There has been a much needed discussion of government pension plans in the Albuquerque Journal and in the Legislature. Brad Day, a member of the Education Retirement Board, had a column here. Someone who disagreed with Day wrote his thoughts up here. Rob Nikolewski at Capitol Report has an even more thorough discussion with Day available here. The New Mexico Senate has passed SB 150 which would make several modest changes to the ERB’s pensions. Unfortunately, it seems unlikely that this bill will pass out of the House in the short time still left this session.
Rather than re-hashing Day’s comments, I want to rebut the rebuttal to his remarks point by point. That’s because it is a fact that New Mexico’s pensions are unsustainable. Day gets it while his rhetorical opponent does not.
First point: “Social Security is not a Ponzi scheme. Instead, Social Security the world’s longest-lived Ponzi scheme: self-funded and faithfully paying benefits as promised since the 1930s!” Yes, it is. In fact, Social Security is worse than a Ponzi Scheme as no one is forced to pay into a Ponzi Scheme whereas they are forced to pay into Social Security. Really big Ponzi Schemes like Social Security take a long time to run out of money. It has a $9.2 trillion unfunded liability.
Secondly, he writes that “the ERB has $9 billion in assets that are invested.” That may be true and $9 billion is a lot of money for you or me, but if liabilities are even bigger (which they are), the system can still be insolvent.
Lastly, the author states “The 9.4 percent ERB employee contribution is actually higher than the typical 7 percent that private-sector employees contribute to their 401(k) plans.” So what? Government pensions are far more generous than the retirement plans offered in the private sector (not to mention their guaranteed nature which puts all the risk on taxpayers).
The fact is that even SB 150, if it passed, would not be adequate to make New Mexico’s pensions truly solvent. Further changes, as outlined here are needed.