The New Mexico Educational Retirement Board is once again contemplating changes to its state pension fund that could affect current and future state educational retirees, including those at The University of New Mexico, as well as prospective new employees, as it continues to struggle in an effort to gain solid financial footing.
Problems with pension funds are nothing new, even across the country as they continue to find it difficult to fully fund pensions. New Mexico state lawmakers, as recently as four years ago, passed solvency fixes to help improve the stability of the state’s two largest retirement funds, but the pension funds still lag behind from anticipated gains.
The two state funds, the New Mexico Educational Retirement Board (ERB) and the Public Employees Retirement Association (PERA), combine to cover nearly 200,000 active and retired New Mexico workers, are now projecting shortfalls of being 100 percent funded by 2043 – a goal set several years ago – and have reduced their expectations for annual investment gains.
In New Mexico, new concerns about the state’s ERB pension fund surfaced again recently when Moody’s downgraded the state’s bond rating from AA1 to AA2. A bond rating downgrade affects the state’s ability to borrow money for projects at a lower interest rate. It also contributes partly to the two state pension retirement systems’ unfunded liabilities, which were cited in part for the bond downgrade.
The ERB, which covers most UNM employees, currently covers approximately 60,000 active members and pays benefits to more than 47,000 retired teachers, school administrators and higher education officials. Currently, the ERB estimates its unfunded liability at $7.4 billion and its funded ratio at 63 percent.
The NMERB pension plan is a Defined Benefit Plan, which means both, the employee and employer, contribute a certain percentage (employee from salary and employer from its funds) towards the employee’s retirement plan. When the employee is eligible to retire, he/she receives a gross monthly, lifetime benefit that is based on a formula.
To address the projected shortfalls, the ERB is moving forward with an aggressive timeline this fall to address the pension’s sustainability that could affect new hires, active employees and the COLA or Cost of Living Adjustment for retirees.
“We all want the ERB pension fund to be sustainable," said UNM Retiree Association Executive Committee President Steve Borbas. "It is in everyone's best interest to have a sustainable, defined benefit plan so new-hires, active employees and retirees, covered by the PreK-12 and higher education systems around the state, can continue to receive a pension with Cost of Living Adjustments."
Possible elements to NMERB legislation include:
- Increase in employer contribution rate
- A 3-step tiered multiplier
- Return to work retired employees and PERA retirees working for ERB employers be required to pay contributions.
- Look at an anti-spiking rule
- Consider a COLA pause for 1 year, 5 years or 10 years. The GRS Retirement Consulting firm for the ERB refers to this as a COLA holiday.
- Consider pension obligation bonds
“These possible elements require all stakeholders to engage in rigorous debate before we make these changes, which will affect so many educators and retirees,” said Borbas. “The ERB will propose changes to the ERB Board in early fall and develop a legislative proposal for IPOC’s review of the bill and introduction for the 2019 legislation session by November.”
Two ERB meetings will be held in Albuquerque next week beginning with an Investment Committee meeting on Thursday, Aug. 23 at 1 p.m. A Board of Trustees meeting will be held the following day, Friday, Aug. 24 at 9 a.m. Both meetings will be held at the Albuquerque ERB office located at 6201 Uptown Blvd., NE, Ste. 203. Additionally, IPOC meetings will be held in Santa Fe on Oct. 16 and Nov. 26-27.
Borbas is encouraging members to attend meetings and contact legislative members in an effort to voice their concerns about ERB considerations.
“The UNM Retiree Association (UNM RA) will have representation at these meetings, but we need to hear from you,” said Borbas. “Please express your concerns to your legislators too.”