House Bill 106 - 2023 Legislative Session
In the 2023 legislative session, House Bill 106 was enacted, raising the maximum pension benefit from 90% to 100% of the final average salary. The rationale behind this adjustment is to incentivize workers to prolong their careers.
In the Fiscal Impact Report for Bill 106 (https://www.nmlegis.gov/Sessions/23%20Regular/firs/HB0106.PDF), it references Article XX, Section 22, of the New Mexico Constitution prohibits the Legislature from enacting any law that increased the benefits paid by PERA unless adequate funding is provided.
PERA provided the following actuarial analysis for the House Bill:
PERA’s actuaries indicated that (HB 106) would cause an initial increase to the unfunded liability by $25 million and the amortization period by 1 year and increase the shortfall by 0.07 percent. However, they also noted members who retire later would lower the cost to the retirement system which could offset the costs noted above.
Data from PERA suggests only a limited number of employees serve for 30 years or more and reach the current maximum pension benefit. The table for the State General Plan provided by PERA:
Years of Service Credit at Retirement
Percent of Retired Members
| Plan | Less than 15 | 15 to 19 | 20 to 24 | 25 to 29 | 30+ |
| State General | 31.6% | 11.2% | 13.4% | 40.5% | 3.3% |
In the Fiscal Impact Report for Bill 106, PERA suggests only a limited number of employees serve for 30 years or more and reach the current maximum pension benefit. The table shows the percentage of retired members by the level of service credit accrued before retirement. Less than 4 percent of members reach the 30 years of service credit required to max out on state general plans and less than half reach 25 years of service. The bill may successfully encourage a small number of members to continue working to boost pension benefits and provide compensation to that small percentage of employees who continue to work after achieving the maximum benefit but may not encourage a large number of employees to continue to work for more years.
The report also showed the Years of Service Required for Maximum Pension Benefit of 100% for State General Coverage Plan 3
Tier 1 | Tier 2 | ||
90% of final average salary (Current) | 100% of final average salary (HB 106) | 90% of final average salary (Current) | 100% of final average salary (HB 106) |
30 | 33.3 | 36 | 40 |
PERA’s estimated cost of the Bill probably underestimates the true cost. The purpose of the Bill is to effectively motivate employees to prolong their employment to increase their pension benefits to 100% of their final average salary. Being able to increase their pension by 10% by working an additional 3.3 years for Tier 1 members and 4 years for Tier 2 members would be a major incentive to work the extra years. This would result in a more substantial financial impact on the pension than PERA’s actuarial analysis indicates draining money from PERA’s pension fund.
To address this concern, the legislators and governor need to repeal House Bill 106 and refrain from introducing enhancements to the pension. According to the 2023 Annual Actuarial Valuation, the estimated time required to eliminate the total unfunded actuarial accrued liability (UAAL) is 53 years, significantly surpassing the Board’s goal of achieving this in 25 years. This extended timeline raises concerns about the financial sustainability of the pension system.
If the State Government encounters challenges in recruiting and retaining workers, it has the option to address the issues by increasing salaries. However, it’s important to note that the New Mexico Constitution prohibits the enactment of any law that raises the benefits paid by PERA unless sufficient funding is provided. Unfortunately, Bill 106 did not specify a funding source. PERA’s actuarial analysis claims only a small percentage of employees are predicted to continue working to attain the maximum benefit. There is the possibility a large number of employees will continue to work to increase their salary to 100% of their final average salary leading to a potential drain of funds required to support the Bill. Unless the State Government ceases spending PERA’s funds on special projects, there is a looming risk of PERA facing financial insolvency.