State workers could pay more for pensions

Board wants to increase contributions, suspend cost-of-living adjustments

By Andrew Oxford
aoxford@sfnewmexican.com
Posted 12/19/18

The board of the Public Employees Retirement Association backed a proposal Tuesday that calls for workers to contribute more of their paychecks to the pension system and suspend cost-of-living adjustments until 2022.

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State workers could pay more for pensions

Board wants to increase contributions, suspend cost-of-living adjustments

Posted

The legislative session may giveth but could also taketh away.

The board of the Public Employees Retirement Association backed a proposal Tuesday that calls for workers to contribute more of their paychecks to the pension system and suspend cost-of-living adjustments until 2022.

On top of all that, the system wants the Legislature to chip in $200 million.

The decision comes as the pension system struggles to reach full funding under the watch of wary credit-rating agencies that have raised alarms about the financial state of the New Mexico's government retirement programs, which have about 50,000 active members as well as 40,000 retirees and beneficiaries.

It is up to lawmakers and the governor to approve the plan.

But efforts to tinker with the state's pension system could spur what one legislator has described as a political war. And even as state officials anticipate $1.1 billion in new funding, next year's debate over pensions likely will pit retirees against workers still paying into the system as well as the myriad other causes all vying for a piece of New Mexico's oil boom windfall.

"This is a good start," board member Daniel Esquibel said. "It's a conservative start. It really addresses the fund solvency."

At the moment, the public employees' plan is only about 71 percent funded with around $6 billion in unfunded liabilities.

The rating firm Moody's downgraded New Mexico's bond rating in June, citing the state's "extremely large pension liabilities."

While legislators sought to grapple with that issue a few years ago in the wake of the Great Recession, they face continued pressure to tighten belts even further.

The Public Employees Retirement Association will ask legislators for $200 million to help close its funding gap. And, by a vote of 7-5, the board approved a proposal that would require employees and employers to pay more toward the pension system.

But the plan spurred debate over whether retirees or employees would bear the brunt.

Employees in divisions that include municipal and state employees would pay additional 1.5 percentage points until those divisions are 80 percent funded. Employers ­-- that is, the state and city governments -- would pay an additional 1.75 percentage points.

State police and corrections employees would be exempt.

The added contributions would decrease as funding for those pensions nears 100 percent.

The proposal also would suspend cost-of-living adjustments from July 2019 until the end of June 2022. At that point, cost-of-living adjustments would be based on the consumer price index and the financial state of the pension funds.

Moreover, future state employees would not be eligible for cost-of-living adjustments until age 65 or one year after retirement, whichever is later. The minimum age would be 60 for public safety employees. That would not apply to retirees getting less than $20,000 a year.

Some members are wary of asking the Legislature to embark on any specific changes to the pension system this year. And the plan approved recently was a mix of two different proposals.

Member Loretta Naranjo-Lopez proposed taking a year to vet changes and consult members. But that idea failed on a 10-2 vote.

At a time when lawmakers are talking about increasing pay for many public employees amid a surge of tax revenue from oil and gas production, some members may question why the pension system should require employees to pay more as well as hold off on cost-of-living adjustments for several years.

But others, including some labor unions, argue lawmakers may make changes one way or another as credit-ratings agencies raise concerns about the financial state of New Mexico's pension system. Better to put forward some ideas now, proponents will argue, when a Democratic governor is taking office with the support of labor unions and the state's financial outlook is brighter.

These changes are, after all, far less drastic than those rammed through in some states in the wake of the recession and the rise of fiscally conservative Republicans majorities in statehouses around the country.

However, the question remains: Who pays?

Retirees may feel that giving up cost-of-living adjustments places the burden on them.

"We keep focusing on the COLA," board member Patricia French said at one point Tuesday, (Dec. 11) referring to cost-of-living adjustments. "... That's the only thing I've heard today is COLA, COLA, COLA."

Then again, as board member Claudia Armijo argued, employees would have to pay more through their paychecks.

"Both sides would share equally in upturns and downturns," she told the board.

This story first published in the Santa Fe New Mexican, a sibling publication of The Taos News.

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