This morning, the Legislature's Investment and Pension Oversight Committee (IPOC)  heard the proposals for fund solvency from the Education Retirement Board (ERB) and the Public Employees Retirement Assn.  (PERA).  Briefly, ERB stakeholders recommend increases in employee contributions, employer contribution increases as found in statute, and changes to the minimum retirement age and COLA for new employees. PERA recommends reducing its COLA and increasing employer/employee contributions.

ERB's board members will vote on the stakeholder plan and other as-yet-unidentified proposals at a special meeting on Sept. 19 at the Prairie Star near Bernalillo.  The PERA board adopted its proposal earlier this summer.

IPOC has heard both proposals before and members had few questions and little comment on any plan elements.  However, both proposals achieve 100 percent solvency by 2043 based on an assumed investment return of 7.75 percent, and that has lawmakers worried.  What happens, they ask, to the funds and state coffers if the investment assumptions don't pan out.

In a rare showing of solidarity, Sen. John Sapien (D-Sandoval) agreed with Sen. Bill Payne (R-Bernalillo) and Rep. Larry Larranaga (R-Bernalillo) about risky assumptions and the downside to the taxpayer.  Sapien figures the fund will continue to be in trouble if the ERB continues to rely on the 7.75 percent projected investment return.  Larranaga wants a long-term plan but foresees the Legislature dealing with the issue again because investment projections aren't achieved.

Lowering the assumed rate of return raises the unfunded liability of the funds.  With a 6.75 percent rate of return, the ERB stakeholder proposal only achieves 37 percent of solvency in thirty years.  Sen. Stephen Neville (R-San Juan) wondered if the Legislature could just get out of the pension fund business and give the boards the authority to change plans. His observation:  "If you don't get it right, we're on the hook."

Some comparisons of interest:

Under the ERB stakeholder proposal, employee contributions would increase to 10.7 percent by 2015, with employer contributions meeting the 13.9 percent level established in statute but not yet achieved.

Under the PERA proposal, employee contributions increase to 8.92 percent and employer contributions to 18.09 percent.  Reaching the 13.9 percent employer contribution would cost the state another $75 million.  The committee neglected to ask what the PERA employer contribution increase would cost.

In other interim committee news, UNM hosted the Behavioral Health Service Subcommittee of the Legislative Health and Human Services Committee today.  Following a welcome from President Frank, committee members heard presentations from the UNM Center for Rural and Community Behavioral Health on issues ranging from a clinical intervention model for integrated behavioral health and primary care to a report on the statewide clearinghouse for Native American suicide prevention to early intervention resources.

The Legislative Finance Committee is scheduled to take up the higher education funding formula later this month.

Until next time,
Susan McKinsey
Office of Government and Community Relations