The state should ensure that excessive resources are not committed to funding teachers' pension systems.
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.
Educational Retirement Board of New Mexico, Annual Actuarial Valuation, as of June 30, 2015.
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.
New Mexico was helpful in providing information that enhanced this analysis.