If New Mexico’s retirement system doesn’t undergo a major overhaul, the next economic recession could have a dire impact on the state’s ability to pay for teachers, firefighters and other public employees’ retirement plans, according to the head of New Mexico’s retirement system.
“Any change that we make today will pale in comparison to any change we’ll have to make if we don’t address this now,” Wayne Propst, executive director of the Public Employees Retirement Association, told state lawmakers Wednesday.
“If we wait until the next recession, we may be at a point where we begin to break promises,” he said.
Propst’s warning was offered to a state panel tasked with sorting through Gov. Michelle Lujan Grisham’s task force recommendations on how to overhaul New Mexico’s public retirement system.
It was the lawmakers’ first open discussion on Lujan Grisham’s plan to shore up roughly $6 billion in unfunded liabilities largely from current retirees’ public pension plans. Most of the discussion Wednesday centered on trying to understand the task force plan and the scope of the problem.
The proposal asks employees and employers to pay a combined 4 percent increase in pension contributions and links annual cost-of-living adjustments to returns on investments tied to the pension program.
The proposal would lead to a roughly $1,000 annual cost increase for employees paying into their retirement plans who make an annual $50,000 salary, Propst said.
It also would cut cost-of-living increases for retirees for three years and calls for a one-time $76 million payment into the retirement system.
Lawmakers are working on transforming the recommendations into a bill.
The legislation should be made public before Dec. 4, when the Investments & Pensions Oversight Committee plans to hold its next meeting. Retirees and others will have a chance then to testify on the plan, said state Sen. George Muñoz, a Democrat and chairman of the committee.
While lawmakers on the panel have not reached a consensus on whether to support Lujan Grisham’s recommendations, Muñoz stressed that he believes something needs to be done now to avert economic catastrophe.
“We don’t have $6 billion to just throw into the fund. So if we hit a recession and lose $2 billion or another billion dollars … we’re bankrupt,” Muñoz said.
“So how do we make it less painful now rather than taking your arm later?” Muñoz added.
Much of Propst’s presentation centered on the impact that a recession would have on the state’s ability to pay retirement benefits.
Muñoz mentioned during the hearing that he expects more than 100 retirees to testify
Dec. 4 about keeping their benefits intact. He suggested that he may limit that discussion.
“I understand where they’re coming from, but they’ll have time to talk to their local legislators,” Muñoz said.
This story has been amended to reflect the following correction. A previous version of this story incorrectly reported that the governor had made recommendations on how to overhaul the state’s public retirement system. The governor appointed members to a task force that made those recommendations.