NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

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(Parenthesis ( ) Indicate Expenditure Decreases)

** Potential minimum impact; please see Fiscal Implications Section of this report.

Relates to Appropriations in The General Appropriation Act House Bill 2 and Senate Bill 98

Conflicts with Senate Bill 652

SOURCES OF INFORMATION

LFC files

Public Employees Retirement Association

State Personnel Office

SUMMARY

Synopsis of Bill

House Bill 908 amends Section 10-11-41 NMSA 1978 to increase the annual pension amount of legislators and the lieutenant governor who served after December 31, 2000 from $250 to $1,000 multiplied by the number of years served.

Significant Issues

In 1995, the New Mexico Supreme Court ruled that retirement benefits for which legislators may be eligible under the legislative retirement plan do not constitute legislative compensation; accordingly, the plan does not violate Article IV of Section 10 of the New Mexico Constitution. As shown in Tables 10 and 11 of pages 4 and 5 of the attachment on a Legislative Management report of the National Conference of State Legislators, other states provide retirement plans for legislators. The attachment compares the plans of the five contiguous states to New Mexico.

FISCAL IMPLICATIONS

The bill proposes to increase legislative/lieutenant governor retirement benefits by 300 percent, but does not provide for a corresponding increase in contributions from the members of the plan. Consequently, in accordance with Section 10-11-43 NMSA 1978, the state would be required to "contribute amounts sufficient to finance the membership of members under state legislator member coverage plan 1 on an actuarial reserve basis." Each member currently makes annual contributions of $100 to PERA for their retirement.

The range of state contributions required (per the Legislative Retirement actuarial report issued in December 2000) based on current law is between $144.0 to $235.0. This range reflects the difference in liabilities calculated for active members under two scenarios. The lower end of the range assumes an active member population consisting of only those legislators who currently have paid for service (77 persons). The upper end of the range assumes an active member population that includes all current legislators (112 persons).

It is the PERA actuary's understanding that any past or present state legislator not already participating in the plan may at any time decide to become a participant of the plan and purchase service credit in accordance with the statute and PERA rules. Only the obligations associated with participants reported as of June 30, 2000 were measured for purposes of this valuation. In total, there are 77 active members who have paid for service, 35 active eligible members, 57 inactive members and 84 retired members for a total of 253 members.

Given the trend in participation (9 newly active members from 1999 session to 2000 session), the amount needed this year, based on current law, may reasonably be expected to include 9 additional active members.

The estimated amount of employer contributions needed in FY01 based in this assumption is: $167.0. House Bill 2, the General Appropriation Act, contains a $167.0 general fund appropriation to fund the state's share.

PERA provided examples of a member's pension under the following scenarios:

• •Scenario 1. A legislator who currently has 10 years of purchased service and retires effective December 31, 2010 with 20 years of service credit would owe contributions for calendar years 2001 through 2010 (10 x $100 = $1,000) would receive:

Proposed Benefit Current Benefit

20 x $1,000 = $20,000 annually 20 x $250 = $5,000 annually

• •Scenario 2. A legislator who currently has 12 years of purchased service and retires effective December 31, 2002 with 14 years of service credit would owe contributions for calendar years 2001 and 2002 (2 x $100 = $200) would receive:

Proposed Benefit Current Benefit

14 x $1,000 = $14,000 annually 14 x $250 = $3,500 annually

PERA reported that it does not know how much it will cost to finance the enhanced benefit contained in House Bill 908 on an actuarial reserve basis since no actuarial study was requested for this change. Since the benefit is a 300 percent increase, we may assume that the minimum cost to the general fund needed to keep the retirement plan on an actuarial reserve basis may be between $432.0 and $705.0. Since the members are not being required to increase their contributions and the enhanced retirement benefit may increase membership, the amount required from the general fund may be even higher.

DKB/prr

Attachment

DKB/prr

Attachment