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State pension funds take billion-dollar hits

Copyright © 2020 Albuquerque Journal

SANTA FE – New Mexico’s two large public retirement systems have already taken billion-dollar hits from a steep market downturn caused by actions taken in response to the coronavirus pandemic.

But the leaders of both pension funds say investment portfolio changes made in recent years have positioned the funds to ride out the storm – however long it lasts – and keep paying out benefits to retirees.

“We’ve lost money – every investor has – but we could have lost a lot more money if we hadn’t taken a more defensive position,” said Wayne Propst, executive director of the Public Employees Retirement Association.

He said the retirement fund’s value has dropped from about $16 billion in January to about $14 billion as of this week, though the market is fluctuating daily.

But only about 35% of the pension fund is invested in equities, with the rest in bonds, alternative investments and a healthy amount kept available in cash.

The state’s other public retirement system, the Educational Retirement Board, has an even smaller percentage – about 26% – of its portfolio invested in stocks, said Jan Goodwin, the ERB’s executive director.

“We have lower equity exposure, so we’re actually faring better than other pension funds,” Goodwin told the Journal.

The total value of the ERB was $13.8 billion at the end of last year. It had dropped to about $12 billion as of last week, Goodwin said.

The U.S. stock market has plunged since the coronavirus outbreak, due to concerns about rising unemployment levels and decreased consumer activity.

While the markets have surged in recent days on the news of a $2 trillion congressional stimulus package, the crisis could last for months.

Like other pension funds, both New Mexico funds rely on investment gains to help offset the difference between benefits owed over time and incoming contributions.

And even before the market downturn, both New Mexico funds faced questions about their long-term sustainability due to many factors, including increased retirements, generous benefit levels and longer life expectancies.

Legislators this year approved a bill that, starting in July, will increase taxpayer-funded contribution rates to the PERA and require public employees to pay more of their salaries into the fund.

Propst said that solvency fix, which includes changes to the annual inflation-based benefit adjustments that retirees receive, will help the pension fund weather the market doldrums.

“I don’t know how we could be in a better position than we are right now,” Propst said, saying the pension was better prepared for a market downturn than it was in 2008.

He said the pension fund was set to pay out $107 million in benefit payments next week – more or less the usual monthly amount – but he also acknowledged uncertainty about how long and deep the downturn might end up being.

“Nobody knows how this is going to play out,” Propst said.

The PERA covers about 50,000 state workers, municipal employees, judges, firefighters and law enforcement officers. It pays benefits to about 41,000 retirees.

Meanwhile, the ERB had nearly 51,000 retirees as of last year, Goodwin said, and about 61,000 active members, including teachers, school administrators and university professors.

She also said the market downturn would have to continue for an extended period before seriously affecting the pension fund.

“We’re not selling these investments and, over time, they’ll recover,” Goodwin said. “We’re in good shape to keep paying out benefits.”

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