New Mexico is facing a looming retirement security crisis. Our state already ranks third highest in the nation for the percentage of seniors living in poverty (12.2%), according to the U.S. Census Bureau. This percentage will likely grow in the coming years, as two out of three private sector workers in the state have no money saved for retirement, and 80% have less than $10,000 saved. Meanwhile, the state’s public pensions are underfunded by a total of $12.5 billion, putting their long-term solvency in jeopardy.
In response to this crisis, in 2019, Think New Mexico launched a new initiative designed to enhance retirement security for all New Mexicans. This initiative proposed three major reforms that will put money back in the pockets of today’s retirees and ensure that more seniors in the future will have adequate savings to enjoy their retirement.
First, we are recommending that policymakers repeal the state’s income tax on Social Security benefits. New Mexico is one of only 13 states that taxes Social Security benefits. In the past decade, eight of those 13 states have significantly reduced their taxes, and New Mexico now has the second heaviest tax on Social Security benefits in the nation. The Social Security tax is a form of double taxation, since New Mexicans pay income tax on the money that is deducted from their paychecks for Social Security, and then they are taxed again on the benefits they receive. Today the state’s tax on Social Security benefits costs the average Social Security recipient nearly $700 per year.
Second, we are supporting an innovative reform that would ensure that every private sector worker in New Mexico has access to a retirement account that they can contribute to using automatic payroll deductions. The research shows that workers are 15 times more likely to save for retirement if they can contribute to a retirement plan using automatic payroll deductions. Yet two out of every three private sector workers – 336,000 New Mexicans – lack access to a retirement savings plan through their jobs.
The New Mexico Saves Act, which is similar to reforms adopted by a growing number of states, would create a system of Individual Retirement Accounts funded by automatic payroll deductions that would be offered to workers whose employers do not already provide a retirement savings plan. These payroll deduction IRAs would be similar to 529 college savings plans, and would give small businesses a simple and inexpensive way to help their workers begin saving for retirement. (The New Mexico Saves Act is supported by State Treasurer Tim Eichenberg and AARP New Mexico, among others, as well as Think New Mexico.)
Finally, we recommend three reforms to improve the stability and performance of New Mexico’s public pension funds. These recommendations include using some of the state’s record budget surplus to make a one-time, $700 million cash infusion or bridge loan to the Public Employees Retirement Association (PERA); consolidating the investment management of PERA and Education Retirement Board (ERB) pension funds to achieve higher returns and lower fees; and (3) professionalizing the pension oversight boards by increasing the qualifications of those who serve on them (currently, no member of the PERA board, which oversees $15.7 billion, is required to have any experience or expertise in financial or investment management). All of these proposals are complementary with the reforms that have been recently recommended by Governor Michelle Lujan Grisham’s 2019 PERA Solvency Task Force.
Think New Mexico will be advocating for these reforms during the 2020 legislative session. Sign up for our email alerts and follow our Facebook and Twitter pages to stay informed and get involved on this issue!
Read an article in the Santa Fe New Mexican about Think New Mexico’s retirement security initiative • October 6, 2019
Read an article in the Albuquerque Journal about Think New Mexico’s retirement security initiative • October 6, 2019