New Mexico's interest in educational employee retirement is quickly changing in light of the state's desperate need to save money.
House Bill 854, awaiting Gov. Bill Richardson's signature, would save the state $42.6 million this year, $9.6 million of which comes from reducing the employer contribution to higher education workers' retirement funds by 1.5 percent and asking employees to make up the difference, said Cathy Fernandez, deputy director of the Legislative Finance Committee.
However, Senate Bill 181, passed in 2005, requires the state to increase its contribution to the Education Retirement Board by 0.75 percent per employee each year until 2012. This incremental increase amounts to about $6 million in spending this year, Fernandez said.
The state will, therefore, save a net of $3.6 million this year while asking employees to give up 1.5 percent from each paycheck. This will total a 9.4 percent employee contribution from each paycheck, and a 10.9 percent contribution from the state. Employees making less than $20,000 would not be affected by the bill.
Sen. John Arthur Smith (D-Hidalgo), who sponsored Senate Bill 181 in 2005, voted in favor of House Bill 854 this session.
Smith said Senate Bill 181 was designed to improve the solvency of the ERB, as education employees had traditionally opted for base pay increases instead of retirement contribution increases.
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House Bill 854 was designed to save employees from being furloughed or laid off, he said, and although the bill encountered opposition from groups such as the American Federation of Teachers and the National Education Association, legislators opted to adjust retirement contributions instead of base salary.
"In lieu of having to lay people off, having to furlough people, or having to trim back on their paid holidays, (HB 854) was a mathematical gimmick to avoid all of the above, but in essence (employees) are paying in their money for a deferred compensation plan once they retire," Smith said.
Education employees across the state, including everyone on UNM's payroll who contributes to the ERB plan, would continue contributing 1.5 percent in their employer's stead until 2011. The state will then fund another incremental increase of 0.75 percent and show minimal, if any, new savings as a result of House Bill 854.
The state's total budget for higher education this year is $2.76 billion.
According to the bill, the state needed to find ways to save money to make up for $575 million less in revenue to spend this year than there was last year.
The $3.6 million, then, represents less than 1 percent of the total that legislators set out to save, and the savings will come out of the pockets of education employees who will also not get raises this year.
Smith said the state could have saved more money by laying off employees right away. He said it is likely the state will still have to do this in a special session because revenue forecasts continue to decline.
"We would have been far better off on the budget bill to go ahead and just trim back either through furloughing, layoffs, or eliminating some paid holidays and gone ahead and taken the hit right there," Smith said.
Fernandez said the bill will ensure employees are protected in the long term because funding for their retirement will not decrease, and their retirement benefits in the future will not be affected by the economic downturn.
"The important thing is the person still receives the benefits from the retirement," she said. "A person still gets the full benefit of their retirement, because a salary cut would affect your retirement in that you're not putting as much into your retirement.. So it affects your future retirement benefits, whereas this way it doesn't. It just shifts the burden for two years from the employer to the employee by 1.5 percent, but the employee still reaps the benefit."
Furthermore, employees will not see much difference on their paychecks beginning in July if Richardson signs the bill into law, Smith said.
Thanks to new federal tax rates, "this bill will have a negligible impact on employee take-home pay," according to an additional statement drafted by legislators who supported the bill.
Depending on their tax bracket, some employees will still see an increase of nearly $3 on their bi-weekly paycheck, while others will see a decrease of more than $6.50, according to the bill.
Elisha Allen, chairman of the Staff Council Government Relations Committee, worked with UNM Director of Government and Community Relations Marc Saavedra when the bill was going through the House.
Allen and Saavedra drafted a letter to ask legislators to consider alternatives to the 1.5 percent switch.
Allen said the legislation will be hard on staff members but that they will manage.
"My personal feeling is that everybody's suffering with the economy as it is, and we're all just trying to make do as best as we can," he said.
Saavedra said he lobbied for several amendments to the bill but that they were defeated.
One proposed amendment would have allowed for a sliding scale, requiring employees in higher pay grades to contribute 2.5 percent more to their ERB, while employees making less would contribute less.
"But because of the fact that they had to act so fast on it, they didn't accept those suggestions, because they felt like because of the Obama package and the federal tax reductions that will go for about two years, and because they needed to act quickly to get the bill passed . this was what they thought was the best scenario," Saavedra said.
The goal of the amendment was to prevent employees who make less than $42,000 from having to pay the additional 1.5 percent.
Saavedra said he still hopes the Legislature will take more time to listen to suggestions next year but that it is more likely there will be deeper cuts.
Richardson has until April 10 to sign the bills, Saavedra said, but the governor would have to reject House Bill 2, the budget bill, in order to reject House Bill 854. Likewise, rejecting HB 854 at this point would require revising the entire budget.
