PERA — What Are The Facts

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The information posted below is provided to bring an understanding to citizens and elected officials as to the true solvency and operation of the Public Employee Retirement Association.

RESPONSE TO REPRESENTATIVE MIMI STEWART
By Doug Crandall, RPENM Member and Former PERA Board Chair
Recently State Representative Mimi Stewart has taken the lead in championing the cause of assuring that PERA benefits will be available for the long term. As current or former public employees and members of the Public Employeeʼs Retirement Association, RPENM members can all appreciate State Representative Stewartʼs concern. There is certainly merit in some of her suggestions regarding future retirees who are not already vested into the current program. However, she has made both public and private statements with the assumption that PERA is in some sort of dire straits and is on the verge of insolvency. This is not true.
Representative Stewart has said that the combined PERA and ERA (Educational Retirement Association) shortfall is more than $7 billion and is projected to more than double in five years. This is indeed an alarming statistic, but it is not supported by any facts available from PERA or ERA. Further, this concept of unfunded liabilities to a public employee pension fund is a mathematical formula that is only as accurate as the
underlying assumptions (none of which have been brought up by Representative Stewart), and is not a true gauge of the solvency of the pension plan. Pension standards generally recognize a plan that is 80% funded as a safe and acceptable level. At the last actuarial valuation, through June 30, 2010, PERA was 78%
funded. This figure is based upon a five year “smoothing” method that takes into account the ups and downs of the financial markets. In other words, the two worst years of the past several decades are included in the calculation and PERA is still in quite good shape. Considering that the past two years have produced double digit returns, the plan is in even better shape today. In fact, total PERA assets once again exceed
$12 billion and have nearly recovered every dollar lost in the great recession.
There is also concern about Representative Stewartʼs contention that the PERA and Boardʼs decision to ask for contribution increases “will be paid mostly by taxpayers.”This is simply wrong. Contribution increases for PERA come directly from employees. In fact, over the past several years there have been several voluntary increases in employee contributions to the PERA fund in order to pay for retirement benefits. For most PERA plans, the total contribution rate is between 22% and 25% of salary. This contribution rate, which far exceeds the norm for nearly any public or private plan, is one reason that PERAʼs solvency will remain strong, even in tough times. Taxpayers (which includes every city, county, state and educational employee in New Mexico) pay for our government and itʼs employees to do a job. When employees increase their contributions to their retirement fund, it is from the money they have already earned. There has never been a request, or even an idea, to pay for PERA pensions through any sort of direct tax.
Representative Stewart has also erroneously stated in public that employee contribution
increases are already in effect, “but to address the current budget crisis, not solvency of
the retirement fund.” It is true that the State Legislature chose to reduce their share of
retirement funding and pass it along to State employees to assist in closing the budget
deficit, but this is irrelevant to the argument of solvency.
The PERA Board policy requires a specific temporary increase in employee
contributions when any of the PERA plans (e.g., state employees, municipal firefighters
or police) fails to meet acceptable funding standards. The budgetary issues are entirely
separate from PERAʼs fiduciary due diligence in assuring that all of the PERA plans
remain adequately funded.
PERA investments are complex, to say the least. In order to deal with the complexity of
pension plan financing and investing each PERA Board member is required to attend at
least one trustee conference each year that deals exclusively with public employee
pension issues. Additionally, every year the Board spends at least two full days at a
mandatory retreat on nothing but investment and actuarial issues involving the PERA
plan. Even further, the PERA Board and investment committee meets twice monthly to
review investments, market trends and money manager performance.
Both fiduciary law and the New Mexico state constitution provide the PERA board
members with the sole authority and duty to manage and protect the PERA fund for
both future and current retirees. Representative Mimi Stewart is a good legislator and
well respected by RPENM, her peers and the voters in her district. But Representative
Stewart has many responsibilities and does not have the time to truly understand the
needs and challenges of a $12 billion pension fund. However, Representative Stewart,
RPENM members, New Mexico taxpayers and the thousands of current an future
PERA retirees may rest assured that the PERA Board is diligently administering the
PERA fund to assure that it is safe and sound today, tomorrow and for generations to
come.