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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

2-19-07

3-01-07 HB 1209/aHLC

SHORT TITLE CO-OP WORK STUDY PUBLIC RETIREMENT SB

ANALYST Aubel

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

Negative

Recurring

PERA

NFI

(Parenthesis ( ) Indicate Revenue Decreases)

Conflicts with HB 1187 and HB 906

Relates to HB 222, HB 224, SB 181

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Employees Retirement Association (PERA)

SUMMARY

Synopsis of HLC Amendment

The House Labor and Human Resources Committee Amendment requires the purchase of the

service credit be based on the full actuarial present value

of the increase in the member’s pension

as a consequence of the purchase as determine by PERA. Thus, the fiscal impact to PERA is now

neutral. In addition, the member must pay the full amount within 60 days of notification.

Synopsis of Original Bill

House Bill 1209 expands the definition of those PERA members eligible to purchase service

credit for prior cooperative (co-op) work-study employment to any member who participated in

such a program established jointly by any state agency and any four-year post-secondary

educational institution, subject to certain conditions. Currently the PERA Act limits this service

credit to those co-op programs established jointly by the former state highway and transportation

department, the University of New Mexico (UNM), and the New Mexico State University

House Bill 1209/aHLC – Page

2

(NMSU).

FISCAL IMPLICATIONS

PERA notes that House Bill 1209 will most likely negatively affect the PERA fund because the

purchase cost calculation contained by HB 1209 does not reflect the full actuarial cost of the

service credit it proposes to provide certain PERA members who participated in a cooperative

work study program.

As an example of the disparity between the calculation provided in HB 1209 and the full

actuarial cost, using the average age, service amount, and salary of a PERA member in State

General Plan 3 from the June 30, 2006 actuarial valuation, the cost of one year of co-op service

at full actuarial value would be $10,846. However, using the calculation provided in HB 1209,

that same member would only pay $8,258 for the year of service. In this instance, the calculation

in HB 1209 would only provide PERA with 76 percent of the full actuarial cost for the year of

service purchased.

PERA indicates that HB 1209 will not have any significant impact on its operating budget.

SIGNIFICANT ISSUES

The primary policy issue is to determine whether to expand the cooperative work study to any

joint state agency and four-year post-secondary educational institutions.

Section 10-11-7 of the PERA Act became effective in 1987, which authorized the purchase

service credit for PERA members who participated in joint cooperative work study programs

between what was then the state Highway and Transportation Department and either UNM or

NMSU. Since that time, the cost of co-op service credit has been partially subsidized by the

retirement system.

In 1998, the state Constitution was amended to require funding in connection with expansion of

PERA benefits. Article XX, Section 22 of the Constitution of the State of New Mexico was

enacted, which now requires that an increase in benefits under the retirement system be

adequately funded to preserve the PERA fund’s actuarial soundness. Thus, any future expansion

of the category of persons eligible to receive co-op service credit must provide a purchase cost

that reflects the full actuarial present value

of the amount of the increase in the member’s

pension as a consequence of the co-op service credit. PERA suggests language to accomplish

this requirement in the Amendments section below.

ADMINISTRATIVE IMPLICATIONS

HB 1209 will most likely increase the volume of co-op service credit purchases by PERA

members processed by PERA.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Conflicts with Article XX, Section 22 of the Constitution of New Mexico, which states that the

Legislature shall not enact any law increasing benefits under the retirement system without

providing adequate funding to preserve the PERA fund’s actuarial soundness.

House Bill 1209/aHLC – Page

3

Conflicts with to HB 906, which also allows PERA members who participated in a cooperative

work study program established jointly by any state agency and any

post-secondary educational

institution but does not require the full actuarial present value purchase price.

Conflicts with HB 1187, which also allows PERA members who participated in a cooperative

work study program established jointly by any state agency and any

post-secondary educational

institution.

Relates to HB 222, which authorizes judicial retirement members to purchase up to one year of

additional service credit at the full actuarial present value of the increase in the member’s

pension as a consequence of the purchase.

Relates to HB 224, which authorizes magistrate retirement members to purchase up to one year

of additional service credit at the full actuarial present value of the increase in the member’s

pension as a consequence of the purchase.

Relates to SB 181, which authorizes seasonal employees of the legislative branch to purchase

service credit under existing law, subject to certain conditions.

OTHER SUBSTANTIVE ISSUES

The PERA Act does not define the term “post-secondary educational institutions". HB 1209

provides a requirement that the co-op work study program be through a four-year post-secondary

educational institution. Section 21-1-38 (A)(2) NMSA 1978 (2005) defines post-secondary

educational institutions to include -- but are not limited to -- an academic, vocational, technical,

business, professional or other school, college or university or other organization offering or

purporting to offer courses, instruction, training or education through correspondence or in

person, to any individual within this state over the compulsory school attendance age, if that

post-secondary educational institution is directed supported in whole or in part by the state or

local taxation.

This bill limits the co-op service credit to “four-year post-secondary institutions"; HB 906 and

HB 1187 specify “post-secondary institutions", which presumably would include junior colleges

or other two-year programs. It is a policy decision as to whether to limit the service credit

purchase to four-year institutions.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Only PERA members who participated in cooperative work study training programs established

jointly by the former State Highway and Transportation Department and the University of New

Mexico or the New Mexico State University can purchase service credit for their period of

participation, subject to certain conditions.

AMENDMENTS

Page 4, line 16:

[NEW MATERIAL] D. A member who was appointed to participate in a cooperative work

study training program established jointly by any state agency and a four-year post-secondary

House Bill 1209/aHLC – Page

4

educational institution may purchase credited service for the period of participation subject to the

following conditions:

(1) the member has at least five years of service credit acquired as a result of personal service

rendered in the employ of an affiliated public employer;

(2) 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;

(3) the member pays the full cost of the purchase within sixty days of the date the member is

informed of the amount of the payment; and

(4) the aggregate amount of credited service purchased pursuant to this subsection does not

exceed five years."

MA/mt