New Mexico’s pension problems worsen: dramatic changes needed

This story from Capitol Report New Mexico explains how the Public Employee Retirement Association (PERA) saw its unfunded liabilities jump by an astonishing $1.2 billion over the last year alone. That jump means the unfunded liability has risen from $5 billion to $6.2 billion. In the last three years alone, the unfunded liability has nearly tripled (it was $2.3 billion in mid-2009). But that’s not the worst of it.

The situation has deteriorated despite relatively strong performance in the stock market this year (the S&P 500, for example, returned nearly 15% over the past 12 months). That rate of return exceeds even the optimistic 8 percent rate assumed by New Mexico’s pension funds, so after a number of down years, things should have started looking up, not further down.

Of course, there are options for real reform, but they won’t be as popular as the milquetoast “reforms” the Legislature will be considering during the 2013 session.

As RGF experts J. Scott Moody and Wendy P. Warcholik, Ph.D wrote in a paper on needed pension reforms a few years ago, the solutions needed are:

Step 1—Fix the Public Sector Over-Employment Problem
Step 2—Transform Defined Benefit System into a Defined Contribution System
Step 3—Continue to Increase Employee/Retiree Contributions to the Retiree Healthcare System
Step 4—Expand the Private Sector