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Health of NM pension funds ranked 7th-worst in nation

SANTA FE – Despite the enactment of 2013 legislation aimed at ensuring the future solvency of the state’s two primary pension funds, New Mexico still ranks as among the nation’s worst-performing states under a new measure of pension fund health.

Specifically, New Mexico had the seventh-worst rate of net amortization – a measure of whether incoming contributions to a public retirement system are sufficient to reduce future debt – in the country in 2014, according to a recent report by the Pew Charitable Trusts.

Only 15 states posted positive rates, the report found.

Some New Mexico lawmakers are expressing renewed concern about the pension fund situation, especially since both of the state’s major retirement systems have missed their targets for investment returns for two straight years.

“The fund may be absolutely fine in 20 years. But the way we’ve been going for the last 5 years – it’s not fine,” said Rep. Monica Youngblood, R-Albuquerque, during a hearing Monday of the interim Investments and Pensions Oversight Committee, referring specifically to the state’s pension fund for retired educators.

However, directors of the state’s two major pension funds insisted during the hearing at the state Capitol that the pension funds are on solid financial footing, though they acknowledged positive investment returns are crucial to bridging a yearly gap between contributions paid into the pension funds and benefits paid out to retirees.

Jan Goodwin, executive director of the teacher pension fund, the Educational Retirement Board, said it’s normal for public retirement systems to pay out more in benefits than they receive in contributions. Ideally, the difference is then made up by investment gains.

“This is not a sign that something is wrong,” Goodwin told legislators.

She said the ERB, which oversees roughly $11.4 billion in funds, paid out about $350 million more in retirement benefits than it took in from contributions – from both employees and taxpayers – during the 2016 budget year, which ended June 30.

The gap was even larger for the other pension fund, the Public Employees Retirement Association, which had a gap of $453 million between benefits and contributions for the just-completed fiscal year.

Long-term targets for annual returns are set above 7 percent at both pension funds and double-digit return percentages have been posted in some recent years. However, PERA posted an investment return of just 1 percent last year, while ERB reported a 2.6 percent return. That means both funds took in less in total than they paid out, which is expected to increase their future liabilities.

Despite last year’s low investment return, Wayne Propst, executive director of the pension fund for state workers, law enforcement officers and other public-sector employees, said PERA has shown recent improvement in its overall funded ratio, saying, “If we properly and prudently manage these plans, we’ll be around for another 70 years.”

He also said the PERA paid out more than $1 billion in benefits during the just-ended budget year, with more than 90 percent of those dollars going to retirees who live in New Mexico.

Massive pension liabilities in places including Chicago and Detroit have meant budget headaches and, in Detroit’s case, bankruptcy filings. But several lawmakers said Monday that there’s no need for panic in New Mexico as the state is nowhere near having to take such drastic action.

“We still have the most solid retirement programs in the country when you really look at them,” said Senate Minority Leader Stuart Ingle, a Portales Republican, referring to both benefit levels and recent changes intended to keep the funds afloat.

The 2013 pension solvency legislation reduced the amount of money retirees receive as part of their annual inflation-related pension adjustment, while requiring most employees to funnel more of their paychecks into the retirement fund and increasing the level of taxpayer-funded contributions.

It also trimmed retirement benefits for future workers, active employees and covered retirees, while enacting stricter retirement eligibility guidelines for future hires.

The pension funds, which cover more than 100,000 workers and retirees, had faced a solvency crunch that was caused largely by investment losses, a swell in the number of retirees and longer life expectancies.

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