New Mexico Considers New Solvency Proposal

Proposes three-year suspension on COLA adjustments to help attain 100% funded status by 2043.

The New Mexico Public Employees’ Retirement Association (PERA) is considering a proposal that will increase the future funded status of the pension to 100% by 2043, from approximately 75% currently.

The primary tool in the proposal is to suspend cost-of-living adjustments (COLA) for current beneficiaries for a three-year period between 2019 and2022. Afterwards, retirees would be eligible for COLA adjustments at age 60 for those previously working in positions affiliated with public safety and age 65 for those who are not. COLA adjustments would be synced with the consumer price index (CPI), with a maximum adjustment of +3% and never going below 0%.

Additionally, a new flexible contribution system would be introduced where employer/employee contribution rates adjust upward or downward based on the funded status of the coverage plan, decreasing as funding status improves.

The contribution rate increases would be established as follows:

Under the proposed changes, there would be no reductions in base benefits and retirees’ purchasing power would be retained by paying COLA if the total fund’s funded ratio requirements are met, but never provide more than the actual cost-of-living increase.

Additionally, the plan would remove the mandatory seven-year restriction that the retirement system currently employees for retirees before they become eligible for COLA adjustments. Windfall COLA awards, which rely on “excess” investment returns, would also be removed through the plan. The board noted that the award system could result in multiple years without a COLA adjustment even if the plan is fully funded.

Through the changes, PERA estimates that it is 53% likely the funded ratio in year 2043 is at or above 100%, and currently projects it to be at 103.4% in that year.

Tags: , , ,