Legislation proposing a sweeping overhaul of the New Mexico Public Employees Retirement Association (PERA) to construct a clear path to transparency breezed through the state senate with healthy bipartisan support.
The bill would create a $76 million infusion from the state this year and increase the pension’s annual cost-of-living adjustments (COLAs) to 2.5% from 2% for roughly one-third of beneficiaries. It would also align COLAs for the remaining participants through a model that correlates their benefit payments with the pension plan’s investment performance. Those COLAs would have a 3% ceiling established.
Contributions from active workers and public employers would increase in increments so that there is proof of “burden sharing,” Gov. Michelle Lujan Grisham said in a statement. Those contributions would be mitigated and eventually decreased as the funded ratio for the pension plan improves.
“We must make changes now—the alternative is to saddle New Mexicans with unacceptable risk,” Grisham said.
The $16 billion PERA oversees the benefits of more than 90,000 New Mexicans, and began running into financial tumult in the late 1990s when contributions to the fund were lower than the benefits being paid.
The fund is approximately 70% funded. Ultimately, the legislation being pushed is an attempt to clear the state’s $6.6 billion unfunded liability within 25 years and make it solvent.
Additionally, the plan intends to incentivize employees to remain in the labor force and retire at an older age by eliminating the current earnings cap of 90%. Grisham formed a task force last year to evaluate the issue and identify potential solutions to enter into the reform legislation.
New Mexico PERA Chief Investment Officer Dominic Garcia told CIO, “This is a great thing. I appreciate being part of the task force and I think it will come up with a good solution.”
“We must be proactive,” Grisham said in a statement. “A kick-the-can-down-the-road approach when we have a multi-billion-dollar unfunded liability hanging over employees’ and retirees’ heads is unacceptable. Left unattended, that shortfall will, sooner than later, obligate painful cuts and wreak havoc on future generations of retirees —if we do not come together and act now.”
Wayne Propst, executive director of PERA, said he believes the next economic downturn could leave the state with no feasible avenue to pay down its unfunded liabilities if integral changes to the system are not completed beforehand.