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

SPONSOR Varela

ORIGINAL DATE

LAST UPDATED

1-31-08

2-3-08 HB 616

SHORT TITLE Educational Retirement Contributions

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

.01

See narrative See narrative See narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Educational Retirement Board (ERB)

Higher Education Department (HED)

SUMMARY

Synopsis of Bill

House Bill 616 amends the Educational Retirement Act (Act) relating to contributions for

members whose salaries exceed a certain federal limit.

The first change to the Act in Section 22-11-21 will now limit the contributions of members to

match the Internal Revenue Service (IRS) 401(a) (17) limitations and provide a mechanism that

will place the contributions in the ERB fund in four equal amounts in the four quarters of the

year to ensure that these contribution will translate into service credit for the entire year for these

members.

HB 616 also eliminates Section 22-11-47(D), which attempted to set up a pour-over provision

for the amounts of contributions that would have exceeded the 401(a) (17) limits. This pour-over

provision would have placed these contributions for a narrow group of employees of the New

Mexico Health Sciences Center into the Alternative Retirement Plan as controlled by Sections

22-11-47 through 22-11- 52. ERB states this section has proven to be impossible to administer

due its confusing language and unintentional loss of service credit to affected members.

The Department of Higher Education notes that HB 616 adds a new section to 22-11-21 NMSA

1978 that will bring New Mexico’s Educational Retirement Act into compliance with the

Internal Revenue Code.

House Bill 616 – Page

2

Finally, the bill provides a temporary provision to determine the cost of bringing the affected

members current on employer contributions to assure correct service credit.

FISCAL IMPLICATIONS

ERB maintains that the affected employer, which appears to involve only the University of New

Mexico, will make the proper contributions into the ERB fund to cover the amount of

contributions that should have been made between 1996 and July 2008 to cover the employees

whose contributions were incorrectly limited.

The amount that is required will be determined by the employer and ERB based upon the proper

contributions as required under the Act and is indeterminable at this time. The operating budget

for UNM would need to include this additional contribution, either as a single non-recurring

expenditure or recurring expenses, depending on the final agreement between UNM and ERB.

UNM has several funding sources, so the fund affected is indeterminate.

SIGNIFICANT ISSUES

Both responding agencies state that HB 616 addresses fairness issues regarding the affected

employees.

According to HED, approximately 40 current faculty at the University of New Mexico who have

worked an entire year have only received three quarters of service credit for every four quarters

worked due to the confusion in implementing 22-11-47.D. The department asserts that passage

of HB 616 will ensure all employees through out the state who are members of ERB will receive

four quarters of service credit when four quarters have been worked.

ERB emphasizes that this bill will no longer require a member to make contributions to the ERB

fund over and above any benefit that they could receive for those contributions. In other words,

this bill would make sure that every member’s final average salary is based upon their actual

contribution to the fund and will no longer require these affected members to pay a higher

percentage into the fund than other employees do to receive their benefits.

In addition, ERB suggests that this unequal contribution levels for certain highly compensated

individuals could prove to make it more difficult to recruit doctors and other highly skilled

faculty, such as coaches, etc. to New Mexico institutions of higher education.

ADMINISTRATIVE IMPLICATIONS

ERB notes that this bill would eliminate part of a statute that is impossible to administer.

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

ERB claims that without these statutory changes, some employees would not receive service

credit for the full year that they worked. Some members would be making contributions into the

fund for which they could not receive an equitable benefit. The Act would also continue to

contain a section that is impossible to administer.

POSSIBLE QUESTIONS

1. If this bill does not pass, is ERB at risk to lawsuit from the affected employees.

MA/mt:nt