Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Martinez, A./Garratt
LAST UPDATED
ORIGINAL DATE 2
/8/2025
SHORT TITLE Increase Retiree COLA
BILL
NUMBER House Bill 164
ANALYST Simon
APPROPRIATION*
(dollars in thousands)
FY25 FY26
Recurring or
Nonrecurring
Fund
Affected
$10,000.0 Recurring General Fund
Parentheses ( ) indicate expenditure decreases.
*Amounts reflect most recent analysis of this legislation.
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected Cost-of-Living
Adjustments for
State Members
$33,000.0 $33,000.0 $66,000.0 Recurring
PERA Trust
Fund
Optional Cost-of-
Living
Adjustments for
Local
Governments
Up to $38,000.0 Up to $38,000.0
Up to
$76,000.0
Recurring
PERA Trust
Fund
Total
Up to $71
million
Up to $71
million
Recurring
PERA Trust
Fund
Parentheses ( ) indicate expenditure decreases. *Amounts reflect most recent analysis of this legislation.
Duplicates Senate Bill 30; Relates to House Bill 96 and Senate Bill 117
Sources of Information
LFC Files
Agency Analysis Received From
Public Employees Retirement Association (PERA)
Educational Retirement Board (ERB)
New Mexico Municipal League (NMML)
SUMMARY
Synopsis of House Bill 164
House Bill 164 (HB164) would increase annual cost-of-living adjustments for retirees from state
government receiving benefits from the Public Employees Retirement Association (PERA) who House Bill 164 – Page 2
are 65 or older. Additionally, the bill would allow local governments to opt into a program to
have cost-of-living adjustments (COLA) increased for retirees from their governments by
making contributions to cover the actuarial impact of the increased contribution.
HB164 appropriates $10 million from the general fund to PERA to fund cost-of-living
adjustment increases for state government retirees.
This bill does not contain an effective date and, as a result, would go into effect 90 days after the
Legislature adjourns if enacted, or June 20, 2025. However, the bill’s provisions are specific to
increase in FY26 and future years.
FISCAL IMPLICATIONS
HB164 would increase benefits paid by PERA for state government employees and could
increase benefits paid by PERA for local government employees. Article XX, Section 22, of the
New Mexico Constitution prohibits the Legislature from enacting any law that increases the
benefits paid by PERA unless adequate funding is provided. That section assigns the PERA
board the sole and exclusive power to adopt actuarial assumptions, based on recommendations
from an independent actuary.
The bill includes a $10 million appropriation to PERA to provide cost-of-living adjustments to
retirees from state government. Analysis from PERA on an identical bill (Senate Bill 30)
estimates the bill would increase costs to the PERA fund by $33 million for state government
employees. Given PERA’s actuarial estimates, it is unclear if HB164 provides adequate funding
to meet the constitutional threshold established in Article XX, Section 22.
Additionally, the bill would allow local governments to participate in the increased benefit,
provided the government makes a contribution to PERA to cover the costs. This requirement
could allow for adequate funding for these COLAs, assuming the calculations property reflect
PERA’s actuarial assumptions (see “Technical Issues”). The bill determines eligibility for an
increased COLA based on the division from which a PERA member retires. While increased
COLAs for municipal members are contingent on receipt of funding from the local government,
increased COLAs for state members are automatic. Analysis from PERA notes a member could
seek a higher benefit by leaving local government employment and seeking employment with the
state, even for a brief period. If a large number of local government employees near retirement
chose to exploit this loophole, PERA analysis of the fiscal impact for state employees could be
understated.
Analysis of an identical bill from the New Mexico Municipal League (NMML) states the
differential treatment between different PERA members is unfair to local government employees
and is a departure from the agreed on framework for solvency adopted in 2020 (see “Significant
Issues”). Overall, the three municipal plans are better funded than two state government plans,
with total assets of $9.9 billion and total liabilities of $14.1 billion, for a funded ratio of 70.3
percent, while the state plans have total assets of $7.9 billion and liabilities of $12.4 billion, for a
funded ratio of 63.7 percent. NMML notes, because the state is not covering the full actuarial
costs of the increased COLA for state employees, HB164 could result in local government
contributions subsidizing increased COLAs for state government employees.
The appropriation of $10 million contained in this bill is a recurring expense to the general fund. House Bill 164 – Page 3
Any unexpended or unencumbered balance remaining at the end of FY27 will not revert to the
general fund. Although the bill does not specify funds will revert, presumably unused funds from
the appropriation would remain with PERA. HB164 would require future recurring
appropriations directly from the general fund to provide adequate funding, which is dependent on
the will of future Legislatures. Notably, a direct general fund appropriation diverts from typical
practice in funding New Mexico’s pension plans. Currently, PERA receives employer and
employee contributions automatically as a percent of payroll, based on rates set in statute. This
negates the need for regular general fund appropriations and benefits payments are not subject to
legislative appropriation. (The Legislature does make appropriations for agency operations). It is
unclear what would happen if a future Legislature chose not to make a future appropriation to the
fund, thus rendering the funding inadequate to cover the cost of the benefit increase.
SIGNIFICANT ISSUES
In 2020, the Legislature passed Senate Bill 72 (SB72), which amended the Public Employees
Retirement Act to replace an annual 2 percent COLA for most members with new “risk-sharing”
COLA, following a temporary suspension of the annual COLA in FY21 through FY23. In those
years, the annual COLA was temporarily replaced by an additional, non-compounding payment
of 2 percent of the member’s benefit. Those additional payments, sometimes called the “13th
check,” were made for three years and the Legislature appropriated $55 million from the general
fund to cover the costs of these payment. Following the three-year period, the new “risk-sharing”
COLA was implemented. Unlike the 13th check, this payment would compound. The COLA
would be based on the plan’s investment performance and the plan’s funded status—or the
percentage of total liabilities for which the plan has invested assets. Under this COLA, rates
would vary from 0.5 percent to 3 percent, until the plan is fully funded, at which point COLAs
could go as high as 5 percent.
SB72 was passed to address chronic underfunding issues at PERA. At the time, PERA’s
actuaries estimated the fund held about 70 percent of the assets needed to pay all accrued
benefits, but over time that gap was expected to grow because contributions into the fund were
not sufficient to pay all protected benefits, make additional annual cost-of-living adjustments,
and pay off the plan’s unfunded liability. Actuaries were projecting an infinite funding period,
meaning PERA was never expected to hold the assets needed to pay the liabilities. PERA’s most
recent actuarial valuation report shows the fund holds about 67.2 percent of assets needed, but
the funding period has improved to 52 years, although still above the board’s target of 25 years.
The plans actuaries recommend increasing contributions to the fund, noting contributions needed
to meet the funding target would need to rise by an additional 5.37 percent.
SB72 passed at a time when an annual 2 percent COLA was outpacing inflation. Annual COLAs
for social security, which are tied to inflation, averaged 1.4 percent between 2010 and 2020. But
more recent increases in the cost of living have led these amounts to spike. Social security
COLAs in 2022 were nearly 9 percent and were almost 3.2 percent in 2023, which illustrates the
challenges faced by retirees in meeting basic needs on fixed incomes.
Exceptions. While most PERA members are subject to the variable COLA, some members
continue to receive a fixed 2.5 percent COLA: disability retirees with an annual benefit of less
than $25 thousand, normal retirees with 25 years of service credit and a benefit of less than $25
thousand, and retirees who were 75 years old as of July 1, 2020.
House Bill 164 – Page 4
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Several bills have been introduced to change annual cost-of-living adjustments for PERA
members, including:
House Bill 96 would provide a temporary COLA increase for PERA retirees and
appropriates $66 million to fund the increase.
HB164 is a duplicate of Senate Bill 30.
Senate Bill 117 would repeal the current COLA structure and set the annual COLA
amount at the amount given for social security.
TECHNICAL ISSUES
Page 6, Lines 7 through 15, allows local governments to opt into the increased COLA, provided
the government contribute “in an amount adequate to fund the increase, as determined by the
department of finance and administration.” This provision may violate Article XX, Section 22, of
the New Mexico Constitution, depending on how it is implemented. That section provides:
A retirement board shall have the sole and exclusive power and authority to adopt
actuarial assumptions for its system based upon the recommendations made by an
independent actuary with whom it contracts.
Any calculation of an “amount adequate to fund the increase,” would necessarily require an
actuarial analysis. Were the Department of Finance and Administration (DFA) to attempt to
determine the amount independent from PERA’s contracted actuary, it could be seen to encroach
on the retirement system’s sole and exclusive power and authority. However, if DFA were to
rely on PERA’s actuarial calculations and merely communicate those amounts to local
governments, this issue could be avoided. However, the sponsor may wish to consider replacing
the reference to DFA with “the retirement board,” which would avoid a step in the process.
OTHER SUBSTANT IVE ISSUES
HB164 would only apply to public employees who are retired from PERA. Public employees of
school districts and higher education institutions receive benefits from the Educational
Retirement Board (ERB). Since 2013, annual cost-of-living adjustments paid by ERB have been
limited to improve the fund’s solvency. This reform has been partially responsible for
improvements to the solvency of that fund. According to ERB’s actuary, the plan’s funding
status is improving, from 60.4 percent in 2020 to 64.8 percent in 2024. The actuaries currently
expect the plan to be fully funded in 22 years, significantly less than the amount of time expected
for the PERA fund.
Funding additional cost-of-living adjustments for PERA recipients could lead to requests from
ERB retirees to receive additional COLAs. In 2020, ERB commissioned a study to examine the
differences in benefits between members of ERB and PERA, finding PERA members receive
more in pension benefits than ERB-covered employees. This report has resulted in calls for the
Legislature to consider “equalizing” pension benefits structures. Funding additional COLAs for
PERA members could lead to additional requests from ERB members to supplement that
program with general fund appropriations.
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