Pension fund tries to avoid shortfall

$800 million increase in needs after lowered expectations on returns creates concerns

Public school and college employees in New Mexico are confronting a widening gap between promised pension benefits and the money available to pay for their retirements.

Managers of New Mexico’s retirement fund for public education employees have acknowledged an $800 million increase in needs after they lowered expectations for future investment returns.

The New Mexico Educational Retirement Board that oversees $12 billion in retirement assets is following in the footsteps of public pension funds across the country by lowering expectations for future earnings on investments — acknowledging that more money will likely be needed to pay people as they retire.

The new outlook shows $7.4 billion in unfunded liabilities — the difference between promised pension benefits and the assets currently on hand to pay them. It has triggering conversations about possible reductions in benefits or increased contributions to shore up future pension payouts, just five years after the Legislature approved major reforms.

“The outlook for the future is not as rosy, so we have to be realistic,” said Jan Goodwin, executive director of the Educational Retirement Board.

She confirmed Thursday that representatives from teachers unions, public school districts and state universities will gather next week to discuss the situation.

The pension plan covers 60,000 active members and 46,000 retirees.

Investment returns are typically the biggest source of income at public pension funds. In New Mexico, annual earnings targets were reduced by half a percentage point to 7.25 percent at the educational pension fund — with a major impact over time as pension managers attempt to catch up with obligations.

The intent was greater accuracy to ensure future generations are not stuck with an outsize bill when current government employees retire.

But the Educational Retirement Board now estimates it will take 84 years or longer to reach fully funded levels — up from previous estimates of about 45 years.

“If the board wants to pay off its unfunded liability sooner than that, or the Legislature does, then some combination of higher contribution rates or lower benefits will have to be made,” said Keith Brainard, research director at the National Association of State Retirement Administrators.

Expectations for investment income also were lowered last year by the New Mexico Public Employees Retirement Association that oversees retirement funding for state, county and municipal workers along with judges and volunteer firefighters.

Recently adjusted net pension liabilities for New Mexico’s two public retirement funds are estimated at $12.6 billion, for the fiscal year ending in June 2016. That is up from $10.7 billion in mid-2015 and about $9 billion the year before that.

Pension contribution rates by employees and the public agencies in New Mexico are set by statute. Educators that earn more than $20,000 a year pay in 10.7 percent of salary, with a state match for 13.9 percent of salary.

Any effort to raise employee pension contributions would confront political and practical hurdles, as New Mexico state government struggles with faltering tax revenues and depleted reserves.

Sen. George Munoz, D-Gallup, vice chairman of the Legislature’s pension oversight committee, said annual cost of living adjustments for pension benefits may need to be reduced or eliminated.

“Employment numbers are down for education, so you don’t have the new people coming into the pension pool to help shore it up,” he said.