Lawmakers examine underfunded pension fund - Albuquerque Journal

Lawmakers examine underfunded pension fund

The New Mexico State Capitol last month. (Eddie Moore/Albuquerque Journal)

Copyright © 2020 Albuquerque Journal

SANTA FE – The financial outlook of the retirement system for New Mexico teachers and educators has eroded to the point that it’s now on track to run out of money in 100 years, legislators were warned Thursday.

“We’ve never been in that position,” Jan Goodwin, executive director of the state Educational Retirement Board, said in a committee hearing Thursday. “Clearly we need to make some changes.”

Increases in teacher pay and pared-back projections for investment returns – amid the economic damage of the pandemic – have reshaped the outlook for the pension system over the last year, she said.

The plan’s unfunded liabilities grew to about $9 billion this summer, roughly $1 billion more than a year ago. The system’s funded ratio – its assets divided by liabilities – now stands at just 60%, Goodwin said.

And whereas the pension fund was once on track to be able to cover the cost of members’ and retirees’ benefits forever, she said, it’s now projected to run out of money in 100 years.

Jan Goodwin, ERB executive director

Her presentation to the legislative Investments and Pensions Oversight Committee comes as lawmakers prepare for the start of a 60-day session next month.

The panel agreed – with some reservations – to endorse a proposal that would boost the amount of money schools, colleges and other employers pay into the retirement system, a cost largely borne by taxpayers.

The legislation calls for a 1 percentage point increase in contributions by schools and other employers in each of the next four years.

It would add about $30 million in costs each year, or about $120 million when fully phased in.

Senate Majority Whip Mimi Stewart, an Albuquerque Democrat nominated to step up to Senate president pro tem next year, is sponsoring the proposal. It would bring taxpayer-funded contribution rates up to about 18% when fully phased in, which is still less, she said, than what government agencies are set to pay in the state’s other pension system, the Public Employees Retirement Association, which covers city, county and state workers.

Educators who make more than $24,000 a year pay 10.7% of their salary into the pension fund.

Earlier this year, lawmakers and Gov. Michelle Lujan Grisham adopted a package of changes aimed at shoring up the finances of PERA, including a requirement that employers pay more into the system.

Legislators on Thursday also heard another idea for addressing the funding shortage for the Educational Retirement Board – a proposal to borrow $1 billion through pension obligation bonds.

The state would borrow the money with plans to invest it to generate higher returns than the interest rate it must pay on the debt.

Some lawmakers expressed interest in the idea and said it could be an alternative to requiring employers to pay more into the system.

But Sen. John Sapien, a Corrales Democrat and investment professional who is leaving the Legislature at the end of the year, cautioned his colleagues against pursuing pension obligation bonds.

Investment returns, he said, may not be as robust in coming years as they have been.

“To borrow money to then put in the stock market to pay off the unfunded liability – it’s a slippery slope and could turn disastrous,” Sapien said.

He raised broader questions about whether New Mexico’s pension systems for public employees are too generous – compared to private plans – and eating up too much of the state’s funding.

The Educational Retirement Board has more than 61,000 members and covers about 51,000 retirees.

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