Moody’s says NM’s pension fix falls short
NOT GOOD ENOUGH: While praising New Mexico’s pension reforms, the Moody’s ratings service says the state needs to do more.
By Rob Nikolewski │ New Mexico Watchdog
SANTA FE, N.M. — Legislation aimed at shoring up a $12 billion shortfall in the state’s two biggest public pension plans falls short.
Unfunded liabilities for the Educational Retirement Board and the Public Employees Retirement Association are still too high, Moody’s Investor Service says in an analysis released Friday.
Moody’s praised a recent New Mexico Supreme Court decision upholding cost-of-living adjustments to the ERB pension plan, but …
“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.
The executive director of PERA, Wayne Probst, disagreed.
“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 email to New Mexico Watchdog.
Officials at PERA and ERB pushed for the changes last year, saying they would be sufficient to get the two pension plans back on firm financial footing.
“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,” Probst said.
Moody’s says New Mexico has historically set contribution rates too low.
“Mending the large liabilities would likely require deeper cuts to benefits, more substantial increases in employer and employee contributions, or having a sustained multi-year trend of making contributions at full actuarial required levels,” the Moody’s analysis said.
One trustee on the ERB board, Brad Day, made similar arguments last year during the legislative session in Santa Fe. He agreed with Moody’s.
“The best I can say is that doing something is better than doing nothing,” Day said in telephone interview with New Mexico Watchdog. “But the problem is, the something that was done is so minimal that it won’t get the program in better shape.”
Day says the expected annual return on investments of 7.75 percent is too optimistic.
“You’re either going to put in an extra 4 percent in there or cut benefits,” Day said. “To sit here every year and pretend everything is fine and dandy (is wrong). There’s a storm coming up … These liabilities are lot bigger than they’re showing.”
Supporters of the legislation have taken criticism from both sides.
While Moody’s and people like Day say the reforms don’t go far enough, the biggest threat to passing the legislation last year came from PERA and ERB members who said the bills called for too much sacrifice from pension members.
“The reforms enacted last year, coupled with an improving investment environment, appear to have set PERA on a steady course towards long term stability and resolving our unfunded liability,” Probst said. “We didn’t get into this overnight and there will be ups and downs as we climb out of it but our most recent actuarial valuation shows the Fund at 100 percent, well within a 30-year period and at 108 percent-funded by 2043, which is reason enough for cautious optimism.”
“Right now, it’s just an illusion,” Day said. “We’re discounting the liabilities at too high a rate.”
The New Mexico Legislature passed — and Gov. Susana Martinez signed — the legislation last year.
Click here to read Moody’s analysis. Its report on New Mexico begins on Page 8.
Contact Rob Nikolewski at rnikolewski@watchdog.org and follow him on Twitter @robnikolewski
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