A new task force appointed by New Mexico Gov. Michelle Lujan Grisham is proposing changes that would see the state’s public employees’ retirement association (PERA) eliminate $6.1 billion in unfunded liability within 25 years.
The plan is centered on changing the rules around beneficiaries’ cost-of-living-adjustments (COLAs). It would mandate that employees and employers engaged in the pension see an increase in contributions, while reducing the (COLAs) available to current beneficiaries for the next three years.
Subsequently, a profit-sharing model would be established that would see retirees’ benefits fluctuate in tandem with investment returns and the funded ratio of the plan. If the plan is anything but 100% funded, the maximum COLA would be set at 3% per year, and if the plan is 100% funded, it would be increased to 5% per year. A minimum adjustment of 0.5% would be set for either scenario.
Under the profit-sharing plan, the task force anticipates it is 50% likely the pension would be fully funded by 2043.
The plan also incentivizes employees to stay in the labor force and retire at an older age by eliminating the current earnings cap of 90%.
The task force concluded that under the proposed plan, when compared to the current plan, beneficiaries would see a reduction in their COLA of approximately $1,848 ($30,000 annual benefit), $3,080 ($50,000), and $4,312 ($70,000).
The task force was formed in late February to address the pension’s solvency issues. Everything was fine for PERA until the late 1990s, when it fell from a fully funded ratio due to benefit increases, and the subsequent 2008 market crash making things worse. State reforms in 2013 helped boost the fund to its current ratio of about 70% funded, but the governor has expressed concerns regarding unpredictable market swings and further bond rating downgrades.
“This is a great thing,” New Mexico PERA Chief Investment Officer Dominic Garcia told CIO. “I appreciate being part of the task force and I think it will come up with a good solution.”
Legislation to increase some employee and employer contributions from fiscal 2020-2022 was shot down in the state’s legislature.