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

SPONSOR Silva

DATE TYPED 2/22/05

HB 896

SHORT TITLE Congressional Employee Service Credit

SB

ANALYST Geisler

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

See narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to

Conflicts with

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Employees Retirement Association (PERA)

SUMMARY

Synopsis of Bill

House Bill 896 amends the Public Employees Retirement Act to allow a PERA member who

was employed by an elected member of the US House of Representatives or US Senate to pur-

chase PERA service credit for the period of employment with the United States Congress. The

aggregate amount of credited service purchased for congressional service must not exceed five

years. The purchasing member would be required to pay the association the amount of the in-

crease in the actuarial present value of the pension of the member as a as a consequence of the

purchase, as determined by the association. The purchasing member must have 5 or more years

of service credit with a PERA-affiliated employer and not be qualified for vesting in a federal

government pension.

House Bill 896 -- Page 2

Significant Issues

PERA has identified two significant issues with HB 896:

HB 896 proposes a benefit enhancement. Because HB 896 would permit the purchase of five

years of service credit not associated with service to a PERA-affiliated employer, it would oper-

ate to create a 20-year plan, allowing those eligible to purchase service credit for congressional

employment and with sufficient resources to make the purchase to retire with 20 years of actual

service to PERA-affiliated employers. This enhancement would be in conflict with proposed

moratorium on benefit enhancement legislation affecting the public employees and educators

retirement systems which is supported by PERA.

HB 896 does not treat all PERA members with previous employment equally. Almost all PERA

members have worked for employers outside the PERA system. Airtime, already permitted un-

der the PERA Act, allows all PERA members with at least 5 years of service credit, including

those with previous employment as a congressional employee, to buy a year of PERA service

credit. By contrast, allowing purchase of up to 5 years of service by credit by former New Mex-

ico Congressional employees who have not vested in a federal government pension (a very lim-

ited group) is likely to lead to a succession of further requests by other special interests for a

similar benefit enhancement, and possibly may lead to legal challenges from PERA members

who are not eligible for the same enhanced benefit.

FISCAL IMPLICATIONS

To the extent that HB 896 would require members to pay the actuarial present value of the pur-

chased credit, the benefit enhancement would be funded. However, there are certain limitations

applicable to the purchase of “airtime” under Section 10-11-7 H that are not applicable to the

purchase of congressional time under HB 896. The absence of these limitations could influence

the analysis of whether HB 896 is adequately funded as required by the New Mexico constitu-

tion. Below see suggested amendments.

ADMINISTRATIVE IMPLICATIONS

The administrative impact of HB 896 on PERA will be in calculating the actuarial present value

and processing the purchased service credit. PERA’s actuaries will charge PERA a fee for this

additional work, but it is unknown at this time what that added cost will be or how many requests

PERA will receive.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

As noted above, HB 896 conflicts with Senate Joint Memorial 18 and House Joint Memorial 5

which propose a moratorium on benefit enhancement legislation affecting the public employees

and educators retirement systems through 2006.

Possible conflict with New Mexico Constitution, Article XX, Section 22 (C), prohibiting the leg-

islature from enhancing benefits without adequate funding.

House Bill 896 -- Page 3

OTHER SUBSTANTIVE ISSUES

PERA suggests the limitations on airtime found in 10-11-7 H should apply equally to the con-

gressional time proposed by HB 896. Section 10-11-7 H permits PERA members with at least

five years of service credit to purchase service credit commonly referred to as airtime of up to

one year. The member must pay the full actuarial present value within 60 days of the date the

member is informed of the cost of the airtime. The service credit purchased as airtime cannot be

used to determine the final average salary or the pension factor or be used to exceed the pension

maximum. Airtime is very similar to the congressional time proposed by HB 896 because it

represents an opportunity to acquire PERA service credit for time that was not service to a

PERA-affiliated employer. PERA recommends amending the bill to clarify that the limitations

on airtime found in 10-11-7 H should apply equally to the congressional time proposed by HB

896.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

Former congressional employees, now employed by a PERA-affiliated employer would not be

able to buy 5 years of PERA service credit for their congressional service but would be able to

buy one year of airtime under Section 10-11-7 H.

AMENDMENTS

To clarify that the service credit purchase price covers the cost of the enhanced benefit PERA

suggests amending Section I, provision 1, to read:

the member pays full actuarial present value of the amount of the increase in the employee’s

pension as a consequence of the purchase as determined by the association;

PERA recommends adding two additional provision Section I to clarify that the limitations on

airtime found in 10-11-7 should apply equally to the congressional time proposed by HB 896:

1) the member pays the full cost of the purchase within sixty days of the date the member is in-

formed of the amount of the payment; and

2) the purchase of service under this subsection cannot be used to determine the final average

salary or the pension factor or be used to exceed the pension maximum.

GG/lg