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SPONSOR: |
Altamirano |
DATE TYPED: |
|
HB |
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SHORT TITLE: |
Purchase of PERA Service Credit |
SB |
378/aSFC/aSFl#1 |
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ANALYST: |
Gilbert |
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APPROPRIATION
|
Appropriation
Contained |
Estimated
Additional Impact |
Recurring or
Non-Rec |
Fund Affected |
||
|
FY03 |
FY04 |
FY03 |
FY04 |
|
|
|
|
|
|
$0.1
See Narrative |
Recurring |
PERA |
(Parenthesis
( ) Indicate Expenditure Decreases)
LFC Files
Response
Received From
Public
Employees Retirement Association (PERA)
State
Personnel Office (SPO)
SUMMARY
Synopsis
of SFl Amendment
Senate Floor Amendment #1 to Senate Bill 378
amends the Public Employees Retirement Act to significantly reduce the total
purchase cost of state legislator coverage plan service credit.
Currently, the purchase cost for each year of
credited service to be used under a state legislator coverage plan is equal to
the sum of the member contribution and an employer contribution of ten times
the annual amount of pension per year of credited service under the state
legislator coverage plan applicable to the member. Thus, each year of
purchased legislator service credit currently costs $2,600.
Under this amendment the purchase cost would be
equal to three times the normal member contribution per year of
credited service under the state legislator coverage plan applicable to the
member. Therefore, a legislative member could purchase a year of service credit
for only $300.
Outlined below is a cost comparison for a
legislative member to purchase 15 years of state legislator plan service
credit:
Current cost to purchase 15 years of service
credit:
(($250 annual amount of pension X 10) +
$100 member contribution) X 15 years = $39,000
Cost to purchase 15 years of service credit
under this amendment:
(3 X $100 normal member contribution) X
15 years = $4,500
Therefore, under this bill a legislator member
would pay $34,500 less than the current cost to purchase 15 years of service
credit.
Synopsis
of SFC Amendment
The amendments adopted by the Senate Finance
Committee limit to one year the purchase of service credit instead of five
years as proposed originally.
Synopsis
of Original Bill
Senate Bill 378 amends the Public Employees
Retirement Act to allow PERA members who are vested (possess five or more years
of service credit) to purchase up to five years of service credit.
Significant
Issues
According to PERA, the primary policy issue raised by SB 378 is whether a PERA member should be able to purchase 5 years of service credit for time not earned. Current law requires that all other service credit in the public employees retirement systems must be earned either through service to a public employer, military or prisoner of war service. The service credit in Senate Bill 378 is not tied to any service requirement. There is no provision currently in law to allow service credit purchase for time that is not served in some manner.
According to PERA, in the absence of an actuarial determination, the fiscal impact of SB 378 is unknown at this time. Therefore, it may be contrary to NM Const., Art. XX, Section 22 (no benefits may be enhanced unless the costs of those benefits are properly funded in accordance with actuarial standards).
Senate Bill 378
requires PERA members to pay the full actuarial present value for purchased
service credit. However, PERA’s actuaries will charge a fee for each actuarial
present value request. PERA does not
know how many of their 44,030 active members will seek to purchase service
credit. It is logical to assume that if
PERA members know of this provision in law, they would all request a purchase
estimate.
Additionally, since
the full actuarial cost of the service credit will be based on the member’s salary
at the time of purchase, PERA members may purchase service credit earlier in
their careers when it is less costly.
Currently, requests
for the purchase of service credit are limited to those who have served in the
military or who meet very specific criteria.
SB 378 expands the group of persons eligible to purchase service credit
and will thus increase demands on PERA staff in responding to membership
inquiries relating to the purchase of service credit.
Additionally, PERA
would be required to amend its regulations to address the statutory changes to
the PERA Act.
RLG/prr/njw:yr