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

SPONSOR King

ORIGINAL DATE

LAST UPDATED

1-31-07

3/5/07 HB 595

SHORT TITLE District Attorney and Staff Retirement Plan

SB

ANALYST Aubel

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

See Fiscal Impact

General Fund

$625.5

Recurring

General Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

$50.0

$50.0

Non-

Recurring PERA

Total

$625.5

$625.5

$1,251.0

Recurring

General

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB 576

Conflicts with SJM 6

SOURCES OF INFORMATION

LFC Files

Response Received From

Public Employee Retirement Association (PERA)

Administrative Office of District Attorneys (AODA)

No Response Received

Administrative Office of the Courts (AOC)

SUMMARY

Synopsis of Bill

House Bill 595 – Page

2

House Bill 595 creates a new member coverage plan under the PERA Act allowing for district

attorney members to be first eligible to retire with 20 years of service credit with a 3.5 percent

pension factor. HB 595’s newly created coverage plan would be applicable to “district attorney

members", which are defined as “district attorneys, chief deputy district attorneys, deputy district

attorneys and senior trial prosecutors." The member must be in the District Attorney Plan 1 for

18 months prior to being eligible for the proposed benefit enhancements. The member’s

contributions under the proposed District Attorney Plan 1 will be 10.15 percent of salary; the

employer contributions are 22.68 percent.

FISCAL IMPLICATIONS

The estimated increase in unfunded liabilities to the PERA fund is calculated at approximately

$6.5 million. HB 595 does not provide for an appropriation to pre-fund the $6.5 million

unfunded liability that results from the new coverage plan. Providing an appropriation to reduce

any portion of the $6.5 million unfunded liability would reduce the required statutory

contribution rates for the new coverage plan going forward.

The bill proposes amortizing the unfunded liability over 30 years rather than pre-funding. The

additional 6.09 percent for employer contribution yields an additional $625 thousand recurring

operating budget impact from general fund.

The increase in the annual employee PERA deduction will increase by approximately $1,798

based on the actuarial average salary of $65.8 thousand.

PERA’s operating budget will be negatively impacted by HB 595. Every new coverage plan

added to the PERA Act requires system changes to PERA’s computerized pension administration

system. If further revisions to the system are necessary in FY08, PERA will be required to seek

a Budget Adjustment Request to cover the costs of these system changes. Similar changes in the

past have cost up to $50.0 thousand.

SIGNIFICANT ISSUES

Interim committee testimony cited job stress, retention and recruitment as justification for the

proposed enhanced benefits.

PERA pointed out the primary policy issue is whether “district attorney members" should

receive the increased benefits of a 20-year retirement plan with a retirement benefit calculated

using a 3.5 percent pension factor. Currently this benefit structure is only provided to Municipal

Police Plan 5 and Municipal Fire Plan 5 members. Another policy issue is whether the employer

or employee should bear the cost of the increased contribution rates required by the proposed

benefit plan structure to maintain the solvency of the fund.

To date, all employee groups that are eligible for the enhanced benefits of a 20-year retirement

plan or that have each year of service credit enhanced by 20 percent (state police, adult

correctional officers, municipal police/fire, and municipal detention officers) have a

commonality of danger to life as an integral part of the job. PERA cautioned that expanding

enhanced benefits to employee groups beyond these “hazardous duty" employee groups may set

House Bill 595 – Page

3

precedent for all employer groups to seek enhanced benefits from the retirement system. PERA

has expressed concern of the cumulative effect of enhanced plans on the solvency of the fund.

Increasing liabilities increases the risk to the fund if actuarial assumptions do not hold, such as

the 8 percent investment return.

The definition of those attorney employees covered by HB 595 includes: “district attorney,"

“chief deputy district attorney," “deputy district attorney," and “senior trial prosecutor." AODA

noted that these are traditionally the most senior and experienced prosecutors, providing an

incentive for district attorneys to stay in their positions to obtain the enhanced benefit. However,

the New Mexico District Attorneys’ Personnel & Compensation Plan (NMAC, Title 10, Chapter

4, et seq.) contains more classifications of prosecuting attorneys than those listed in the bill. The

DA Personnel & Compensation Plan lists the following positions: “Associate Trial Attorney,"

Assistant Trial Attorney," “Senior Trial Attorney," “Deputy District Attorney," and “Chief

Deputy District Attorney." The Associate and Assistant Trial Attorney positions are ranked

lower than the others because their level of experience is ordinarily less.

ADMINISTRATIVE IMPLICATIONS

PERA will be required to coordinate an election for adoption of the new coverage plan by district

attorney members statewide. PERA would be required to move affected membership, along with

corresponding assets and liabilities, from State General Member Coverage Plan 3 into the

proposed District Attorney Member Coverage Plan 1.

HB 595 will add another member coverage plan to the 31 that PERA already administers.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

HB 595 duplicates Senate Bill 576.

HB 595 conflicts with Senate Joint Memorial 6, which proposes a two-year moratorium on

benefit enhancement legislation affecting the Public Employees Retirement Association

OTHER SUBSTANTIVE ISSUES

Article XX Section 22 of the Constitution of the State of New Mexico requires that an increase

in benefits under the retirement system be adequately funded to preserve the PERA fund’s

actuarial soundness. HB 595 provides no appropriation for the unfunded accrued actuarial

liability (“increased liabilities") that the enhanced retirement benefits will cause. Rather, HB

595 provides for a combined employee and employer contribution rate that is sufficient to

amortize the $6.5 million unfunded accrued actuarial liability over 30 years, given actuarial

assumptions hold.

The current combined average contribution rate paid for the affected 156 members is 24.01

percent of payroll (7.42% member and 16.59% employer). HB 595 provides for a combined

contribution rate of 32.83 percent (10.15% member and 22.68% employer).

The consensus of the PERA Board is that the unfunded accrued actuarial liability for HB 595’s

benefit enhancement should be pre-funded through a special appropriation as a safeguard to the

House Bill 595 – Page

4

fund’s solvency. Providing an appropriation to reduce any portion of the $6.5 million unfunded

liability would reduce the required statutory contribution rates for the new coverage plan going

forward.

HB 595 provides for an 18-month eligibility period for a member to first become eligible to

retire with enhanced benefits under the plan. PERA maintained that a 36-month mandatory

waiting period is appropriate before members are eligible to retire from the plan to allow for

payment of contributions at higher levels toward their enhanced benefit prior to retirement. This

will lessen the impact of increased liabilities on the new plan that may occur if a number of

members immediately retired with enhanced benefits sooner than normally projected.

ALTERNATIVES

The elected district attorneys may consider joining the existing Judicial Retirement Plan.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

District attorney members (district attorneys, chief deputy district attorneys, deputy district

attorneys and senior trial prosecutors) will continue to be PERA members covered by State

General Plan 3 and would be eligible to retire at any age with 25 or more years of service credit.

Their retirement benefit will continue to be calculated with a 3% pension factor and are capped

at 80% of their final average salary. For State General Plan 3, members pay 7.42 % of their

salary in contributions and their employer pays 16.59% of salary in contributions. AODA

maintains that the difficulty in retaining experienced prosecutors may continue.

AMENDMENTS

DISTRICT ATTORNEY MEMBER COVERAGE PLAN 1—SERVICE CREDIT REQUIRED

FOR DISTRICT ATTORNEY MEMBERS.—

Notwithstanding other provisions of the Public Employees Retirement Act, to qualify for normal

or disability retirement or payment of normal or disability retirement benefits under district

attorney member coverage plan 1, a district attorney member shall have 36 months of service

credit earned under district attorney member plan 1.

MA/mt