Governor endorses pension system overhaul

SANTA FE — A complex proposal to overhaul New Mexico’s chronically underfunded pension system for public employees won endorsement Tuesday from Gov. Michelle Lujan Grisham and a host of Democratic legislative leaders.

The proposal — set for a legislative hearing today — builds on the work of a task force established by the governor earlier this year, but with some changes.

The legislation would establish a “profit sharing” model for the annual cost-of-living adjustments that most retirees now receive. Rather than an automatic 2% increase in their pensions each year, the actual amount would fluctuate — between 0.5% and 3% — depending on investment returns.

Employers and employees would also pay more into the system under a phased-in schedule of increased contributions.

Area Republicans said they had not seen details of the plan Tuesday afternoon, but Sen. Stuart Ingle of Portales said the issue will be “in the top five” among Legislature priorities come January.

“We’ve got to fix it some way or another,” he said. “It’s not funded good enough to make it. If we don’t change it, people are going to end up with no retirement. So we have to do something.”

A number of changes are built into the proposal to help retirees who are older than 75, disabled or receiving pensions of less than $25,000 a year, despite 25 years of service.

Notably, retirees who are 75 or older on July 1 — when the bill is set to take effect — would see their annual cost-of-living adjustments increase by half a percentage point to 2.5%, a change requested by the governor.

But many retirees would see a temporary reduction in their cost-of-living increases. For three years, they would get an extra check equal to 2% of their pension — a move that pauses the compounding effect of having each 2% build on the previous increase.

The legislation also calls for the state to inject an extra $76 million in state funding into the system to cover the cost of the extra checks.

The net effect, officials say, would be an immediate $700 million reduction in the pension system’s unfunded liability.

Lujan Grisham said it’s time to address the pension system’s $6.6 billion in unfunded liabilities — a shortfall that has already damaged New Mexico’s credit rating. Acting now, she said, would prevent more painful cuts later.

“Reforming our pension system, making sure it remains one of the best in the United States, requires backbone and shared sacrifice,” Lujan Grisham said.

The retirement system’s funded ratio — the plan’s assets divided by its liabilities — is now about 70%. Tuesday’s proposal is aimed at wiping out the liability within 25 years.

A 91-page draft of the bill is scheduled to be heard this afternoon during a meeting of the Legislature’s Investments and Pensions Oversight Committee.

The regular legislative session begins Jan. 21, when the proposal would have to navigate a series of committees and win approval of the House and Senate by Feb. 20 to make it to the governor’s desk.

The proposal focuses on the Public Employees Retirement Association, which covers firefighters, police officers and state and local government employees.

Teachers and educators are covered under a separate system operated by the Educational Retirement Board.

As oil and gas revenues continue to rise, officials have estimated the state could have as much as $900 million in “new money” to spend in January, marking a second consecutive year of massive surplus.

“It’s always amazing to me that when we don’t have any money, everything is fine,” Ingle said. “Once we have a little money, we’re supposed to fix everything.”

The News staff contributed to this report.