Education Retirement Board member Brad Day has a must-read column in today’s Albuquerque Journal in which he outlines the sorry state of New Mexico’s pension system and how the situation is both getting to the point at which it will be irreparable and how the unions and the groups in charge of maintaining the system would prefer to stick it to the taxpayer rather than actually make these systems sustainable.
The pension bills passed this session may slow the bleeding, but more transformative changes like a shift to a defined-contribution system are needed.
Interestingly enough, a shift away from defined benefit to defined contribution, 401K plans, was recently approved by 83% of Boeing’s engineers. I don’t know all of the particulars of the negotiations and Boeing is obviously a private company, but it is possible to convince workers of the benefits of controlling one’s own retirement as opposed to relying on a business or government’s investments.
The sword of Damocles hanging over the heads of N.M. taxpayers. As previously reported by the RGF, PERA and ERB are predicted to run out of assets in 2023 and then consume 50% of the entire state budget without substantial changes.
What should be done today is for the State of N.M. to file a declaratory judgment action in court and obtain a ruling from the State Supreme Court, ascertaining whether already vested benefits of current and past employees may be reduced. Retired Justice Baca published a letter in the Journal several months ago opining that vested benefits probably cannot be reduced because of a unique provision in our state Constitution (thanks again to our state legislature for looking out for the taxpayers of N.M.).
If the State Supreme Court rules that vested benefits cannot be cut, then the state is really in a financial pickle and will have to make immediate and dramatic funding changes. If the State Supreme Court were to rule that vested benefits can be reduced, then the state has much more wiggle room.