SANTA FE, N.M. (AP) — Legislators held their first open discussion Wednesday of suggested pension reforms to address a roughly $6 billion unfunded liability at the New Mexico retirement plan for state and local government employees.
A pension solvency task force appointed by Gov. Michelle Lujan Grisham has suggested a combined 4% increase in pension contributions, with the increased costs divided evenly between state government and employees.
Annual cost of living adjustments would shift to a profit-sharing model that links annual pension payout increases to the investment returns at the $15.8 billion pension fund overseen by the Public Employees Retirement Association.
"We've been paying that on a credit card," said Wayne Propst, executive director of the association. "Eventually it comes due."
Those suggested reforms and others are likely to be presented to the committee in the form of a bill in December — leaving time for discussion ahead of the 2020 legislative session that starts Jan. 21.
Democratic Sen. George Muñoz, chairman of the pension committee, said reforms enacted in 2013, with reduced retirement benefits for new hires, did not go far enough toward shoring up the financial health of the pension fund.
"We're in a situation where if we don't change it again, we will not be able to recover after another recession," said Muñoz, who represents Gallup.
The current annual adjustment is a 2% increase in benefits for retirees. It would range between 0.5% and 3% each year under the new recommendations, rising or falling in tandem with pension-fund investment returns on stocks and other financial instruments.
The adjustment could go as high as 5% once unfunded liabilities are paid off — some 25 years from now under one potential scenario.
Probst likened the arrangement to a debit card, rather than a credit card that can easily lead to overspending.
As a response to high inflation in the 1970s and 1980s, automatic annual payout increases were incorporated into many pension plans across the country.
More recently, several major public pension plans, from Arizona to Rhode Island, have adopted so-called profit-sharing systems to link annual cost-of-living adjustments to investment performance.