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Study: NM state pension plan will run out of money in 13 years

By   /   September 9, 2010  /   No Comments

According to a recent study, New Mexico’s pension plan for state employees will run out of money in the year 2023, an event that would trigger a series of excruciating economic and political decisions for lawmakers that would affect not just the retirees inside the system but every New Mexico taxpayer.

Economists Joshua Rauh of the Kellogg School of Management at Northwestern University and Robert Novy-Marx of the University of Chicago Booth School of Business have developed a model of state pension fund payments across the US and identified 31 states they predict will run out of state pension fund money within the next 16 years. New Mexico falls within that range. In fact, the Rauh/Novy-Marx model predicts that by 2023, New Mexico’s state pension plan will go bust.

The model is based on a given state contributing to its pension funds at the present value of any newly accrued benefits and working on an assumption that a state will earn 8 percent on their investments. Using those assumptions, New Mexico would:

  • Run out of pension fund revenue in 2023
  • Then be expected to pay out $2.6 billion in state employee pensions in 2024
  • That $2.6 billion figure represents an estimated 46 percent of the entire state tax revenue for a given year

In other words, if the Rauh/Novy-Marx model holds true, in less than 15 years, New Mexico will have pension obligations that equal nearly one-half of the state’s entire annual intake of taxes.

“The only solutions that will work are solutions that are politically not viewed as desirable,” Rauh says with classic academic understatement.

Rauh goes on to say in a recent Internet posting entitled “The Day of Reckoning for State Pension Plans” that “If we are going to keep providing generous pensions to state workers, taxes will have to rise dramatically in the near future to pay for them.”

Some states — like Colorado — are looking to renege on the promises it made to future and current retirees in the face of a looming fiscal crisis that the US Chamber of Commerce estimates at $3 trillion nationally. As one would expect, state employees in Colorado are howling, but even if New Mexico lawmakers wanted to imitate the actions of Colorado legislators, the going may prove considerably tougher.

That’s because New Mexico is similar to at least eight states in which public-sector pension obligations are not only protected by state constitutions, they are also protected by explicit benefit guarantees.

According to Article XX of the New Mexico Constitution, “upon meeting the minimum service requirements … a member of a plan shall acquire a vested property right with due process protections under the applicable provisions of the New Mexico and the United States constitutions.”

In plain English, even if New Mexico lawmakers had the gumption to roll back some pension benefits, they might well have to clear the legislative hurdles of actually amending the state constitution.

Here is a list of when Rauh and Novy-Marx predict that some respective state pension funds will run dry:






New Jersey




West Virginia









New Hampshire




Rhode Island


New Mexico





Capitol Report New Mexico left a voicemail message with an official at the Public Employees Retirement Association (PERA). We’ll post reaction from them as soon as we get it.

Note: On Friday morning (Aug. 10), the Retirement Systems Solvency Task Force is meeting at the Roundhouse at 9 a.m. I’ll attend the hearing and talk to members of the task force and get their reaction to this study.

Miscellaneous: For more information on the Rauh/Novy-Marx study, click here, here, here and here.

For more on what various state constitutions say about their respective pension plans (including New Mexico), click here and here.

For more on Colorado’s efforts to curb its state pension plan, click here.

For more on US Chamber of Commerce estimates of a $3 trillion pension shortfall, click here.

If all this makes you worried sick, click here. (It’s a site devoted to stress relief.)


Rob formerly served as staff reporter for Watchdog.org.

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  • Charles

    Considering the zero return of the S&P 500 over the last ten years, an assumed 8% investment return is VERY optimistic. To state the obvious, an investment return of less than 8% means that we go bust much sooner than 2023.

    I just don’t see why politicians in NM and other profligate states don’t understand that if state taxes get too high, we can just load up our U-Hauls and move to states such as Texas or Nevada, which have NO state income tax.

  • http://newmexico.watchdog.org Jim Scarantino

    The State Investment Council had a target return rate in excess of 8%. But under their new leadership in Steve Moise, and with sound advice from their good advisors (not the other ones on the run in Europe), they are revising that unrealistic target downward and getting real.

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  • http://www.stressreliefpack.com/ Stress Relief

    Great well historic writing.

    well figure out the whole thing. & thus new plan can be implemented.

  • Kevin Quail

    New Mexico, besides its current 9 billion dollar pension fund, has four permanent funds with investments totaling over 14 billion dollars.


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  • stephen

    You can also raise the tax on all natural resource extractions made in the state. New Mexico could also have in that case a permanent fund distribution set up from the tax in order to keep the economy chugging along. Some of that money could also be used to stablize or underwrite the investment difference returns.

  • Kevin Quail

    Really, Charles? Than I must be smarter than a lot of other investors, as I have made on average over 8.25% from 2009-2012. In fact, this year alone I’m up at least 13%. So I guess I don’t know what you are talking about. Of course, I’ve been doing this for 20 years.