New Mexico PERA Gets a Task Force | Chief Investment Officer

New Mexico’s governor will help put together state pension fixes as she orders a new task force. Gov. Michelle Lujan Grisham’s 19-member PERA Solvency Task Force will examine ways to close the gap on the Public Employee Retirement Association’s $6 billion (and growing) unfunded liability.

The $15.5 billion pension system was fully funded until benefit increases in the late 1990s combined with the 2008 recession and its aftermath created problems. Reforms made in 2013 have helped push the funding ratio to 71.6%. But the governor fears both an economic downturn and further bond rating downgrades, like Moody’s gave the state last June, could really send things south for the PERA and its 90,000 members.

The committee, implemented by Grisham on Monday, must present its recommendations for preserving the fund to her by Aug. 30. The suggestions will then be presented during the 2020 legislative session.

“I expect diligent, expedient work from this group of stakeholders,” the Democratic governor said. “My expectation is we will assume this shared burden in an equitable fashion to reach our solvency goals, and this group will, I am certain, assure a steady future for PERA.”

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The group will consist of PERA officials (including Dominic Garcia, the fund’s chief investment officer), labor union heads, retiree representatives, and a bipartisan and equal number of legislative representatives.

“This is a great thing,” Garcia told CIO. “I appreciate being part of the task force and I think it will come up with a good solution.”

This comes off the death of a state bill that looked to raise select employee and employer contributions from fiscal 2020-2022 while also changing cost-of-living adjustment (COLA) rules in order to help shore up the fund.

“With a new administration committed to truly listening to all sides, and also with the recognition that there were competing and conflicting interests even within the groups of retirees, the governor wanted to ensure that a collaborative and deliberative process could take place, ensuring a substantive result, in time for action in the 30-day legislative session,” a Grisham spokesperson told CIO.

Tags: Michelle Lujan Grisham, New Mexico Public Employees Retirement Association (PERA), Pension, Task Force

Aggregate investment losses of 6.39% led to a $306 billion loss in funding for the 100 largest public defined benefit pension plans in the US during the fourth quarter of 2018, which was the largest quarterly funding decrease in more than two years, according to consulting firm Milliman, Inc.

The decrease in the funded status was also more than double the prior largest decrease, according to Milliman.

Estimated investment losses for plans during the quarter ranged from 10.27% to 2.18%, and as a result, the funding ratio of the pension funds as tracked by the Milliman Public Pension Funding Index (PPFI) fell to 67.2% as of the end of December, from 72.9% at the end of September.

“Public pensions took a huge hit in the fourth quarter of 2018,” said Becky Sielman, author of the Milliman 100 Public Pension Funding Index, in a release. “And for those plans in which benefits paid out exceed contributions coming in, this is especially difficult news, as investment returns are critical to slow the outflow of funding.”

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As of Dec. 31, 2018, the PPFI deficit was $1.693 trillion, compared to $1.387 trillion at the end of September 2018. The total pension liability also continued to expand to an estimated $5.164 trillion at the end of the fourth quarter, up from $5.123 trillion at the end of the previous quarter.

Funded ratios overall moved lower during the final quarter of the year, with nine of the 100 plans dropping below the 90% funded mark. Milliman said there were only eight plans above the 90% threshold, compared to 17 at the end of the third quarter. Additionally, the number of poorly funded pension plans also increased, as 33 plans’ funded ratios fell below 60%, with another 11 plans below 40% funded.

The Milliman 100 PPFI aggregate asset value declined to $3.471 trillion at the end of 2018 from $3.736 trillion at the end of the third quarter. The plans lost investment market value of approximately $239 billion, on top of approximately $26 billion flowing out, as benefits paid out exceeded contributions coming in from employers and plan members.

The results of the Milliman 100 Public Pension Funding Index are based on the pension plan financial reporting information disclosed in the plan sponsors’ Comprehensive Annual Financial Reports (CAFRs), which reflect measurement dates ranging from June 30, 2016, to December 31, 2017.