This letter is in response to a recent Op Ed piece about retirement benefits for educational employees. I believe the public and our fund members deserve clarification on several of the erroneous points made.
For example, the ERB liability "grew by $800 million" for the fiscal year ending June 30, 2011. However, what's not mentioned is that $400 million of this increase is for a one-time accounting change to a lower return percentage assumption, unlikely to be repeated every year. Instead the implication is that each year the liability will increase by $800 million.
The article states that "these dangerous liabilities are finally being understood." The Educational Retirement Board and the Legislature have been aware of these unfunded liabilities for many years and have taken appropriate actions. In 2005, the Legislature addressed the plan's chronic under funding by increasing the employees' as well as the employers' contributions. In 2009, the Legislature increased the retirement eligibility requirements for new employees. And in the 2012 Legislature, the ERB presented a long-term retirement security proposal that was a "combination of reforms," as called for in the article.
The proposal would have reduced the Cost of Living Adjustment for current and future retirees, set a minimum retirement age of 55 for current and future members and increased employees' contributions. The effect of these changes would be a 96 percent funding by 2040. (Well on the way to the goal of fully paying off the unfunded liability by 2042.)
The article also states that "the plans arbitrarily discount liabilities at 7.75 percent." " Arbitrary" bears no resemblance to the careful and deliberate procedure that the ERB undertook when it revised the long-term investment return assumption last year. This assumption is intended to reflect the returns in the financial markets over a long period, 25 to 50 years. Not five or 10 years. And when you look at the ERB's investment performance over these longer time periods, the NMERB has hit the 8 percent goal.
However in 2011, when the ERB undertook this work, with input from our actuary and investment consultant, the ERB lowered the long-term investment return assumption to 7.75 percent, to better reflect future results in the world's financial markets. One result of this action was the $400 million increase in the actuarial liability mentioned above.
The public pension plans in New Mexico, and in many other states, have been hit hard by the financial events in the world markets in 2001 and 2008-2009. However, the drastic changes proposed in the article are not the only effective way to ensure the long-term sustainability of these retirement plans that so many of New Mexico's educational employees rely on. It's important to point out that ERB members have always paid a very high proportion of the retirement contributions. And this year, most ERB members are paying a higher rate of contribution to the plan than their employers.
In order to ensure that ERB's 2013 legislative proposal is successful, NMERB staff is working with members and their representatives to develop a reasonable, well-thought out proposal that can be supported by members, the legislature and our governor. Working together, we can make necessary changes to the pension plan and secure its viability for many years to come.
Mary Lou Cameron lives in Deming and is chairwoman of the Educational Retirement Board