US - The state of New Mexico is considering almost doubling the employer contributions made by public schools to the Educational Retirement fund from 8.65% of salary to 16.15% by 2014.
According to a fiscal impact report by the Legislative Finance committee, the Educational Retirement Board’s (ERB) actuarial position has slipped in recent years, due to increased liabilities, inadequate contribution levels and investment losses between 2001 and 2003.
“ERB’s funded ratio, the actuarial value of assets as a percentage of actuarially accrued liabilities, declined from 81% to approximately 75% as prior-year investment losses were factored into their June 30, 2004 actuarial study,” the report stated.
“The fund’s unfunded actuarial liability has increased from US$1.7bn to US$2.4bn in the past year. After significant research and an audit by a second actuarial firm, the ERB’s recommendation is to increase the employer contribution paid by the state by 0.75% for 10 years as proposed in House Bill 270.”
Assuming an 8% investment return, the report said the funding increase should bring the fund into compliance with the 30-year funding period, as specified by the Governmental Accounting Standards Board.
Under the Bill, being considered by the Senate Finance committee, the contribution increase would kick in on July 1, 2005.
“Through June 30, 2005, each local administrative unit shall make an annual contribution to the fund of a sum equal to 8.65% of the annual salary of each member employed by the local administrative unit,” the Bill states.
“On July 1, 2005 and each July 1 thereafter until the local administrative unit contribution equals 16.15%, the annual local administrative unit contribution shall increase by an amount equal to 0.75% of the annual salary of each member employed by the local administrative unit.”
The cost of the increase amount to US$195.5m over the ten year period.
In its report, the Legislative Finance committee suggested three alternatives to the contribution increase – issuing pension bonds, increasing employee contributions, or changing the plan design, for example to a 401(k) plan.
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