Lawmakers tie pension shortfall to fewer state employees

Legislative panel expects lower returns from PERA fund, may cut benefits

Lawmakers raised concerns Thursday that a shrinking government workforce or a sluggish economy could drag down New Mexico’s largest pension program as it faces a continued funding shortfall.

The Public Employee Retirement Association has about 75 percent of the money necessary to pay out all claims to members, placing it among the many retirement programs around the country struggling for solvency.

While the program has the money to pay benefits for current retirees, it could face a squeeze in the future.

Its executives told the Legislative Investment and Pensions Oversight Committee they expect lower returns on the $15.5 billion trust’s investments at the same time more retirees are living longer.

“We don’t expect returns to be fruitful over the next 10 years,” Chief Investment Officer Dominic Garcia told the committee.

Garcia added that he calculated the likelihood of reaching full funding in the next 10 years at about 11 percent, based on PERA’s current portfolio.

About a quarter of assets in public

retirement funds come from worker and employee contributions.

The bulk of the growth is from investment gains. Though 2017 was an exceptionally strong year, PERA’s 10-year return after paying investment fees is under 5 percent. The return rate since 1985 is 9 percent.

Some lawmakers questioned whether a high rate of vacant jobs after rounds of budget cuts in recent years is making it harder for the pension program to reach solvency.

Fewer government employees means fewer people paying into the program, said state Sen. Jacob Candelaria, D-Albuquerque.

The Educational Retirement Board, which manages pensions for teachers and other school employees, faces a shift, too, with as many active members now as about a decade ago.

“That tells me we’re going to have a problem. A major, major problem,” said House Majority Leader Sheryl Williams Stapleton, D-Albuquerque.

Others say fewer employees paying into the system also means fewer employees drawing on benefits in future years.

And Jan Goodwin, executive director of the Educational Retirement Board, said the decline in active members is in part “a reflection of what’s going on in New Mexico’s broader economy.”

“Overall, our state has not seen an increase in employment. We have not seen an increase in our population,” she told the committee.

Several lawmakers said there is no hope for investing the state’s way out of the shortfall.

This could renew debate over changing the amount of money public employees have to contribute to their pensions and how much they receive in benefits.

It also could spur interest in shifting away from what are known as defined benefit pension plans toward something like an individual retirement account.

Rep. Larry Scott, R-Hobbs, suggested the state consider switching from a pension plan with set benefits to something more like a 401(k), where employees pay in and manage particular investments.

“I don’t see any other way to dig out of this hole,” he said.

But others questioned whether that would leave workers with too little money come retirement.

“I have clients now who have a state pension plan and they have a livable income. And I have clients who have a 401(k) and they are never able to save enough money to have a livable income when they retire,” said Sen. John Sapien, D-Corrales, who is an insurance agent.

Regardless, the pension funds are an economic lifeline for many.

PERA pays pensions to more than 40,000 retirees. It also has a public employee plan for about 49,000 active members.

In the fiscal year that ended last June, the average retiree in PERA received a pension of $26,880.

Those pensions amounted to a total of more than $1.1 billion for New Mexico residents, including about $195 million for Santa Fe County residents, that year.