Pension Sustainability: New Mexico
Pensions Policy
Analysis of New Mexico's policies
As of June 30, 2015, the most recent date for which an actuarial valuation is available, New Mexico's pension system for teachers is 63.7 percent funded, an increase of 3.6 percentage points since NCTQ's last report. Its current pension debt exceeds $19,200 per pupil throughout the state. It also has a 43.2-year amortization period. This means that if the plan earns its assumed rate of return and makes its current statutory level of contribution payments, it would take the state over 43.2 years to pay off its unfunded liabilities. Neither the state's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
In addition, New Mexico commits excessive resources toward its teachers' retirement system. For employees that make greater than $20,000 a year, the current employer contribution rate of 13.9 percent and employee contribution rate of 10.7 percent are too high, in light of the fact that local districts and teachers must also contribute 6.2 percent to Social Security. For teachers that make less income, the rates are 13.9 percent for employers and 7.9 percent for employees. The actuarially required contribution rate is 16.78 percent, however, and exceeds the rate of 13.9 percent set by state law. Thus, not only is the current statutory rate not sufficient for the state to pay off liabilities, these rates are currently excessive and preclude New Mexico from spending those funds on other, more immediate means to retain talented teachers.
Recommendations for New Mexico
Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of 30 years or less to allow more protection during financial downturns. New Mexico should set its statutory contribution rates in line with the actuarially required amount. It should also consider ways to improve its funding level, however, without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention and crowd out funding for other areas in education. Improving funding levels necessitates, in part, systemic changes in the state's pension system. The goals on pension flexibility and pension neutrality provide suggestions for pension system structures that are both sustainable and fair.
State response to our analysis
New Mexico was helpful in providing information that enhanced this analysis.
-
New Mexico
Select another topic
Delivering Well Prepared Teachers
- Admission into Teacher Preparation
- Elementary Teacher Preparation
- Elementary Teacher Preparation in Reading Instruction
- Elementary Teacher Preparation in Mathematics
- Early Childhood
- Middle School Teacher Preparation
- Secondary Teacher Preparation
- Secondary Teacher Preparation in Science and Social Studies
- Special Education Teacher Preparation
- Special Education Preparation in Reading
- Assessing Professional Knowledge
- Student Teaching
- Teacher Preparation Program Accountability
Expanding the Pool of Teachers
Identifying Effective Teachers
- State Data Systems
- Evaluation of Effectiveness
- Frequency of Evaluations
- Tenure
- Licensure Advancement
- Equitable Distribution
Retaining Effective Teachers
Exiting Ineffective Teachers
Pensions
Research rationale
Teacher salaries are just one part of the compensation package that teachers receive. Virtually all teachers are also entitled to a pension, which, upon vesting, provides compensation for the rest of their lives after retirement. In an era when retirement benefits have been shrinking across industries and professions, teachers' generous pensions remain fixed. In fact, nearly all states continue to provide teachers with a defined-benefit pension system, an expensive and inflexible model that neither reflects the realities of the modern workforce nor provides equitable benefits to all teachers.
Under defined benefit systems, states have made an obligation to fund fixed benefits for teachers at retirement. However, the financial health and sustainability of many states' systems are questionable at best. Some systems carry high levels of unfunded liabilities, with no strategy to pay these liabilities down in a reasonable period, as defined by standard accounting practices. Without reform, these systems are a house of cards, vulnerable to collapse as funding cannot keep up with promised benefits. And it is taxpayers who will have to pay if it all tumbles down.
Pension plans disadvantage teachers early in their careers by overcommitting employer resources to retirement benefits.
Pension Sustainability: Supporting Research
NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.