SANTA FE, N.M. (AP) — New Mexico highest court will issue a decision later in a potentially far-reaching legal challenge over whether the state can cut cost-of-living increases for retired government workers to shore up a pension system’s long-term finances.
The state Supreme Court heard from lawyers Wednesday in a case brought by four retired educators, who contend the state Constitution protects their pensions from reductions such as those required under a law enacted this year. There’s no deadline for a ruling by the five justices.
The outcome of the case could end up affecting the benefits paid to nearly 70,000 current retirees in New Mexico’s two main retirement plans — one for educators and another for state and local government workers.
“It’s very important. It gets to a very fundamental question of whether or not the Legislature is allowed to make changes in the retirement plan,” Jan Goodwin, executive director for the Educational Retirement Board, said after the court hearing.
The lawsuit before the court involves only the educational retirement plan but a lawyer for retirees, Sara Berger, said a court ruling likely will establish a precedent affecting all public employee pensions in the state.
“I don’t think retirees should ever have to shoulder the burden of the state’s financial woes,” Berger told reporters after the hearing.
She asked the court to block pension administrators from lowering cost-of-living adjustments for current retirees as well as workers who are eligible to retire but remain on the job.
Berger said that New Mexico law gives retired educators a “vested property right” in their pensions and they are legally entitled to the cost-of-living adjustments previously promised, which would have been 2 percent this year without the change in law.
Assistant Attorney General Scott Fuqua, who represented the retirement system, said the state Constitution includes a provision that allows pensions to be modified to preserve the solvency of a retirement plan.
However, the retirees contend that provision only applies to pension benefits before an employee works long enough to become vested in a retirement system.
Fuqua also maintained that the cost-of-living adjustments were separate from the base benefits earned by an educator under state law. No changes were made by the Legislature in those core benefits for educators who were in their jobs before July when the new law took effect.
Pension benefits largely depend on how long an educator or public employee works for the government and their average salary over a period years.
The Democratic-controlled Legislature and Republican Gov. Susana Martinez agreed on a package of pension changes this year to improve the solvency of the educational retirement program, which has a $6 billion gap between its assets and the benefits expected to be paid out in the future.
Besides trimming cost-of-living adjustments, the new law requires teachers and other educators to pay more into their retirement system if they earn more than $20,000 a year. It also changes benefits for newly hired educators, including imposing a minimum retirement age of 55.
Current retirees saw their pensions go up by either 1.6 percent or 1.8 percent after the cuts were implemented in July, instead of the 2 percent they would have otherwise received. The reductions are lower for long-term retirees who receive below average pension benefits. The pension plan will save about $2 million this year because of the lower inflation adjustments.
The educational retirement plan covers about 37,000 retirees and 61,000 active workers.
The Legislature approved a separate measure this year that lowered inflation adjustments for pension benefits under the Public Employees Retirement Association, which covers nearly 90,000 state and local government workers, including about 31,000 retirees. Lawmakers also have been debating how to overhaul a financially struggling pension plan for judges.