Even after a year of double-digit stock market growth, New Mexico’s largest pension fund might have to alter payouts or contributions to meet its solvency goals.

Administrators at the Public Employees Retirement Association told lawmakers Thursday that the $15.4 billion fund grew more than 11 percent in fiscal year 2017, which ended June 30. That boost increased the fund’s solvency to 87 percent of what is necessary to pay out all claims to members, up from 77 percent in 2016.

Still, PERA will be $5 billion short of what it needs to meet 100 percent of its obligations of $74 million a year between now and 2046, according to current data.

The formulas, however, are very volatile and can change on a dime depending on the economy. PERA Executive Director Wayne Propst told the Legislative Pensions and Investments Oversight Committee on Thursday that another double-digit year for the U.S. stock market would pull the fund close to its 100 percent goal.

At the same time, another steep Wall Street sell-off like in 2008 would set it further behind.

“It’s difficult to invest our way back,” Propst said. “Long-term, our goals are lagging where they need to be.”

The fund is not alone. The typical public pension fund has a solvency rate of just 73 percent and is facing lower returns for government and corporate bonds. That leads to a larger exposure to riskier stock market equities.

The funding gap has no impact on 39,000 current retirees or those nearing retirement — PERA paid out $1 billion last year and has ample assets to pay any obligations over the next two decades.

“PERA is a billion-dollar business,” said Dominic Garcia, chief investment officer for PERA. “Every year, you can think of PERA producing a billion-dollar benefit to the state.”

Pensions, however, are a long game, and those who start work for a state or local government today at age 25 or 30 need to trust that they, too, will be paid after three decades of work. That’s where the actuarial formula and investment returns become critical.

Just a quarter of assets in public retirement funds come from worker and employee contributions. The bulk of the growth is from investment gains — and those have been lagging in recent years. Though 2017 was exceptionally strong, PERA’s 10-year return after paying investment fees was just under 4 percent, while the return rate since 1985 is 9 percent.

But with lower interest rates around the world and tame inflation, experts anticipate that PERA’s annual investment goal of 7.25 percent is going to be difficult to achieve because it reduces risk with a diversified investment portfolio that includes the cash needed to meet monthly obligations.

PERA is really an amalgam of five employee funds, each with different contribution levels and rules governing retirement age and service years. There are more than 600 government entities that pay into the fund, including all 33 counties and 91 municipalities in New Mexico.

The healthiest part of PERA covers municipal police and firefighters. Those funds are expected to be over 100 percent funded sooner than the others because of higher contribution payments from taxpayers.

But the majority of PERA — the assets earmarked for state agency workers — is lagging, so any fix would largely impact that group of employees.

In 2013, the Legislature made some changes to the retirement formula for new state workers, which has boosted solvency projections.

Propst said that the PERA staff and board are not yet ready to propose additional changes. Rather, he said, they are conducting analyses ahead of the 2019 legislative session to determine possible solutions, such as increasing contributions by 1 percent from both employees and taxpayers, or limiting annual cost-of-living increases, and instead issuing year-end bonuses or a 13th benefit check to recipients.

Contact Bruce Krasnow at brucek@sfnewmexican.com.