SANTA FE, N.M. (AP) - A top credit rating firm said Wednesday that New Mexico’s teachers pension fund isn’t collecting enough money to keep up with financial obligations for future benefits and suggests that a new contribution increase passed by the Legislature wouldn’t close the gap.
In the analysis, Moody’s Investors Service says a drop in interest rates is likely to hurt the funds’ investment earnings from mainly low-risk fixed-income securities. It says a higher percentage of payroll needs to go to the fund to prevent an increase in the amount of unfunded future benefits.
“The gap between our tread water indicator and contributions amounted to roughly 5% of payroll,” the report states.
New Mexico’s state government is likely on the hook for pension liabilities because it takes responsibility for most K-12 school funding, the report said.
The Legislature sent a bill to Gov. Michelle Lujan Grisham last week that funds an employer contribution increase by 1% each year for two years from the current rate of 14% to 16% over a period of two years. Employees also pay into the fund.
Even if signed into law, the increased contribution would fall short of Moody’s recommendation. That could leave a shortfall to be made up in other ways, such as increases in teacher contributions or reductions in future benefits. But constitutional protections may prevent those measures, and education advocates argue teachers already get weaker pension benefits than state employees.
It says that changes to accounting calculations in the new interest rates scenario are expected to lead to an increase in unfunded pension liabilities. Moody’s did not issue a new credit rating.
The New Mexico Educational Retirement Board serves around 100,000 current and inactive educators and around 50,000 retirees.
An early draft of the bill would have increased contributions 1% each year for four years but it was scaled back.
A spokeswoman for the New Mexico Educational Retirement Board did not respond to a request for comment.
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Attanasio is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on under-covered issues. Follow Attanasio on Twitter.
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