Seeking to improve the solvency of its pension plans, New Mexico passed sweeping legislation on Monday to inject $55 million into the state retirement system, while also increasing contributions and changing cost-of-living adjustments (COLAs).
The pension reform bill, which enjoyed bipartisan support in the state Senate, incrementally increases contributions for active workers—such as police officers and firefighters—in the Public Employees Retirement Association of New Mexico (PERA). Municipal and county workers are not required to pay the increases for two fiscal years.
PERA also overhauled COLAs for retirees. The state pension said COLAs available to members aged 75 and over will jump to 2.5%, from 2%. PERA, which has roughly 116,000 members, said the change will affect one-third of the current 40,000 retirees. The change also applies to people with disabilities and others with pensions smaller than $25,000 after 25 years of service.
For all other retirees, the current 2% COLA payments will continue for three years. After that, however, they will fluctuate between 0.5% and 3%, based on a new “profit-share” model that ties investment performance with the funded ratio.
“By paying out more than it was taking in, PERA was on a path to eventual bankruptcy,” Gov. Lujan Grisham said in a statement. “Now we’ve reversed course, and I’m confident New Mexico can keep its promises to current and future retirees.”
PERA, one of New Mexico’s two public pension systems, has been in trouble for some time. The state is more generous to its pension members than other states, but its retirement systems have remained significantly underfunded.
In its latest fiscal year, PERA ended with a 70% funded ratio, slightly down from the prior year. In July 2018, the credit rating agency Moody’s downgraded the state after PERA reported an infinite amortization period, meaning “there is no way” that current contribution and investment income will pay for benefits.
By comparison, New Mexico’s other pension plan, the Education Retirement Board, said in 2018 that it will take 61 years for the fund for teachers to pay down its liabilities.
The bipartisan bill was sponsored by state Sen. George Muñoz and state Rep. Phelps Anderson.