Aspiring teachers would have to work longer to get full pensions and other government employees would have to pay more toward their own health care if the New Mexico Legislature goes along with a committee’s recommendations made Monday.
The Investment and Pensions Oversight Committee backed a plan to phase in a 50 percent increase in payments by civil servants who are part of a retirement health care program. The panel also supported raising the minimum age for future teachers to get full retirement benefits to 58 instead of 55.
That plan, proposed by New Mexico’s Educational Retirement Board, would also pay smaller benefits to future teachers who work fewer than 10 years. It also would require employers to pay an additional percentage point a year for three years to help shore up a retirement system that is carrying about $7.5 billion in unfunded liabilities.
The changes are just one set of steps that lawmakers will consider in the coming year as they grapple with pension systems that owe billions of dollars in benefits the state currently can’t cover as well as a retiree health care initiative that is underfunded.
Meanwhile, the Public Employees Retirement Association, which provides pensions to a range of state and local government employees, is mulling measures such as changes in cost-of-living adjustments.
Plenty of states are struggling with underfunded pension systems. But New Mexico’s retirement programs have caught the attention of bond rating agencies which have dinged the state’s creditworthiness amid concerns about the state’s ability to cover its pension obligations.
The Educational Retirement Board carries about $7.5 billion in unfunded liabilities and has more than 60,000 members while the Public Employees Retirement Association, which has more than 50,000 members, has about $6 billion in unfunded liabilities.
Jan Goodwin, executive director of the Educational Retirement Board, said the changes it proposes to retirement ages and what are known as benefit multipliers would reward teachers who have been working longer at a time when high turnover remains a persistent issue in the state’s schools.
Neither proposal would affect educators currently paying into the pension system. Instead, if approved next year, the policies would effect new teachers. And in any event, the minimum retirement age is not necessarily the age at which an educator can begin drawing a pension. That is based on years of service and when the educator began paying into the system.
The American Federation of Teachers New Mexico opposes some of the changes.
Educators not only weigh salary but also benefits and retirement plans when considering where to work, the union has argued, contending that these proposals would only make it harder to recruit new teachers.
Still, unions and the retirement board do not seem too far apart on the proposed pension changes.
The board is not touching cost-of-living adjustments and proposes that some long-term substitute teachers pay into the system.
“It’s every bit as attractive for long-term career educators,” Goodwin said after Monday’s legislative committee meeting.
Goodwin added that the proposals would help the program reach a goal of full funding in 30 years.
Meanwhile, the teacher retirement board and labor unions will call for legislators to pump $248 million into the system as part of a settlement in a lawsuit over the state’s pension contributions.
The Investment and Pensions Oversight Committee also backed a proposal to phase in a 50 percent increase in contributions from public employees at school districts, state agencies, and city and county governments to cover benefits under the Retiree Health Care Authority.
That would raise both employee and employer contributions to help keep pace with increases in the health care costs. An employee earning $40,000 who currently pays about $400 annually would pay roughly $600 by 2023
In addition to approval from the full Legislature, the plans would need the signature of Michelle Lujan Grisham, who takes office as governor in January.
Sen. George Muñoz, a Democrat from Gallup who has pushed for changes to the state’s pension systems, is proposing legislation that would let the boards of pension systems suspend cost-of-living adjustments.
The state has instituted pension changes in recent years, particularly in the immediate wake of the last recession, such as requiring employees chip in more towards their retirement benefits and setting minimum ages to reap full benefits.
But Muñoz said board members need the authority to make some changes on their own. “Pension reform is a war,” Muñoz said of the political storm that often comes with proposals to change pension systems.
Still, other lawmakers argued that the Legislature is better positioned to make policy based on what is affordable for the state as a whole.
“It’s creative, but I’m not sure I want to go there,” Sen. James White, R-Albuquerque, said of Muñoz’s proposal.
The Associated Press contributed to this report.