Facing Police Shortage, NM Considers Pension Changes

New Mexico’s Republican Gov. Susana Martinez said she will back bills that support police officers being able to return to work while earning pension pay, and it’s causing a ripple into the cities.

On Wednesday, the City Councilors in Santa Fe co-sponsored a resolution expressing support if state legislation allowed police officers to return to work while still collecting retirement benefits. Councilman Chris Rivera said the change could help the ongoing shortage of police officers in the city.

“We’re in a dire crisis and we really need to diversify our options,” Rivera told CIO.

Santa Fe city is expanding, and annexing more land, which widens the area for police officers to cover, a spokesman told CIO. Currently, police officers are retiring at a young age and still want to work, said Rivera, and laws could allow it if they limited high salaries and upper rank progression to post retirement re-hires.

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In New Mexico’s largest city, Albuquerque, the mayor has stated that he wants to add 400 police officers to the force. Albuquerque police officers can retire after 20 years with 70% of their pay.

Pensions for people returning to government work were frozen in New Mexico in 2010 out of fear that ‘double dipping’ would increase costs to taxpayers if people came back to work and were re-promoted to the high salaries they retired from. But there is a strong push by public safety for laws to change back to stem the ongoing shortages of police and fire personnel. Changing the return to work policy was brought up last year but “didn’t get far” in the legislature, said Rivera.

“The legislature is concerned with return-to-work provisions because they negatively impact the pension funds,” Ann Hanika-Ortiz, principal analyst, Legislative Finance Committee of the State of New Mexico, told CIO in a phone interview. “Using the pension funds to solve recruitment and retention issues is probably not a good idea over the long term, especially when you have underfunded pension systems, which we do in New Mexico.”

However, a scenario that would not negatively impact the fund would be to create parameters that kept police officers from accruing additional benefits while they’re re-employed, and to require them to suspend their cost of living adjustment (COLA) while they’re re-employed. New Mexico provides a 2% fixed compounded COLA, and all other return-to-work public employees have to suspend it, said Hanika-Ortiz.

In 2013, the pension reforms included an incentive to delay retirement that increased the maximum pension amount from 80% to 90% of one’s average final salary. According to analysis by the Public Employee Retirement Association, “the incentive could mean an additional half-million dollars in lifetime retirement benefits by working an additional five or six more years,” said Hanika-Ortiz.

Tags: New Mexico, Pension, PERA, Return to work

Because of the improving funding levels of the pension funds of some of the UK’s largest companies, there will likely be a sharp rise in the number of de-risking actions in 2018, according to a recent report from London-based consulting firm Lane Clark & Peacock.

According to the consulting firm, the number of FTSE 100 pension plans estimated to be more than 80% funded relative to the cost of buy-out with an insurer has nearly doubled over the past two years. The report found that 20% of the pension funds among the FTSE 100 companies were more than 80% funded in 2017, up from 13% in 2016, and 11% in 2015. It also found that the average buy-out funding level has increased by nearly 10% since August 2016, just after the UK voted to leave the European Union.

“As a result of this improved affordability,” said the report, “we predict a marked increase in demand from pension plans to de-risk in 2018, but also an increase in insurer capacity to cater for higher volumes.”

Insurers are reporting a pipeline of more than £30 billion ($40.5 billion) in deals going into 2018, according to Lane Clark & Peacock. It also said that a main source of pension plan demand this year has been repeat transactions for plans that have already enacted de-risking plans.

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The report said that 2017 volumes for buy-ins and buy-outs are expected to exceed £10 billion for the fourth consecutive year. The largest volume insured by a single pension plan in 2017 was £1.2 billion by the Pearson Pension Plan, divided between two buy-ins with Aviva and Legal & General. Meanwhile, the largest single transaction was the £725 million full buy-in of the Former Registered Dock Workers Pension Fund with Pension Insurance Corp.

Looking toward 2018, the report said that considering the competitive dynamics across the market, it anticipates significant capacity available for pension plan transactions.

The average buy-out funding level is now at its highest level since before the banking crisis in 2008, said the report. However, despite FTSE 100 companies having paid more than

£150 billion into their pension plans over the past 10 years, the report found little resulting gain in overall funding, saying that it is this “challenging backdrop” that has been the main driver for companies to de-risk their pension plans.

“Conditions for de-risking are currently at their most favorable since before the banking crisis in 2008,” said Charlie Finch, a partner at Lane Clark & Peacock, “with the level of competition, pension plan funding, and pricing all at attractive levels.”

Tags: De-Risking, funded level, LDI, UK