State’s public pension plans need fixing now

For New Mexico’s more than 45,000 public and educational employees, ensuring the sustainability and solvency of their retirement programs is of monumental concern. Our workers deserve a fair shake.

They work hard, serve the public and our communities, and play by the rules. They make significant contributions to fund these retirement programs, one of which, the PERA plan, ranks as one of the best in the nation.

The solvency of these retirement funds is a concern to taxpayers as well.

To find answers, the Legislature established the Retirement Systems Solvency Task Force in 2009. With 24 members representing organized labor, state agencies, private sector and lawmakers, the task force spent two years studying the difficulties facing our pension funds.

PERA and ERB, with combined assets of more than $20 billion, are today more than $7 billion short to meet promised benefits. That shortfall is projected to more than double in five years and hit $20 billion by 2019.

In that case, the funds will be bankrupt by the time today’s youngest workers are ready to retire. (To find graphic illustrations and more information, click here.)

Options for solvency

There are two options for solvency and sustainability. Either contribute more money into the retirement systems, or pay less in benefits. Neither choice is attractive, but failure to act now means the problem becomes harder to fix.

The favored solution of the PERA and ERB boards is to shore up the funds through major contribution increases, an approach that assumes the added cost will be paid mostly by taxpayers. Our state budget problems make this approach unlikely for some time to come. Increases would also be out of the pockets of employees.

Employee increases are already in effect, but to address the current budget shortfall, not solvency of the retirement funds. The Legislature reduced the state’s share for retirement plans by increasing the share borne by employees, trimming take-home pay 1.5 percent the past two years, continuing that for two more years, and adding an additional 1.75 percent next year.

What about the other alternative, adjusting the amount of benefits paid out? Today, most government workers can retire after working 25 years, regardless of age, receiving 75 percent of their salary as a base pension for the rest of their lives. They also receive annual 3 percent increases, regardless of inflation, after only two years in retirement. Education employees who work 25 years can retire at close to 60 percent of their salary with an annual increase tied to inflation but only when they turn 65.

Legislation we must pass

A responsible and fair course toward sustainability would leave currently vested workers unaffected while not imposing new costs on taxpayers. This was the approach in my bill, which passed the House last month but died on the last day of the legislative session without coming to a vote in the Senate. What would it have done?

• No changes to pensions for already-retired workers.
• No changes to pensions of those who have worked at least five years.
• Exempt first responders – police, firefighters and other uniformed employees – from the new minimum retirement age and the 65-year COLA provisions.

Newer workers, with fewer than five years, would see modest changes to their benefits as follows:

• Workers with fewer than five years in the system could not collect retirement benefits until age 55. This would still place New Mexico well below other state plans that peg the age at 60 or older.
• The annual cost-of-living adjustment would be tied to inflation and available at 65, as it is currently for educators and social security recipients.

The aim is to sustain a good retirement plan while recognizing the reality that an early retirement can no longer be sustained. We must pass this important legislation next year, because failure to enact reasonable adjustments soon guarantees that the medicine needed to cure our pension fund problems will become much more bitter.

State Rep. Mimi Stewart, D-Albuquerque, co-chaired the Retirement Systems Solvency Task Force.