New Mexico pension funds miss targets for returns
SANTA FE, N.M. (AP) — New Mexico’s two major public pension funds have missed targets for investment returns for a second straight year, likely pushing up unfunded liabilities that can extend the time it takes to meet obligations to public employees if benefits and contributions remain unchanged.
The New Mexico Public Employees Retirement Association that oversees pension funds for state, county and municipal workers along with judges and volunteer firefighters is reporting a return on investments of less than 1 percent for the fiscal year ending in June.
The Educational Retirement Board that oversees pensions for employees of public school districts, charter schools and universities had an annual return of 2.6 percent after fees. Long-term targets for annual returns are set above 7 percent at both funds.
The statewide pension fund for teachers outperformed most of its peer funds nationwide, finishing in the top 3 percent of U.S. public pension funds with assets over $1 billion, said Bob Jacksha, chief investment officer for the Educational Retirement Board.
At the same time, managers at the two statewide pension funds say below-target returns are likely to push up unfunded pension liabilities, when actuarial calculations are completed in the fall.
Net pension liabilities — the difference between promised pension benefits and the assets currently on hand to pay them — for New Mexico’s two major funds totaled $10.7 billion in mid-2015, up more than $1.7 billion from the previous year.
“Pensions are very sensitive to the investment return,” Wayne Propst, executive director of the Public Employees Retirement Association, said Wednesday. “We do expect that we will see some increase to the unfunded liability.”
Propst said the $14.3 billion fund he helps oversee is on a solvent path. He said pension reforms approved in 2013 in order to improve the long-term stability of the state’s two major pension funds were only fully implemented in July of this year and will take time to have an impact on funding levels.
In New Mexico, legislative approval is required for changes to pension contributions from employees and public agencies, and benefit changes are limited by state constitution guarantees.
State Sen. George Munoz, D-Gallup, chairman of the Legislature’s pension and investment oversight committee, said he knows of no current proposals to increase contribution rates, though lawmakers are studying the possible addition of individual retirement accounts to encourage voluntary savings beyond the pension funds.
“You don’t want someone to come in to retirement after 25 years and have to eat baloney and rice,” he said.
Munoz anticipated that state pension and investment funds will have a tough time making up for lost ground in the next few years because of global market conditions.
In July, the Public Employees Retirement Association board lowered the fund’s long-term target for annual investment returns to 7.25 percent from 7.75 percent for the next decade.
Keith Brainard, research director at the National Association of State Retirement Administrators, said about three-quarters of the U.S. public pension funds that he monitors have reduced investment return targets since 2009.
“When that assumption is reduced, typically it will increase the plan’s unfunded liabilities, which results in some combination of higher contributions for employees or employers or reduced benefits,” he said.
Propst, at the Public Employees Retirement Association, said New Mexico already approved structural changes in 2013 that will improve pension funding levels over time, including lower payouts for new employees and an increase the number of work years they need to receive a pension.
“Even with two less-than-great investment years, and with this change to our long-term rate of return, we still think as a result of pension reform in 2013 that we will still see an upward trajectory for our long-term solvency outlook,” he said. “We’re still heading in the right direction.”