NM pension fund 'on right path' despite growing unfunded liability

SANTA FE — Five years after New Mexico lawmakers approved a fix intended to put a state public retirement system on firmer ground, the pension fund’s bridge to solvency has grown even longer.

Despite investment growth, the Public Employees Retirement Association’s funded ratio — or its total assets divided by liabilities — has dropped from 70% in 2019 to 67% as of last summer. Its total unfunded liability has grown from $6 billion to nearly $9 billion during the same time frame.

But PERA Executive Director Greg Trujillo and top legislators say there’s no pension crisis brewing in New Mexico, although they acknowledge the solvency fixes are taking longer to take hold than initially hoped.

“We’re trending in the right direction, just not as quickly as we’d like,” Trujillo told the Journal.

He said a growing number of retirees receiving benefits from the pension fund and larger payouts due to salary increases have posed a challenge in quickly improving PERA’s funded ratio.

Currently, there are roughly 49,000 active employees paying into the fund, which covers municipal, county and state employees, and more than 47,000 retirees receiving benefits.

Given those numbers, the $18 billion pension fund will likely be paying out more in benefits than it takes in via contributions — from both employees and government employers — at least until the mid-2030s, Trujillo said.

“This isn’t unique to us; it’s happening across the country,” he added, referring to a wave of Baby Boomers reaching retirement age.

However, there are also some positive signs in New Mexico, including a recent drop in PERA’s amortization period, or the amount of time it’s projected to pay off its unfunded liability.

A recent history of solvency fixes

The 2020 pension changes were supported by Gov. Michelle Lujan Grisham and included phasing in higher contribution levels, from employees and taxpayers alike, over the coming years.

The approved fix also changed the structure of the annual cost-of-living adjustments that retirees receive to offset inflation. Instead of the annual 2% compounding adjustments retirees received in the past, they have gotten a 0.5% adjustment in each of the last two years.

That rate is expected to increase slightly to 0.63% starting in July, according to the pension fund.

The PERA board requested $66 million during this year’s legislative session to provide one-time checks to retirees to offset that decrease, but the funding request was not approved, Trujillo said.

Meanwhile, New Mexico lawmakers also approved a previous 2013 fix in an attempt to shore up the state’s public retirement systems. That year’s change trimmed retirement benefits and enacted stricter retirement eligibility guidelines for future hires.

Sen. George Muñoz, D-Gallup, one of the sponsors of the 2020 legislation, said he does not believe additional legislative action is necessary to stabilize the pension fund.

“They’re slow-moving systems and solvency takes a long time,” Muñoz told the Journal. “I think they’re set up for solvency.”

He also pointed to an October 2024 credit opinion from Moody’s, a national credit rating institution, that cited New Mexico’s pension management as a positive factor in a possible state bond rating increase.

“We could put more money in it, but it’s like putting a cup of water in the ocean,” Muñoz said of the idea of allocating some of the state’s budget surplus to shore up the pension fund.

Investment uncertainty

clouds future growth

Some critics say legislators have neglected the state’s pension funds, even as other states have moved to stabilize their retirement systems.

Duke Rodriguez, a former state Cabinet secretary who is considering running for governor next year as a Republican, said top state officials and legislators have largely ignored the situation.

“Despite enjoying record budget surpluses, no serious effort was made to stabilize PERA,” Rodriguez wrote in a recent letter to the Journal.

In fact, strong recent investment years have helped prevent the pension fund’s solvency outlook from being even worse. The Public Employees Retirement Association has a built-in target of 7.25% in annual investment gains.

While a market downturn last month prompted by President Donald Trump’s tariff war impacted New Mexico’s pension funds, the losses have since been made up by investment gains, Trujillo said.

But it’s unclear whether the pension funds will be able to hit their investment benchmarks in coming years due to global economic uncertainty and the possibility of a domestic recession.

New Mexico’s other public retirement system, the Educational Retirement Board that provides benefits for retired educators, has also faced solvency concerns in recent years.

The ERB had a 65% funded ratio as of last summer, which marked a slight improvement from the previous year.