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F I S C A L I M P A C T R E P O R T

SPONSOR Park

DATE TYPED 01/26/04 HB 109

SHORT TITLE Educational Retirement Act Contributions

SB

ANALYST Geisler

REVENUE

Estimated Revenue

Subsequent

Years Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

None

None

Indeterminate

Recurring

Educational Re-

tirement Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

Educational Retirement Board (ERB)

SUMMARY

Synopsis of Bill

HB 109 exempts Educational Retirement employees from contributing to the Educational Re-

tirement system if they are less than full time employees for an ERB employer and contribute to

PERA. State laws prohibit a person from retiring from more than one state pension system. If a

person has service in both systems, they can combine their service under the Reciprocity Act. If

the service is simultaneous such as this bill contemplates, the employee must chose one system

to get service credit and the other system will refund their contributions plus applicable interest

upon their termination of work and subsequent member’s request for a refund.

Significant Issues

ERB has identified a number of issues with the bill. First, the bill is set up in such a fashion as to

make it quite easy for a member of the Educational Retirement System to exempt themselves

from having to make contributions to the fund. The bill allows any ERB employee who is work-

ing less than full time and who is contributing to PERA to exempt themselves from making con-

tributions. A member of PERA must make contribution to that system, even if they are working

a minimum number of hours. Thus, an ERB employee could work less than 40 hours (for exam-

ple, 39 hours), claim they are less than full time, work one hour a week for PERA, make the re-

House Bill 109 -- Page 2

quired minimal PERA contribution and be exempted from making ERB contributions. This is

counter to the legislative intent that being a contributing member to ERB is a condition of ERB

employment. 1978 NMSA §22-11-16.

Second, the loss of the member contribution for an ERB position would have an actuarial effect

on the fund. This would especially be acute if the large loophole was used extensively by ERB

members. The Actuarial effect has not been determined at this time and would require an actuar-

ial study.

ERB already has an exemption for part time employees. ERB rules do not require contributions

from an employee if they are employed less than the equivalent of .25 of a full time position or

$10,570 per year (adjusted each for cost of living increase), whichever is greater.

FISCAL IMPLICATIONS

There would be an actuarial effect on the fund. An actuarial study would have to be conducted

to determine this amount.

ADMINISTRATIVE IMPLICATIONS

Added administrate duties due to tracking and confirming PERA employment and ERB “part

time” employment

ALTERNATIVES

ERB currently has rules that allow true part-timers (.25 FTE or earning less than $10,570 per

year) to not have to contribute to ERB. This is an ERB rule. Instead of this bill, ERB could, by

rule, raise the $10,570 limit to a yearly earning that could accommodate more of the true ERB

part timers. A study would need to be done by ERB to determine the amount of the increase that

would best meet practical and actuarial needs.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

ERB members will continue to contribute to the fund and receive a refund plus interest if they

worked simultaneously for a PERA employee, choose the PERA service credit and terminated

ERB employment.

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