NM House OKs educational pension solvency bill

February 13, 2012 • State News

SANTA FE, N.M. (AP) — A proposal to shore up a [auth] pension program for public school employees and higher education workers in New Mexico cleared the House on Saturday, but there’s a disagreement among lawmakers and unions over what should be done to ensure the retirement system remains solvent for decades to come.

The bill passed by the House would establish a minimum retirement age of 55 for educators hired since mid-2007, a provision covering almost 20,000 current workers. It requires them to reach that age before drawing any pension benefits.

The House measure also makes permanent a 1.5 percent increase in pension contributions that was required for most educational employees in 2009 but scheduled to expire in 2013. If the measure is enacted, educators will contribute 9.4 percent of their salaries into their retirement program. Government employers also pay into the pension system.

Rep. Mimi Stewart, an Albuquerque Democrat, described the legislation as a “first step” in strengthening the finances of the retirement program administered by the Educational Retirement Board.

“All of our state pension funds are in trouble,” Stewart said.

The House approved the bill 66-2 and sent it to the Senate, where a more extensive pension solvency proposal is pending. The Senate proposal calls for larger contributions by workers.

The educational pension program covers about 62,000 employees — from school teachers and janitors to college faculty — and has about 35,000 retirees.

The health of public pensions in New Mexico and other states has deteriorated because of investment losses from market declines since late 2007. Besides that, people are living longer and drawing retirement benefits for more years.

Because pensions involve long-term obligations and investments, there’s no immediate risk that New Mexico will be unable to pay retiree benefits. The educational retirement fund had assets of nearly $9 billion at the end of November.

If nothing is done by the Legislature to change the program, ERB is estimated to have 63 percent of the funds needed to meet pension obligations in the future. The industry standard is 80 percent, and that level will be reached by 2030 under the changes in the Senate proposal. Stewart said it’s unclear how much long-term finances will improve under the House-passed measure.

A decade ago, the educational pension’s “funded ratio” — the proportion of assets to liabilities for promised benefits — was almost 92 percent.

Currently, most educators can retire with full benefits at any age after working for 25 years or if they meet a so-called “rule of 75,” in which the number of years of service and the person’s age at retirement equal or exceed 75, although benefits are reduced if a person retires younger than 60.

Several years ago, the state made retirement eligibility changes to try to improve pension fund finances. For educators hired since July 2010, the minimum work requirement is 30 years, or they can retire with no reduction in benefits if they meet a “rule of 80″ — where combined service and age at retirement equal or exceed 80.

One of the biggest questions in the pension debate is whether to trim benefits for current workers or revise their retirement eligibility.

The Educational Retirement Board late last year recommended a proposed minimum retirement age of 55 for anyone who wasn’t within 10 years of retirement. It also proposed reducing cost-of-living adjustments for current and future retirees. However, the House and Senate ditched those proposals because of objections from educators.

Members of the American Federation of Teachers union rallied outside of the Capitol on Saturday to oppose changes to retirement benefits and eligibility for current workers. Union President Christine Trujillo said most educational employees haven’t seen a pay increase in four years but have been forced to pay more into their pension program.

Educators earning more than $20,000 currently pay 11.15 percent of their salaries into their retirement program. The rate is scheduled to drop to 9.4 percent in July and to 7.9 percent in July 2013. That’s because the state temporarily boosted employee payments and reduced the government’s contributions to balance the budget. Those pension swaps will expire, however, under current law.

Pending in the Senate is a proposal to phase in higher pension contributions, with the rate for workers reaching 11.3 percent in July 2016. Government employer payments are set to reach 10.9 percent in July and rise to 13.9 percent in 2014 under current law.

The Senate proposal will phase in the employer increases over a longer period of time and establish a minimum retirement age of 55 for educators hired after July 1. Future employees also will have to work for eight years — rather than five years currently — to qualify for pension benefits.

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