retirees 40,000. With the baby boom aging out of the workforce, the basic trend will continue – and a hiring spree to shore up the fund will make things worse.

Sen. Daniel Ivey-Soto, D-Albuquerque, said during a pre-legislative seminar it isn’t possible to have a fiscally sound system in which you can work for 25 years, then draw benefits for 45. “That’s not a pension system. That’s a Ponzi scheme.” Ultimately, current workers must be protected but a path to fiscal sanity needs to look more like Social Security, where you don’t draw full benefits until close to retirement age.

The structural problem here is pretty obvious, as is the lack of appetite for real reform – especially in an election year. Meanwhile, it’s fair to suggest that at nearly 20%, we’ve reached the limit for bumping up public contributions. Let’s face it. A huge part of the state’s population has no retirement plan outside Social Security.

Ivey-Soto is right. This hard discussion can only be put off for so long. The taxpayers of this state, and the public employees, deserve a real “fix.”

This editorial first appeared in the Albuquerque Journal. It was written by members of the editorial board and is unsigned as it represents the opinion of the newspaper rather than the writers.

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