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

SPONSOR Lujan, B.

ORIGINAL DATE

LAST UPDATED

01/22/08

02/05/08 HB 213/aHAFC

SHORT TITLE Alternative Retirement for Certain Officers

SB

ANALYST Aubel

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY08

FY09

FY10 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$625.2

$312.6 $625.2 $1,250.4

$937.8 Recurring General

Fund

$50.0

$50.0

Non-

Recurring PERA

Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB 231

SOURCES OF INFORMATION

LFC Files

Original Bill

Responses Received From

Department of Public Safety (DPS)

Public Employees Retirement Association (PERA)

HAFC Amendment

Responses Received From

Public Employees Retirement Association (PERA)

No Response From

Department of Public Safety (DPS)

SUMMARY

Synopsis of HAFC Amendment

The House Appropriations Finance Committee Amendment to House Bill 213 makes the 20

percent enhancement of credit service for the Department of Public Safety Motor Transportation

and Special Investigation officers apply to service credit earned after January 1, 2009 -- which

makes the enhanced retirement benefit prospective. This change will eliminate the approximate

$4.0 million unfunded actuarial accrued liability to the State Police Member and Adult

Correctional Officer Plan (renamed the “State Officer Member Coverage Plan 1" in the

amendment.)

House Bill 213/aHAFC – Page

2

The amendment also incorporates the technical changes suggested by PERA to clarify that only

eligible

members will vote in an election to adopt the plan. Assuming the eligible members vote

to adopt the plan, the additional annual employer contribution for DPS will be $625.2 thousand,

with $312.6 thousand occurring in FY09 for 6 months.

Synopsis of Original Bill

House Bill 213 proposes to provide motor transportation officers and special investigations

members employed by the Department of Public Safety (DPS) the same benefits as provided

under State Police Member and Adult Correctional Officer Coverage Plan 1. Specifically, motor

transportation officers and special investigations members, if approved by an election of the

affected membership, would be eligible for a 20 percent service credit increase in all past and

future credited service, a 3 percent pension factor, and an 80 percent pension maximum now

only available to state police and adult correctional officers.

HB 213 renames “State Police and Adult Correctional Officer Plan" [NMSA 1978, Sections 10-

11-27 through 10-11-32] “State Officer Coverage Plan 1."

FISCAL IMPLICATIONS

The membership affected by the proposed legislation has received an actuarial cost

determination for the requested increase in retirement benefits. The estimated increase in

actuarial unfunded liabilities to the PERA Fund is calculated at approximately $4 million. No

appropriation is made to fund this increase in unfunded actuarial accrued liabilities.

The current combined average contribution rate paid for the affected 145 members is 24.01

percent of payroll (7.42 percent member and 16.59 percent employer). The contribution levels

under the existing State Police Member and Adult Correctional Officer Member Coverage Plan 1

(member 7.6 percent; employer 25.1 percent) represent an increase of .18 percent in member

contributions and an 8.51 percent increase in employer contributions over current contribution

levels paid for the membership affected by HB 213.

The Department of Public Safety would incur a combined increase in its operating budget of

approximately $625.2 thousand per year for paying the higher employer contribution rate if the

members covered under State General Plan 3 were moved to the State Police and Adult

Correctional Officer Member Coverage Plan 1, as noted in the chart below:

State Police and Adult Correctional Officer

Member Plan 1

Employee: 7.6%

Employer: 25.1%

State General Member Plan 3:

Motor Transportation Ave. salary - $49,407

Employee Increase Employer Increase

Current: 7.42% Employee 16.59% Employer

$89

$4,204

TOTAL PAYROLL

$504.5 thousand

State General Member Plan 3:

Special Investigator Ave. salary - $56,713

Current: 7.42% Employee 16.59% Employer

$102

$4,826

TOTAL PAYROLL

$120.7 thousand

House Bill 213/aHAFC – Page

3

DPS notes that the vestment period is increased from 18 months to 36 months in an effort to

reduce the fiscal impact on the State Police and Adult Correctional Officer Member Coverage

Plan 1 by allowing a positive cash flow into the fund. However, PERA maintains that the impact

to the fiscal fund would be less with the enhanced benefits being prospective rather than based

on past service credit.

PERA’s notes that it’s operating budget will be negatively impacted by HB 213. If further

revisions to the PERA’s computer pension administration system are necessary in FY08, PERA

will be required to seek a budget authority request to cover the costs of these system changes.

SIGNIFICANT ISSUES

The key policy is whether motor transportation division (MTD) officers and special

investigations division (SID) officers employed the Department of Public Safety (DPS) should

receive a 20 percent service credit enhancement, including enhancement of all past accrued

service credit earned prior to passage of this legislation. DPS maintains that HB 213 is intended

to bring parity and equality to all commissioned police officers within the Department of Public

Safety, who by the nature of their work, are exposed to hazardous, life-threatening conditions on

a daily basis while protecting the life and property of the public.

Sixty-two law enforcement agencies offer a 20-year retirement for commissioned officers in

New Mexico. Of 31 commissioned officers leaving MTD between February 8, 2005 and July 20,

2007, 14 cited finding better benefits with other law enforcement agencies as a reason for their

leaving. However, difficulty in recruiting and retaining public safety officers has been noted

across the United States as agencies find themselves competing for a smaller pool of qualified

candidates.

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 213 provides no appropriation for the $4 million unfunded accrued

actuarial liability (“increased liabilities") that the enhanced retirement benefits will cause.

Rather, HB 213 provides for a combined employee and employer contribution rate of 32.70

percent to amortize the $4 million unfunded accrued actuarial liability over 30 years. PERA

Board Resolution No. 08-04 opposes any benefit enhancement legislation that is not prospective

and that may create an unfunded liability to the retirement systems it administers unless such

unfunded accrued liability is pre-funded from sources other than the retirement trust fund.

PERFORMANCE IMPLICATIONS

DPS reports that the MTD currently has 123 commissioned officers with 25 vacancies. Two of

these officers are currently retired and are classified as “return to work" and would not be

included into future retirement projections. The SID currently has 22 commissioned officers

with 9 vacancies. DPS also notes that MTD and SID are very concerned at their high employee

turnover rates coupled with the increasing difficulty in recruiting and retaining employees as

evidenced by nearly a 27 percent turnover in trained commissioned personnel within a 36 month

period within the Motor Transportation Police. The estimated cost to train these officers to a

basic level is $1.5 million or an estimated $50.0 thousand per recruit.

House Bill 213/aHAFC – Page

4

DPS maintains that high officer turnover and high vacancy factors have had a negative effect on

attaining departmental performance measures. High officer turnover has also resulted in

increased advertising, recruiting and training expenditures. The high cost required to hire an

officer (advertising/recruiting, interviews, background investigation, polygraph, drug testing,

medical and psychological exams) coupled with basic law enforcement academy training will be

greatly reduced with reduced officer turnover.

ADMINISTRATIVE IMPLICATIONS

PERA will be required to coordinate separate elections for adoption of the new coverage plan by

1) the motor transportation officers, and 2) special investigations members of the Department of

Public Safety on or before October 1, 2008. PERA will also be required to move affected

membership, along with corresponding assets and liabilities, from State General Plan 3 into the

proposed State Officer Member Coverage Plan 1.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

Duplicates Senate Bill 231.

Relates to House Bill 165, which proposes to create District Attorney Plan 1 under the PERA

Act allowing district attorney members to be first eligible to retire with 20 years of service credit

with a 3.5 percent pension factor.

TECHNICAL ISSUES

Page 8, line 23 states that the retirement board shall certify that “a majority of the members

voting have voted to approve adoption of the plan." PERA maintains that line 23 should be

corrected to state, “a majority of eligible members have voted to approve adoption of that plan."

Page 9, line 5 states that the retirement board shall certify that “a majority of the members voting

have voted to approve adoption of the plan." PERA maintains that line 5 should be corrected to

state, “a majority of eligible members have voted to approve adoption of that plan."

OTHER SUBSTANTIVE ISSUES

The mean years of service for commissioned officers within MTD are approximately 8.3 years.

DPS maintains this number has slowly been declining due to tenured officers transferring to

other law enforcement agencies. With the transfer of MTD into the State Police and Adult

Correctional Officer Coverage Plan 1 with a three year vestment period, 13 officers will be

eligible to retire in FY12. During the transition period, eligible commissioned officers must retire

under the State General Member Plan 3 and not the State Police and Adult Correctional Officer

Member Coverage Plan 1.

PERA proposes that HB 213 should be amended to apply prospectively to future service credit

earned by motor transportation officers and special investigations after the effective date of the

legislation.

PERA notes that numerous member groups have proposed to be combined with the State

Police/Hazardous Duty Division with State Police Plan 1 benefits in recent years. The

House Bill 213/aHAFC – Page

5

cumulative effect of multiple groups moving into the division is unknown. As benefit levels

increase, the incentive to retire earlier may further increase costs. This is especially true when

retirees can return to work without suspension of pension benefits. However, PERA points out

that the surplus-funded status of the State Police Member Plan 1 declined from 133 percent to

125 percent since the addition of the adult correctional officer members in 2004 while during the

same timeframe the funded status of the overall PERA fund stayed level. PERA maintains that

this decline may be indicative of what happens when member groups are added to well-funded

plans and past service credit is enhanced.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Motor transportation officers and special investigations members will continue to be covered by

State General Plan 3 and are 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 percent pension factor and are

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

percent of their salary in contributions and their employer pays 16.59 percent of salary in

contributions.

DPS maintains that this action will result in continued difficulties in attracting and retaining

qualified police officers to the department in an already highly competitive job market.

Secondly, DPS foresees a continuation of tenured officers leaving the agency to work for law

enforcement agencies that offer a competitive retirement program. Thirdly, DPS points to

further delays in the 10 years of efforts by the department to bring parity to divisions within the

law enforcement program.

AMENDMENTS

"10-11-27. STATE [STATE MEMBER AND ADULT CORRECTONAL

] OFFICER

MEMBER COVERAGE PLAN 1--APPLICABILITY.--

A. State [police and adult correctional

] officer member coverage plan 1 is applicable

to state police members who are not specifically covered by another coverage plan and to

adult

correctional officer members, motor transportation officer members and special investigation

officer members

. The credited service of a state police who had held the permanent rank of

patrolman, sergeant, lieutenant or captain and does not hold an exempt rank or who is assigned to

the aircraft division as a pilot [or

] and the credited service

of an adult correctional officer

member, shall have actual credited service increased by twenty percent for the purposes of state

[p

o

lice

] officer

member coverage plan 1. The actual credited service earned after July 1, 2009 of

a motor transportation officer member or special investigation officer member shall be increased

by twenty percent for the purposes of state officer member coverage plan 1.

MA/mt:bb