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Public pensions in New Mexico

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New Mexico public pensions
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Pension system
Number of pension systems 2
State pension systems: Public Employees Retirement Association
New Mexico Educational Retirement Board
System type: Defined benefit plan
Pension health (2012)[1]
Fund value: $21,397,283,812
Estimated liabilities: $33,886,652,376
Unfunded liabilities : $12,489,368,564
Percent funded: 63.14%
Percent funded change: Decrease.svg3.84%[2]
Percent funded rank: 39[3]
Pension fund members (2012)
Total members: 224,666
Active members: 114,674
Other members: 109,992
Other state pension information
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Public pensions
State public pension plans
Public pension health by state
New Mexico public pensions are the state mechanism by which state and many local government employees in New Mexico receive retirement benefits. The Public Employees Retirement Association (PERA) and New Mexico Educational Retirement Board (ERB) administer benefits to eligible retirees. PERA oversees five separate funds:[4]
  • Public Employees Retirement Fund
  • Legislative Retirement Fund
  • Judicial Retirement Fund
  • Magistrate Retirement Fund
  • Volunteer Firefighters Retirement Fund

According to the United States Census Bureau, the state has no locally-administered pension systems.[5]

A 2012 report from the Pew Center on the States noted that New Mexico's pension system was funded at 72 percent at the close of fiscal year 2010, below the 80 precent funding level experts recommend. Consequently, Pew designated the state's pension system as cause for "serious concern."[6]

Taken together, the funding ratio for the state's pension systems decreased from 82.14 percent in fiscal year 2007 to 63.14 percent in fiscal year 2012, a drop of 19 percentage points, or 23.1 percent. Likewise, unfunded liabilities increased from roughly $4.5 billion in fiscal year 2007 to nearly $12.5 billion in fiscal year 2012.


Pension plans

In fiscal year 2012, according to the systems' Comprehensive Annual Financial Reports, New Mexico had a total of 114,674 active members in its retirement plans.[4][7] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[8]

The following data was collected from the systems' Comprehensive Annual Financial Reports. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value was 7.75 percent in fiscal year 2012. The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[9][10] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[11]

Basic pension plan information -- New Mexico[4]
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[12] State figure SBS figure[12]
Public Employees Retirement Fund $11,612,047,019 65.3% N/A[13] $6,175,996,828 N/A[13] 48,594 active members*
Legislative Retirement Fund $25,168,813 91.8% $2,260,450 N/A*
Judicial Retirement Fund $75,506,702 51.0% $72,416,141 118 active members
Magistrate Retirement Fund $30,878,948 53.2% $27,158,127 42 active members
Volunteer Firefighters Retirement Fund $47,382,330 167.9% $(19,162,982) 5,065 active members
Educational Retirement Board[7] $9,606,300,000 60.7% $6,230,700,000 60,855 active members
TOTALS $21,397,283,812 63.14% 33% $12,489,368,564 $42,815,497,000 114,674 active members
*PERF membership total includes LRF members.[4]

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 New Mexico paid 88 percent of its annual required contribution.[6][14]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[15] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[16]

ARC historical data[4]
Fiscal year PERF* JRF MRF
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $466,835,061 100% $5,834,621 79.1% $1,793,261 57.2%
2011 $356,050,092 100% $5,784,453 88.9% $2,013,684 62.5%
2010 $328,202,821 100% $5,658,174 85.7% $1,698,108 68.0%
2009 $302,614,335 100% $4,690,274 115.6% $1,151,061 86.9%
2008 $293,164,836 100% $4,549,247 112.6% $1,029,865 132.6%
*PERF ARC includes LRF.[4]
ARC historical data[4][7]
Fiscal year VFRF ERB
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $446,000 750% $400,461,343 63.4%
2011 $446,000 750% $377,884,749 81.6%
2010 $446,000 750% $357,220,043 87.7%
2009 $446,000 750% $375,430,722 86.2%
2008 $446,000 750% $368,196,682 79.0%

Historical funding levels

Historical pension plan data - all systems[4][7]
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $20,805,529,959 $25,329,712,687 $4,524,182,728 82.14%
2008 $22,283,751,521 $26,899,138,179 $4,615,386,658 82.84%
2009 $22,094,319,737 $29,004,201,839 $6,909,882,102 76.18%
2010 $21,858,781,352 $30,184,915,450 $8,326,134,098 72.42%
2011 $21,679,250,700 $32,368,087,269 $10,688,736,569 66.98%
Change from 2007-2011 $873,720,741 $7,038,374,582 $6,164,553,841 -15.16%

Rate of return

New Mexico presumes a 7.75 percent return rate on its pension investments.[4][7]


According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[17] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[18] When states lower the rate of return in an effort to predict investment earnings accurately, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[19] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[20] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[21]

The 2008 financial crisis had a devastating effect on pension plans nationwide and resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[22] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[23][24][25][26][27]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[22]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[28]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that in all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, New Mexico's public pension plans were 33% funded, making it the 36th most funded state.[29]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.67 percent for New Mexico) instead of the state-reported assumed rates of return (7.75 percent for New Mexico's largest plan as of July 1, 2011).[30]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[30]

The adjusted net pension liability for New Mexico in fiscal year 2011 was ranked the 35th highest in the nation.[30] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - New Mexico
Governmental revenue* Personal income State GDP Per capita
State findings 37.8% 7.1% 6.3% $2,423
National ranking 29th 26th 22nd 26th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[30]

Moody's Investor Service 2014 report
In January 2014, a report published by Moody’s Investor Service declared that legislation seeking to shore up the state’s $12 billion shortfall in its two biggest public pension plans were not enough to detail with the unfunded liabilities. The report praised a recent New Mexico Supreme Court upholding cost-of-living adjustments from the Educational Retirement Board pension fund, but also expressed concern with the continued fiscal health of the program: “Going forward, even with the reforms, the unfunded liabilities will remain elevated, which will be a continued source of risk to local governments participating in the plans,” the analysis said.[30]

The executive director of the Public Employees’ Retirement Association (PERA) disagreed with the report. “Reading this I guess I’m reminded of that old saw about how pessimists always seem smarter than optimists but optimists generally live in bigger houses,” Probst said in an interview. “The ink on (the legislation) has barely dried and the impact of the reforms are only beginning to be felt, so we believe what is needed is a period of time to take stock of where we are before making judgments that it wasn’t enough or was too much,” he said.[30]

Pension fund management fees

See also: Public pension fund management fees

In July 2013, the Maryland Public Policy Institute (MPPI) and the Maryland Tax Education Foundation released a report detailing the fees paid for the management of state pension systems. According to MPPI, the 10 state pension funds that paid the most in management fees relative to net assets experienced lower returns over a five-year period than the 10 state pension funds that paid the least in management fees. For example, in fiscal year 2012 South Carolina's pension system paid approximately $296.1 million in total management fees (1.31 percent of total net assets at the beginning of the fiscal year) and its five-year rate of return was 1.46 percent. By contrast, Alabama's pension system paid roughly $13.3 million in management fees (0.05 percent of total net assets) and its five-year rate of return was 7.53 percent.[31]

The table below presents the information collected by MPPI for New Mexico and surrounding states. For each state's pension system, total net assets are listed (both for the beginning and end of the fiscal year in question), as well as the total amount paid in management fees. In addition, the rates of return for the pension systems are presented. Compared to surrounding states, New Mexico had the second lowest total net assets.

Public pension fund management fees, 2011-2012
State Fiscal year Total net assets at the beginning of the year Total net assets at the end of the year Total management fees Management fees as a percentage of total net assets at the beginning of the year Five-year rate of return for the pension fund
New Mexico 2012 $21,583,017,640 $21,088,985,158 $49,646,402 0.23% -0.28%
Arizona 2012 $28,314,807,000 $27,862,236,000 $137,905,000 0.49% 1.80%
Colorado 2011 $41,790,120,252 $40,632,740,352 $159,485,643 0.38% 2.10%
Oklahoma 2012; 2011 $17,208,667,211 $18,979,092,225 $45,745,016 0.27% 2.75%
Texas 2012 $108,539,650,082 $112,475,732,435 $530,092,885 0.49% 2.98%
1"Three states— Hawaii, Nevada and Rhode Island—were excluded because they hadn’t published CAFRs for fiscal years ending December 31, 2011 or later. West Virginia was excluded because its June 30, 2012 CAFR lacked sufficient disclosure."[31]
Source: Maryland Public Policy Institute, "Wall Street Fees, Investment Returns, Maryland 49 Other State Pension Funds," July 1, 2013


Enacted reforms


S.B. 27

Sponsored by Senator George K. Munoz and Representative Luciano Varela, S.B. 27 proposed to:[32]

  • reduce cost-of-living adjustments for all retirees,
  • delay cost-of-living adjustments for future retirees,
  • suspend cost-of-living increases for certain return-to-work retirees, and
  • increase employee and employer contributions.

The bill cleared both the Senate and the House, on March 7, 2013 and March 13, 2013 respectively. The governor signed the bill into law on April 5, 2013.[32]

S.B. 115

Sponsored by Senator Stuart Ingle, S.B. 115 proposed to:[33]

  • increase contribution rates for certain plan members,
  • impose a minimum retirement age for new plan members,
  • delay cost-of-living adjustment eligibility, and
  • increase age and service requirements.

The bill cleared both the Senate and the House and was signed into law by the governor on March 29, 2013.[33]


H.B. 42

Sponsored by Representative Dennis Kintigh, H.B. 42 proposed to increase the contributions of state legislators to the Legislative Retirement Fund. After clearing both the House and Senate, the governor signed the bill into law on March 7, 2013.[34]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has no locally-administered pension systems.[5]


See also: Public pension disclosure and Governmental Accounting Standards Board
  • Financial reports, investment information and actuarial studies are available on the PERA and ERB websites.[35][36]
  • Names of individual pension recipients are not available.
  • Disbursement amounts are not available for PERA or ERB.
  • Fund investment performance data is available for both pension systems.[37][38]

Recent news

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See also

Additional reading

External links


  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12 4.13 Public Employees Retirement Association of New Mexico, "2012 Comprehensive Annual Financial Report," accessed November 15, 2013
  5. 5.0 5.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  6. 6.0 6.1 Pew Center on the States, "Widening Gap Update: New Mexico," June 18, 2012
  7. 7.0 7.1 7.2 7.3 7.4 7.5 State of New Mexico Educational Retirement Board, "2012 Comprehensive Annual Financial Report," accessed November 15, 2013
  8. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  9. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. accessed October 23, 2013
  10. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. accessed October 23, 2013
  11. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  12. 12.0 12.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  13. 13.0 13.1 Analysis only available for system totals and not individual funds.
  14. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  15. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  16. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  17. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  18. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  19. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  20. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  21. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  22. 22.0 22.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  23. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  24. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  25. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  26. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  27. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  28. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  29. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  30. 30.0 30.1 30.2 30.3 30.4 30.5 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  31. Cite error: Invalid <ref> tag; no text was provided for refs named report
  32. 32.0 32.1 New Mexico Legislature, "SB 27 - Public Employee Retirement Changes," accessed November 15, 2013
  33. 33.0 33.1 New Mexico Legislature, "SB 115 - Educational Retirement Changes," accessed November 15, 2013
  34. New Mexico Legislature, "HB 42 - Legislative Retirement Contribution Changes," accessed November 15, 2013
  35. Public Employees Retirement Association of New Mexico, "Publications," accessed November 15, 2013
  36. New Mexico Educational Retirement Board, "Home page," accessed November 15, 2013
  37. New Mexico Educational Retirement Board, "Investments," accessed November 15, 2013
  38. Public Employees Retirement Association of New Mexico, "PERA Investments," accessed November 15, 2013