NM Association of Counties

James Maxon, ChairJackie Kohlasch, Vice Chair

Wayne Propst, Executive Director

Slide 2

PERA – Who We Serve

PE Plan48,610

Municipal General

21,511

State Police &

Correctional Officers

1,928

Municipal Fire

2,309

Municipal Police3,748

State General

19,114

Data as of 6/30/2018

PE Plan39,374

Municipal General

13,515

State Police &

Correctional Officers

1,553

Municipal Fire1,938

Municipal Police3,748

State General

18,770

Active Membership Retiree Membership

Slide 3

Projected Funded Ratio2018 Baseline vs. 2017 New Assumptions

77.1%

71.6% 74.4%

60.0%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

2017 New Assumptions 2018 Baseline

Slide 4

2018 Projected Funded Ratio by Division2043 Highlighted

71.6% 74.4%

31.5%

93.3%

89.8%

48.9%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

PERA Total State General State Police Muni General Muni Police Muni Fire

Slide 5

PERA Board Solvency Summary

• Employer and employee contribution rates adjust upward or downward basedon funded status of individual Divisions (State Police and Adult CorrectionalOfficers excluded from contribution increases unless Division funded statusfalls below 100%)

• COLA suspended for 3 years, until July 1, 2022, Thereafter, retirees are eligiblefor COLA at age 60 for public safety and age 65 for general employees, or oneyear after retirement whichever is later (eliminates current 7-year waitingperiod)

• COLA tied to CPI with Maximum COLA at 3% and floor of 0%. CPI basedCOLAs are a common and effective mechanism used by public pension plans,including ERB, to provide inflation protection for retirees

• Addresses cash flow challenges and puts PERA back on track to pay down $6billion unfunded liability within 25 years

Slide 6

Board Solvency Proposal - Contributions• Contributions increase and decrease based on funding status of individual

Divisions (i.e. State General, Municipal Police, Municipal Fire and Municipal General)

• Contributions will decrease as funding status improves

• Increases would not impact State Police/Adult Corrections Division members or full time employees earning a salary of $20,000 or less

Funded Ratio (x%)Contribution Rate Increases

Employer Rate Employee Rate

x < 80% 1.75% 1.50%

80% < x < 85% 1.50% 1.35%

85% < x < 90% 1.25% 1.15%

90% < x < 95% 1.00% 0.75%

95% < x < 100% 0.50% 0.50%

x > 100% 0.00% 0.00%

Slide 7

PERA Board Solvency Proposal – Future Benefit Structure

Total Benefit = Defined Benefit + CPI Based COLA up to 3%

• COLA suspended for three years (2019 through 2021)

• Beginning July 1, 2022, COLAs will be automatically adjusted annually using Board approved rate increases tied to CPI and based on PERA funded ratio. COLA rate applicable to current and future retirees

• No reductions in base benefits; CPI based COLA will help maintain retiree spending power by paying COLA if total PERA fund funded ratio requirements are met, but does not pay COLAs above the actual cost of living increase

• Removes mandatory 7-year eligibility requirement to receive a COLA and replaces it with:

• Public Safety Member Coverage Plans: 60 years of age, or one year post retirement whichever comes later; and

• Non Public Safety Member Coverage Plans: 65 years of age, or one-year post retirement whichever comes later.

• COLA tied to Consumer Price Index (CPI) - Used by Social Security and many other public pension plans

Slide 8

PERA Board Solvency Proposal – COLA Calculation• After the three-year suspension, beginning July 1, 2022, and continuing thereafter, the COLA will be calculated

based upon two criteria, (1) the Consumer Price Index (CPI) and (2) the Total PERA fund funded ratio as of the date of adjustment as follows:

• If Funded Ratio is less than 80%:• If CPI is equal to or less than 2%, COLA = 50% of CPI, and• If CPI greater than 2%, COLA = 75% of CPI, but not to exceed 1.5

• If Funded Ratio is 80% or greater, but less than 90%:• If CPI is equal to or less than 2%, COLA = 75% of CPI, and• If CPI greater than 2%, COLA = 80% of CPI, but not to exceed 1.8%

• If Funded Ratio is 90% or greater, but less than 95%:• If CPI equal to or less than 2%, COLA = same as CPI, and• If CPI greater than 2%, COLA = 95% of CPI, but no more than 2.50%

• If Funded Ratio is 95% or greater, but less than 100%:• If CPI equal to or less than 2%, COLA = 2%, and• if CPI greater than 2%, COLA = 95% of CPI, but not to exceed 2.5%

• If Funded Ration is 100% or greater:• If CPI equal to or less than 2%, COLA =2% and• if CPI greater than 2%, COLA = 95% of CPI, but not to exceed 3.0%

• New COLA structure will not apply to disability retirees or retiree’s whose base benefit is less than $20,000

• Non-Public Safety -age 65 years or older or one-year post retirement whichever is later.

• Public Safety –age 60 years or older or one-year post retirement whichever is later.

Slide 9

COLA Calculation Example at80% Funded

If 80% Funded Base Benefit

COLA Calculated as follows:If CPI ≤ 2%: COLA = .75 x CPI

If CPI > 2%: COLA = .80 of CPI, (Max 1.8%)

If 80% Funded, and CPI = 2%,COLA = 1.5%*

Slide 10

COLA Calculation Example at 60% Funded

If 60% Funded Base Benefit

COLA Calculated as follows:If CPI ≤ 2%: COLA = .50 x CPI

If CPI > 2%: COLA = .75 of CPI, (Max 1.5%)

If 60% Funded, and CPI = 2%,COLA = 1%

Slide 11

Funding Status Improved

Slide 12

Baseline ALM – Current Cash Flow

Slide 13

Cash Flow Sustainability

Slide 14

Funded Ratio by Division

67.7%

124.3%

110.7%

66.3%

20%

40%

60%

80%

100%

120%

140%

160%

State General State Police Muni General Muni Police Muni Fire

Board Proposed Changes Projected Funded Ratio of PERA by DivisionAssumes 7.25% Annual Returns

2043 Ratio Highlighted

Slide 15

Special Appropriation Request

• The PERA Board has requested a Special Appropriation of $200 million cash infusion into the PERA Fund for the State General Division

• The one time cash infusion will increase the funded ratio from 71.6% to 71.7% in FY18 and increases the funded ratio from 74.4% in 2043 to 77.4%

• The one time cash infusion to the State General Division increases its funded ratio from 61.7% in FY18 to 63.8% in FY18 and increases the funded ratio from 31.5% in 2043 to 39.4%

Slide 16

Special Appropriation Request

70.7% 74.4%

71.6%71.7%

77.4%

61.7%

31.5%

63.1%

63.8%

39.4%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Comparison of Funded Ratio Baseline vs. Additional $200 Million Deposit on 6/30/2019 to State General Division

Results at 2018, 2019, and 2043 Labeled

PERA 2018 Baseline PERA with $200 Million in 2019 State General 2018 Baseline State General with $200 million in 2019

Slide 17

Potential Legislative Issues

• Changes to the Volunteer Firefighter Retirement Plan

• Solvency legislation proposed by other parties

• Return to Work Legislation

Slide 18

PERA Fund Performance

• New Mexico PERA has exceeded policy benchmarks in nearly all relevant periods.

• New Mexico PERA has exceed its actuarial assumed discount rate over the long term.

As of 11/30/2018

Fiscal YTD

1 Year 3 Year 5 year 10 Year 20 Year 30 Year

PERA Total Fund

Returns(Net of Fees)*

-0.34% 1.23% 6.59% 5.30% 9.06% 6.55% 8.48%

Policy Benchmark* -0.87% 0.01% 6.37% 5.39% 8.52% 5.62% 8.29%

Value Add 0.52% 1.23% 0.22% -0.09% 0.54% 0.93% 0.19%

* Annualized returns