PERA WORK GROUP

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A MEMORIAL
REQUESTING THE CREATION OF A WORK GROUP TO STUDY THE PUBLIC
EMPLOYEES RETIREMENT ASSOCIATION FUND, POLICIES IMPACTING
BENEFITS AND THE SOLVENCY OF THE FUND AND THE IMPACT OF
CHANGES MADE TO RETIREE COST-OF-LIVING ADJUSTMENTS AND TO
MAKE RECOMMENDATIONS TO IMPROVE FUND SOLVENCY AND EXPLORE THE
POSSIBILITY OF PROVIDING COST-OF-LIVING ADJUSTMENTS TIED TO
INFLATION.
WHEREAS, the long-term stability of the public employees
retirement association fund is necessary to ensure that
public retirees receive their earned pensions; and
WHEREAS, the public employees retirement association
fund's unfunded liability has risen dramatically in recent
years; and
WHEREAS, in the six years since passage of Senate Bill
72 in the 2020 regular legislative session, many public
retiree pensions have not kept up with inflation,
significantly reducing retiree spending power; and
WHEREAS, changes enacted by the legislature in 2020
suspended cost-of-living adjustments for three years and
altered the methodology of compounding cost-of-living
adjustments for approximately thirty thousand current public
retirees, shifting their basis from inflation to a statutory
formula based on public employees retirement association fund
solvency and investment performance; and
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WHEREAS, although the changes made in 2020 were intended
to reduce the public employees retirement association fund's
unfunded liability and projections were that retirees would
receive average compounding cost-of-living adjustments of one
and sixty-four hundredths percent, those projections have not
materialized; and
WHEREAS, the rise in the public employees retirement
association fund's unfunded liability since 2020 suggests the
possibility that factors other than cost-of-living
adjustments were the cause of the large unfunded liability
prior to 2020 and that elimination of the cost-of-living
adjustments was not an effective solution to the solvency
crisis; and
WHEREAS, under the current cost-of-living adjustment
formula, the value of a public retiree pension when adjusted
for inflation may shrink to just over one-half of its 2019
value in another twenty-five years; and
WHEREAS, the projected loss in economic activity
resulting from the reduced spending power of almost thirty
thousand senior citizens across New Mexico could be as high
as three hundred million dollars ($300,000,000) since 2020,
and by 2030 could exceed one billion dollars ($1,000,000,000)
in lost economic activity and more than fifty million dollars
($50,000,000) in lost income taxes to the state; and
WHEREAS, public employees retirement association actuary
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reports for the last four years indicate that of the three
billion one hundred million dollars ($3,100,000,000) growth
in unfunded liability, six hundred million dollars
($600,000,000) is primarily the result of investment
underperformance and one billion six hundred million dollars
($1,600,000,000) is the result of higher-than-expected salary
increases for active employees; and
WHEREAS, fund solvency projections by the public
employees retirement association actuary necessary to achieve
long-term solvency are based on assumptions of annual three
and one-fourth percent salary increases for active employees
and that increases above that amount will add to the unfunded
liability of the public employees retirement association fund
unless accompanied by increased employer contributions to
cover the increase in benefits driven by the salary
increases; and
WHEREAS, the average public employee salary has
increased an average of forty-seven percent since 2019, an
average increase of more than nine percent annually, far
above the three and one-fourth percent required to achieve
public employees retirement association fund solvency;
NOW, THEREFORE, BE IT RESOLVED BY THE SENATE OF THE
STATE OF NEW MEXICO the legislative finance committee be
requested to create and staff a work group to study the
public employees retirement association fund to examine the
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impact of cost-of-living adjustment changes on current
retirees and consider improvements to restore compounding
annual adjustments, to examine fund solvency factors in order
to ensure that pensions will be provided to future retirees,
to examine the causes of increasing unfunded liability, to
examine the impact of fund contributions from employers and
employees and to evaluate benefits for and impacts to future
retirees; and
BE IT FURTHER RESOLVED that the work group be requested
to examine formulas for the calculation of benefits, rules
and policies governing benefits and incentives for delaying
benefits, including consideration of social security
incremental pension formulas to determine what changes in
retirement program requirements will improve fund solvency
without negatively impacting retirees and giving
consideration to directing those changes for new hires; and
BE IT FURTHER RESOLVED that the work group be requested
to study and evaluate the impact of changes to retiree
cost-of-living adjustments since 2019 and consider options to
restore cost-of-living adjustments for retirees that are tied
more closely to actual cost-of-living changes and that the
work group develop recommendations that do not negatively
impact the solvency of the public employees retirement
association fund or the financial stability of retirees in
their retirement years; and
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BE IT FURTHER RESOLVED that the work group be requested
to seek the assistance of an outside entity with expertise in
pension funds to independently evaluate issues impacting fund
solvency, including investment performance and investment
oversight; and
BE IT FURTHER RESOLVED that the work group be composed
of nine members with demonstrated experience in finance,
budget and government policy, including one public employees
retirement association retiree appointed by the speaker of
the house of representatives, one public employees retirement
association retiree appointed by the president pro tempore of
the senate, one public employees retirement association
retiree appointed by the governor, the chair and vice chair
of the appropriate interim legislative committee that
oversees investments and pensions or their designees, the
chair of the public employees retirement association board,
the executive director of the public employees retirement
association, an analyst of the department of finance and
administration and an analyst of the legislative finance
committee; and
BE IT FURTHER RESOLVED that the work group be requested
to make its recommendations to the appropriate interim
legislative committee that oversees investments and pensions
and to the legislative finance committee no later than
December 31, 2026; and
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BE IT FURTHER RESOLVED that copies of this memorial be
transmitted to the governor, the legislative finance
committee, the executive director of the public employees
retirement association and the department of finance and
administration.