New Mexico Educational Retirement Board Pension Solvency Analysis

New Mexico Educational Retirement Board (ERB) Pension Solvency Analysis

The New Mexico Educational Retirement Board (ERB), the public pension plan serving educators in the state, is descending into insolvency and putting the retirement benefits of teachers at risk. In the year 2001, ERB had less than $1 billion in public pension debt, but in the two decades since, this number has risen dramatically. The latest, official numbers reveal that the New Mexico Educational Retirement Board now has $7.9 billion in unfunded pension liabilities.

Reason Foundation’s latest solvency analysis, updated this month (November 2020), shows that the past two decades of underperforming investments, insufficient contributions, and undervaluing debt, have driven benefit costs higher while crowding out other programs and priorities clamoring for public funding in New Mexico.

An August 2020 New Mexico ERB investment committee report showed annualized returns of 5.7 percent for the last five years, falling well below the plan’s return target of 7.25 percent. In fact, investment returns failing to meet unrealistic expectations has been the largest contributor to the public pension plan’s unfunded liability growth, adding $3.3 billion in debt since 2001.

Reason Foundation’s analysis finds that the New Mexico Educational Retirement Board has less than a 50 percent chance of meeting its 7.25 percent investment return assumption in the next 10 years. If the plan continues to fall short of this unrealistic goal, the analysis shows it could add $10 billion to $20 billion in long-term pension costs, depending on a variety of market scenarios.

Today, ERB has only 63 percent of the assets needed to fully fund the pension system in the long-term. This underfunding not only puts taxpayers on the hook for growing debt but also jeopardizes the retirement security of New Mexico’s educators. Left unaddressed, ERB’s structural problems will likely lead to more education funding crowd out, more debt for future generations, and less retirement security for the state’s educators.

The solvency analysis looks at the primary factors driving unfunded liabilities for ERB over the past few decades and offers stress-testing designed to highlight potentially latent financial risks the pension system is facing. It also provides a number of policy suggestions that, if implemented, would address the declining solvency of the public pension plan.

A new, updated analysis will be added to this page regularly to track ERB’s performance and solvency.

Bringing stakeholders together around a central, non-partisan understanding of the challenges ERB faces—complete with independent third-party actuarial analysis and expert technical assistance—Reason Foundation’s Pension Integrity Project stands ready to help guide New Mexico policymakers and stakeholders in addressing the shifting fiscal landscape.

New Mexico Educational Retirement Board (ERB) Pension Solvency Analysis