Frequently Asked Questions (FAQs)

Frequently Asked Questions


Q. The stock market and the economy is booming, why aren’t PERA’s investments

sufficient to sustain our funding status?

A: The PERA Fund balance was $15.4 billion on June 30, 2018 and paid retirement

benefits totaling $1.15 billion during FY2018. Investing an institutional,

multigenerational investment portfolio requires balancing PERA’s cash flow needs,

portfolio risk and desired return objectives. As a result, the PERA Board’s strategic

asset allocation reflects the diversification needed to provide growth, income and

inflation protection. The PERA Board would be violating its fiduciary duty by

investing the PERA Fund by simply chasing returns in the stock market.


Q. In 2013 the PERA Board led the legislative effort on pension reform. You said

you fixed it then-what happened?

A: SB 27, PERA’s 2013 comprehensive pension reform package, successfully changed

the trajectory of the PERA Fund’s projected funding ratio in the year 2043. SB 27

represented a shared sacrifice between retirees, active members and future

members. Tier 2’s reduced benefit structure provides for a well-funded benefit for

members first hired on or after July 1, 2013. However, current retirees and active

members nearing retirement will continue to strain PERA’s cash flow needs for the

next decade.


Q. Can’t PERA invest itself out of its immediate cash flow problems?

A: The probability of PERA investing its way to 100% funding in 2043 is

approximately 25%- a risk that PERA Board has decided is imprudent to protect the

retirement security of our current active employees and retirees. PERA would have

to return approximately 9% annually over the next 25 years to meet that goal.

Currently, PERA’s actuarial assumed rate of return is 7.25%.


Q. I’ve heard that if you raise PERA’s assumed rate of return the unfunded liability

would go down and pension changes would be unnecessary. Is that true?

A: The PERA Board lowered the Fund’s assumed rate of return to 7.25% based on

the advice of its experts, including its actuaries and investment consultants. The

decision reflects months of careful analysis and was a prudent step to accurately

assess the actuarial condition of PERA’s liabilities owed to its members and retirees.


Q. I am a Tier 1 active employee. Will I have to work longer before I am eligible to

retire?

A: Currently, Tier 1 members are eligible to retire with 25 years of service credit. Tier

2 members are subject to a Rule of 85 (sum of age at retirement and years of service

credit equal to 85). The PERA Board has examined actuarial models lowering the

pension multiplier for active members and found that changing the multiplier does

not significantly impact funding status in the short term.


Q. Why doesn’t the PERA Board create a Tier 3 for future employees?

A: One of the PERA Board’s guiding principles for pension sustainability is

intergenerational equity- the concept that future generations should not pay for

pension benefits promised to current members and retirees. Tier 2 was successful in

changing the projections of PERA funding status in 2043. A new tier for future

employees that further reduces benefits would require a commensurate reduction in

contributions and does not solve PERA’s current cash flow challenges.


Q. Will active employee contributions be increased?

A: Increased employer and employee contributions are components of the actuarial

modeling being examined by the Board. Different scenarios that provide for

incremental increases, as well as increases tied to funding ratios are being studied by

the Board.


Q. I have heard that the State General and Municipal Fire plans are the most

underfunded plans within the PERA Fund. I am a Municipal plan member, which is

funded at almost 80%. Why are my contributions going up or my benefits being

considered for reduction?

A: PERA is as a multiple employer pension plan with a single trust fund where all

benefit obligations and assets of all divisions are pooled. It is a common practice for

PERA members to retire with service credit under multiple coverage plans and who

have contributed at various contribution levels. For example, a member who is

retired may have had 10 years of service credit under a Municipal General plan and 15

years of service credit under the State General plan.


Q. Will my pension benefit be reduced?

A: The PERA Board has never discussed cutting base pension benefits. Base pension

benefits earned at retirement are not in jeopardy.


Q. I recently read a newsletter that said that my cost-of-living adjustment (COLA)

is going to be eliminated. Is that correct?

A: Currently, PERA retirees receive a 2 percent, compounding COLA. The PERA

Board has examined alternatives to the current fixed COLA for retirees, including the

possibility of providing COLAs that are tied to the CPI-W and tied to funding levels.

While the PERA Board’s final proposal to the Legislature may include a COLA that

looks differently than the current 2% COLA, the PERA Board does not intend to

recommend eliminating COLAs.


Q. Is it possible that my COLA could be increased in the future?

A: In the short term possible legislative proposals may change how the COLA is

calculated, but as PERA’s cash flow needs ease there are opportunities for the COLA

to increase in some proposals being examined by the PERA Board.


Q. I’ve heard the State of New Mexico forecasts increased revenues for the

upcoming legislative session. Why isn’t the State being asked for money to shore up

the PERA Fund?

A: A cash infusion from the Legislature is always welcomed, however, that alone will

not fix the problem. For example, a $100 million General Fund infusion to PERA in FY19 is projected to raise PERA’s funded status in 2043 from 75.7% to 77.4%.