Lots of news to report on government pensions. For starters, Carter Bundy of AFSCME and I have disagreed on a variety of issues (just look it up), but I completely agree with him that if New Mexico’s Supreme Court voids the pension deal reached during the last session on the grounds that COLA adjustments violate the “property rights” of retirees, then New Mexico will be on the path of Detroit.
Interestingly-enough, our friends at State Budget Solutions shined a light on the pension situations of New Mexico and other states in a recent brief. According to the report, New Mexico faces an unfunded pension liability of $42 billion with a funded/unfunded ratio of 33%. The average state ratio is 39%. More problematic is the fact that our liability as a percentage of the economy is 53% which is the second-highest among states. Ohio’s is 56%, but the average state’s is only 27%.
Unfortunately, New Mexico’s government pension system is already bleak. The Courts can only make the situation bleaker with an adverse decision.
Lastly, there has been a fair amount of discussion of judicial pensions in New Mexico and the need to reform them. We agree. In fact, policymakers should consider transforming judicial pensions into a defined contribution (as opposed to a defined benefit) program. This would protect taxpayers while allowing some of the most educated and highly-paid public employees in New Mexico to invest their own money for their own retirements. One objection to defined contribution retirement systems is that average government workers are not capable of investing for their own retirements, but judges would seem to be highly-educated enough to be a test-case for this reform…perhaps freeing additional funds for judicial pay raises?
The only solution to unsustainable public employee pensions is to shift employees from defined-benefit to defined-contribution pensions as the private sector did years ago. In New Mexico, putting judges and legislators on a defined-contribution plan is a logical start.
The argument that employees are not capable of managing their own pensions is bogus. When the company I worked for started a 401K for managers in the 1980s, we got a choice of several investment options that were vetted by the company and managed for us. The company also offered financial planning seminars that equipped us to choose among the investment options. This was a no-brainer for me, and I believe even New Mexico’s legislators can figure it out.
Unfortunately, the situation is worse than commonly thought. A couple of years ago, the estimates were that pension fund returns would be (approximate numbers) 7.75%, the number of employees would continue to grow, and employees would receive annual raises of 3.0%. If these do not happen, current changes to NM pension systems will not solve the problems. Not good.
Check out
http://www.mauldineconomics.com/images/uploads/pdf/130907_TFTF.pdf