With a steadily growing gulf between retirement benefits that must be paid and assets on hand to foot the bill, members of the pension fund’s board said tough decisions have to be made before the situation worsens.
“It has to be redesigned,” state Treasurer James Lewis said of the fund, which covers roughly 97,000 workers and retirees. “We don’t have an option if we want to keep it solvent.”
However, the president of a teachers union said the plan adopted Monday isn’t acceptable because it would reduce benefits for both future and current retirees.
“We can’t support any plan that affects currently vested employees,” said National Education Association-New Mexico President Sharon Morgan.
Morgan and other labor leaders who attended Monday’s meeting in Albuquerque raised the possibility of affected employees taking legal action against the state if the plan is approved by the Legislature.
Several states, including Colorado, have seen retirees file lawsuits in response to pared-back public employee retirement benefits.
The plan adopted at Monday’s meeting in Albuquerque would trim the annual “cost-of-living adjustment” increases that – starting at age 65 – enhance the benefits received by eligible retirees to keep pace with inflation. Annual increases would be decreased from an average over time of 2 percent to an average of 1.75 percent.
Meanwhile, a minimum retirement age of 55 would not take effect for 10 years, giving employees close to retirement age time to prepare.
New Mexico, unlike many states, doesn’t currently have a minimum retirement age for teachers and other education workers, though employees generally have to work at least 25 years to be eligible for full retirement.
In the weeks leading up to Monday’s vote, the Educational Retirement Board held about a dozen public hearings around the state to discuss solvency proposals. More than 3,400 people provided responses to the plans under consideration.
The plan adopted by ERB members on a 4-3 vote will be presented next month to an interim legislative committee. The full Legislature could then take it up during its 30-day regular session that starts Jan. 17.
While lawmakers and Gov. Susana Martinez will have the ultimate say on how to shore up the pension fund, several ERB members said the board had shown political courage by taking up the hot-button issue.
“There are many other (states) that are just procrastinating and are doing so at great peril,” board member Brad Day said.
The solvency crunch facing the state’s education pension fund – one of two public retirement systems in New Mexico – is chiefly due to workers retiring younger and living longer, a state budget crunch that has prompted lawmakers to delay approved contribution hikes and market-driven investment losses in recent years.
The Educational Retirement Board had an estimated unfunded liability of about $5.9 billion as of earlier this year, marking the difference between benefits due to be paid out to current and future retirees and assets managed. As of June 30, the pension fund had about $15.4 billion in liabilities and about $9.5 billion in assets. The fund’s balance had decreased to $9.1 billion at the end of October.
The proposed changes adopted Monday are projected to improve the funded ratio – which measures assets against liabilities – to 78 percent by 2030. The current funded ratio for the ERB is about 61 percent. A ratio of 80 percent or better is generally considered healthy.
Last year, the ERB recommended increasing both employee and taxpayer contributions into the pension fund, but that proposal, along with a number of other proposed fixes, failed to win support in the Legislature.
However, lawmakers did approve a temporary increase in public employee contributions – in addition to a corresponding cut in taxpayers’ contributions – to help balance the state’s $5.6 billion budget.
Like most public employees, retired educators also receive Social Security, based on contributions made by taxpayers and the workers themselves. Employers currently contribute 6.2 percent of employees’ salaries to Social Security, while employees pay 4.2 percent during the length of their career.