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Friday, February 22, 2019

Friday Clips: Our Windy New Mexico, Plus: Crying Wolf Over State Pension Plans 


Sometimes New Mexico's winds are too much of a good thing--even for ardent supporters of renewable energy. This high wind episode happened earlier this week in Quay County on the state's Eastside, toppling a giant wind turbine that now looks other-worldly.

The good news: wind energy is becoming much cheaper to produce, making it more competitive to produce and to replace fossil fuels.

FAKE NEWS?

Is it a real crisis or "fake news' when it comes to the hue and cry over the condition of the state's giant Public Employee Retirement Association fund (PERA). We vote for the latter and it appears MLG agrees. She kicked the can down the road amid panic from some bean counters that some retired state employees perhaps in the year 2060 or beyond are going to take a hit to their pension checks.

(MLG) ordered the creation of a Public Employees Retirement Association Solvency Task Force. The executive order. . . directed members to immediately begin identifying reasonable and measured changes to contributions and benefits that will both prevent the need for more significant changes in the future and address the liabilities associated with the state’s pension plans. . . Recommendations to preserve PERA’s defined benefit system will be made to the governor no later than Aug. 30, 2019. These will subsequently be presented during the legislative session in 2020

PERA currently has $15.4 billion in cash. There is no "crisis."  Wall Street investment banks, however, want PERA and other similar funds around the nation to have all their current and future pension liabilities funded at 100 percent--a near impossibility and ridiculous on its face. But if they were to reach that 100 percent, that would be billions of dollars more for them to manage, and over the years millions more in lucrative fees for managing those assets.

Currently PERA has over 71 percent of the cash needed to fund all current obligations and all of those in the future. That theoretically leaves an unfunded liability of $6 billion. There is no immediate or intermediate term threat to retirees pension. None. Zero. That's why the Governor has rejected advice that she cancel the annual 2 percent cost of living increase for today's retirees. (It has already been cut once and her task force plan effectively kills the bill at the Legislature seeking a COLA cut).

The Governor is calling for "reasoned and measured" changes to decrease the amount of the unfunded liability. That's because she realizes there is no threat whatsoever to retiree checks during the four or eight years she serves nor in the term(s) of her successor. But the bean counters would have you believe a threat is imminent and would frighten the legislature into diverting new found surplus dollars into the funds in the name of people who have not even started working or may not even have been born yet. If those leading the fright parade really want to do something useful to improve the health of PERA they could start with investing more of PERA's billions in passive stock index funds--such as those that replicate the S&P 500 index. Such low cost investments would alone save millions in PERA management fees in the years ahead.

By the way, those funds are much more likely to improve PERA's performance because studies show that over the long-term over 90 percent of the time the passive index funds beat the performance of "actively managed" funds from which Wall Street makes those handsome commission fees.

No fake news there. That's a fact, Jack.

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(c)NM POLITICS WITH JOE MONAHAN 2019
 
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