PERA underfunded by $6.2 billion

SANTA FE (KRQE) - Executive director Wayne Propst of the Public Employees Retirement Association was the bearer of bad news Tuesday.

"Your jobs just got a little bit harder," Propst told state lawmakers sitting on the Investments and Pensions Oversight Committee.

PERA manages the pension plans for tens of thousands of public employees including police officers and firefighters.

Before Tuesday, it was already well known that PERA's pensions were underfunded by nearly $5 billion as of June 2011. That was bad enough of a problem for PERA's board to push forward a major pension reform plan.

But on Tuesday, Propst told the committee that a year later, things had gotten worse. Now the pension funds have an unfunded liability of $6.2 billion, meaning the rate at which PERA is funded declined more than 5 percent.

Propst says poor investment performance was the biggest reason for the change, although fund investments have been doing better since June. The reported increase wasn't surprising, although the size of it was.

"It's a situation where we've got to fix it and it's got to be a bipartisan issue," said Sen. George Munoz, D - Gallup, the committee's chair. "These employees don't care about party lines. It's about protecting their future."

While the underfunding issue doesn't threaten the pension plans of current retirees, the long-term solvency of the fund is at risk. 

"PERA's been around 65 years, we'll be around another 65, so let's address the problem, let's not kick the can down the road," Propst said. "We're going in the wrong direction now if we don't do anything, so doing nothing isn't an option.

"We have to reform the benefit."

PERA's proposal to fix the problem is already on the table. Under the plan, current and future retirees would see their annual cost-of-living adjustment (COLA) slashed from 3 percent to 2 percent. Future retirees would have to wait seven years to start getting that adjustment instead of two, although that change would be phased in.

The state and workers would both chip in 1.5 percent more each into the pension funds as well.

That would fund PERA at 100 percent by no later than 2042.

But some union leaders, like Albuquerque Fire Department union president Diego Arencon, said PERA's plan is too severe as is and could send police officers and firefighters running to retire early before too many changes go into place.

"There is a fix to this," Arencon said. "We'd like to do it at a moderate pace remembering the fact that all of it isn't due tomorrow."

PERA isn't the only state pension fund in trouble. The Educational Retirement Board, the group that manages educators' pensions, has an unfunded liability of about $5.9 billion.

Reforms for both plans are expected to be hot-button issues during the next legislative session in January.

A spokesman for Gov. Susana Martinez said the governor wants to see a draft of the bill on the table, or something that's gone through the legislative process, before she can take a stance. He also said the Martinez is skeptical about the size of the increased contribution from the state PERA is proposing.