New Mexico’s pensions are far from healthy. Last summer, the Pew Center on the States found New Mexico had failed to consistently pay its full annual pension contribution from 2005 to 2010.
“New Mexico’s management of its long-term liabilities for pensions and retiree health care was cause for serious concern,” Pew wrote at the time.
But lawmakers have been trying to turn the ship and their efforts may slowly be setting it on the right course. Late last week, one of the state’s largest public pension funds announced that its funding gap was $4.6 billion in fiscal year 2013, more than $1.5 billion smaller than the year before. The “majority” of that shrinkage was the result of laws passed this year, they wrote in a statement.
“One of the takeaways from it is how effective a collaborative process was,” said David Draine, a senior researcher at Pew. “In this case, lawmakers and unions worked together to try to find a solution and it looks to be something where there really were meaningful savings for the state while keeping making sure that retirees will still get a pension benefits.”
PERA’s statement didn’t detail how exactly the legislative changes helped to slim down its funding gap, officially known as the Unfunded Accrued Actuarial Liability, the difference between how much it has set aside to meet its obligations and how much it should. But Draine suspects much of it is the result of reductions in how retiree payouts are adjusted for cost-of-living changes.
While the funding gap shrank by more than $1.5 billion, a better measure of pension health is its funded ratio—calculated by dividing the plan’s assets by a measure of its obligations. Some experts say anything below 80 percent is cause for concern, while others say such a standard is a myth. The goal, experts say, should be 100 percent.
PERA’s ratio was 73 percent in the 2013 fiscal year, up from 65 percent the year before.