The Pew Center does a great deal of solid work to educate the public on various state economic issues. The two images below detail New Mexico’s unfunded retirement costs as of 2013. As the first chart shows, New Mexico’s unfunded burden is the 6th-heaviest in the nation among US states. No neighboring state comes close to having New Mexico’s burden levels which further makes us uncompetitive with our neighbors.
As the following chart shows, New Mexico’s unfunded pension costs rose quite quickly as a share of personal income in the wake of the financial downturn of 2008. It went down slightly between 2012 and 2013, but more needs to be done to make our pension system sustainable (the best and most sustainable option is to move to a defined contribution 401-K style system as opposed to the current defined-benefit system which puts workers’ retirement in the hands of government officials and puts taxpayers on the hook for future benefits. The full Pew report and charts can be found here.
3 Replies to “How do New Mexico’s unfunded government employee pension costs stack up?”
I do not see in the report the capitalization rate that states are using to determine investment return. In the past, NM has been using a rate of between 7.5% and 8%. Even at those unrealistically high rates, NM public sector pensions were only 60% to 70% funded. If a more realistic rate of return of 3.5% to 4% is used, NM’s public sector pensions are probably only about 30% funded.
Have to agree with Charles
A very good return over the past years may exceed 7.5% on average, but this generally would associate with index funds and NOT managed funds, which most public agencies appear to use. And from this you must deduct 3.18%, the approximate average annual rise in cost of living over the last 103 years.
Many public agencies who face realism are using a growth rate of under 2%. Many investments are returning less than the prime rate.
Since the 1960s politicians have been buying public union votes with greatly enhanced salary/wage packages, including unfunded retirement, which always were thought to be addressed with a small (?) tax increase. No more. We absolutely must convert immediately to defined contribution from defined benefit plans, including reformulating ALL existing defined benefit plans.
In a defined contribution plan contributing $5000 per year for 40 years, growing at net 3.5%, in 40 years will pay about $2100 per month for 25 years, leaving little or nothing at age 90.
Social Security/Medicare contributions are about 15.3%.
We’ve run out of other people’s money.
With the coming projected economic collapse, it’s going to be either pensions or the rail runner. Raise taxes and you’ll put a steak in NM’s economic heart. Expect this all to come down in2017 after the election.
Of course the usual way it is war.