A key Senate committee approved a bill Monday aimed at erasing the state pension system’s $6.6 billion unfunded liability after an emotionally charged moment in which the chairman cut off a speaker in the audience.
The Senate Finance Committee passed Senate Bill 72 by a 10-2 vote, sending the legislation backed by Gov. Michelle Lujan Grisham to the floor.
“It’s hard to do it in a 30-day session, but it’s going to be even harder when we have to cut benefits to employees in a special session,” said Sen. George Muñoz, a Gallup Democrat and the bill’s sponsor, suggesting legislators needed to guard against a potential economic downturn.
“I think the retirees are a little upset,” Muñoz added, “but we’re watching after their future.”
As it turned out, the bill’s opponents were more than just a little upset on Monday.
In comments before the committee, Loretta Naranjo Lopez, a member of the Public Employees Retirement Association’s board, accused the pension system’s staff of “embezzlement” and the governor of “undue and unethical influence” on the board.
Sen. John Arthur Smith, the committee’s chairman, was having none of it. He slammed his gavel multiple times, demanding Naranjo Lopez speak about the bill itself instead of making accusations. When she continued in the same vein, he cut off any further comment.
“Ma’am we’re not even going there,” said Smith, continuing to bang the gavel. “You’ve had enough.”
After the hearing, Naranjo Lopez declined comment when asked about her statements, but she said three members of the association board are against the plan.
Other opponents did speak about the bill. And some lawmakers on the panel voiced a number of concerns, particularly about its proposal to move to a profit-sharing model for the annual cost-of-living adjustments retirees receive in their pensions.
Under the proposed model, annual raises would range between 0.5 percent and 3 percent, depending on investment returns, rather than then 2 percent annual cost-of-living raises retirees currently get.
Sen. John Sapien, D-Corrales, called that part of the plan “flawed.” He and other senators suggested the annual adjustments should be tied to inflation rather than to investment returns.
“It has elements I can buy and it has elements like the profit sharing that I just don’t believe in,” Sapien said, referring to the bill.
Yet Wayne Propst, PERA’s executive director, responded the cost-of-living adjustment the system has been paying out greatly exceeded inflation for many years. He also stressed the profit-sharing model would allow the system to only make payments “when we have the resources to do so.”
“For the last 20 years, we’ve been paying [the cost-of-living adjustment] on a credit card,” Propst told the committee. “This changes it to paying on a debit card.”
Under PERA’s current assumption of 7.25 percent investment returns, Propst has said, the average cost-of-living adjustment would be between 1.61 percent and 1.65 percent.
Propst and the Governor’s Office have also pointed out older retirees need not worry about the reform because it actually proposes to increase the cost-of-living adjustment by 0.5 percent for those over 75, which is 30 percent of the current 41,000 recipients.
Propst also repeated comments he has made in earlier hearings that if legislators don’t approve a major overhaul, the next economic recession could have a dire impact on New Mexico’s ability to pay for public employees’ retirement plans.
The system currently is only 69 percent funded, and it is projected to stay at virtually the same level if nothing is done.
The bill aims to put the system on a path to solvency within 25 years.
“When that next downturn comes, we’re not going to have to come sprinting back to you with another set of drastic changes,” Propst said.
The bill, which does not affect the state’s pension system for educators, would require a one-time appropriation of $76 million.