New Mexico Public Employees Retirement Association Solvency Analysis

The New Mexico Public Employees Retirement Association (PERA) was established to provide secure, lifetime retirement benefits to the state’s nearly 120,000 active, inactive, and retired public workers.  Gov. Michelle Lujan Grisham and the state legislature addressed some of the major long-term solvency threats to PERA during the 2020 legislative session via Senate Bill 72—just before the COVID-19 pandemic hit the state and country.

As the state prepares for budget problems related to the pandemic and recession, PERA administrators and stakeholders are likely to face persistent challenges made more pronounced by ongoing market and revenue volatility.

This solvency analysis, produced by the Pension Integrity Project at Reason Foundation, reviews how recent legislative changes are expected to improve asset levels and shorten PERA’s debt burden, while also providing stress testing and spotlighting opportunities to build in additional risk safeguards to improve long-term financial sustainability.

Prior to the start of the COVID-19 pandemic, PERA had amassed over $6 billion in unfunded liabilities, and the system had, on hand, only 70 cents of every dollar needed to be invested today in order to generate sufficient funds over time to pay out all promised pension benefits.

This systematic underfunding is largely the result of missed investment and other assumptions, insufficient contributions fixed into state law, and negative amortization. Only some of these challenges were addressed in the 2020 legislative session, leaving additional opportunities for policymakers and PERA trustees to shore up the plan further in 2021 and beyond.

Highlighted in the report are the technical aspects of the various issues identified as contributors to the growing debt reported by PERA. The problem of investment returns averaging below the long-term assumed rate of return has added $2.93 billion in unfunded liabilities to PERA’s balance sheet since 2010. Investment expectations contribute to this problem, and despite the recent lowering of the investment return assumption to 7.25 percent, PERA remains exposed to significant investment underperformance risk.

Stress testing designed to highlight potentially latent financial risks and exposure to market volatility is also provided to stakeholders to help contextualize this risk under volatile market conditions. Reason’s solvency analysis also explores other existing structural challenges within PERA before providing a framework around which stakeholders can work together to ensure current funding, risk and actuarial policies best support the pension system’s long-term sustainability.

To further protect taxpayers, employees and retirees, legislators and stakeholders should continue to find bipartisan solutions to the funding issues at hand. With independent third-party actuarial analysis and expert technical assistance, our organization stands ready to continue assisting New Mexico policymakers and stakeholders address the shifting fiscal landscape.

New Mexico Public Employees Retirement Association (PERA) Solvency Analysis