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F I S C A L I M P A C T R E P O R T

SPONSOR Vigil

ORIGINAL DATE

LAST UPDATED

2/06/06

HB 644

SHORT TITLE Correction Officer Retirement Contributions

SB

ANALYST Geisler

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$500.0 Non-Recurring

General Fund

See narrative

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Corrections Department (CD)

Public Employees Retirement Association (PERA)

Children, Youth, and Families Department (CYFD)

SUMMARY

Synopsis of Bill

House Bill 644 provides for 33% service credit enhancement for certain adult correctional offi-

cers and adult correctional specialists not covered by State Police Member and Adult Correc-

tional Officer Plan 1 between January 1, 2003 and January 1, 2007. This bill is limited to those

employees who were correctional officers from any time between 1980 and 2002. HB 644 pro-

vides for a one-time appropriation of $500,000 from the General Fund to PERA to carry out pro-

visions of the act.

FISCAL IMPLICATIONS

HB 644 may have a negative impact on the PERA Fund, despite the $500 thousand appropria-

tion. The benefit enhancement provided to certain adult correctional officers under HB 644 is

not the subject of an actuarial study. An actuarial study identifies those PERA members affected

by proposed legislation and sets contribution rates that are sufficient to fund enhanced benefits.

Since no such actuarial study was requested, PERA cannot determine with any accuracy the fis-

cal impact of HB 644.

House Bill 644 – Page

2

PERA notes that HB 644 conflicts with Article XX, Section 22 of the New Mexico Constitution,

which precludes increasing benefits without adequate funding (the legislature shall not enact any

law that changes the funding formula for a retirement plan unless adequate funding is available).

SIGNIFICANT ISSUES

The Corrections Department notes that this bill would affect sixty-five Corrections Department

employees who were formerly in the Correctional Officer Series. This bill would contribute to a

sense of equity for those employees who left the Correctional Officer series to promote to levels

of higher responsibility. Corrections also provide that this bill would accelerate through an ear-

lier retirement the loss of experienced employees who hold critical roles in the Department’s

mission. PERA and CYFD are not able to identify any other large groups that may benefit from

the legislation, although there may some individuals with correction officer experience working

in other agencies who may qualify for enhanced retirement.

PERA provides that Article 20, Section 22 of the Constitution of the State of New Mexico re-

quires that the PERA Board and its independent actuary must establish funding periods for bene-

fit enhancements that reflect sound actuarial principles and cover the cost of new benefits.

PERA requires an actuarial study for every benefit enhancement legislative proposal to ascertain

the amount required to fund the proposed benefit. Each actuarial study identifies the members

affected by the legislative proposal and their associated demographics and calculates the funding

required by the increased benefit in terms of employee and employer contributions. Benefit en-

hancement legislation that does not reflect the cost of new benefits may carry with it a multi-

million dollar unfunded actuarial accrued liability (UAAL) that will negatively impact the over-

all funded status of PERA. The increased retirement benefits contained in HB 644 were not the

subject of an actuarial study to determine the necessary funding for the proposed benefit in-

crease. The appropriation contained in HB 644 has no correlation to the benefits that will be

provided under the proposal.

During the 2003 legislative session, legislation provided adult correctional officers with en-

hanced benefits. Specifically, under the newly created State Police and Adult Correctional Offi-

cer Plan 1, members were eligible to receive actual service credit enhanced by 20% if they ac-

crued 18 months of service credit under the plan after July 1, 2004. That legislation only covered

adult correctional officers and specialists employed by the Corrections Department.

ADMINISTRATIVE IMPLICATIONS

The administrative impact of HB 644 on PERA will be in administering another component of a

member coverage plan for certain Corrections Department employees. PERA anticipates confu-

sion among employers with members affected by the legislation. PERA will be required to

amend its regulations to address the statutory changes to the PERA Act.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

PERA notes that HB 644 conflicts with the PERA Act [NMSA 1978, Section 10-11- 27.1

through 32] and 2.80.100.7.C NMAC, which defines “adult correctional member” as a person

who is an adult correctional officer or adult correctional specialist employed by the corrections

department or its successor agency. HB 644 also conflicts with HJM 5, passed by the 47th Leg-

islature, which imposed a 2-year moratorium on proposed benefit enhancement legislation to the

House Bill 644 – Page

3

Public Employees Retirement System and the Educational Retirement System through December

31, 2006.

AMENDMENTS

Corrections suggests the following amendments to clarify the language in the bill to make clear

that it only applies to Corrections Department employees.

1.

Page 1, line 25, change first word "officer" to "employee".

2.

Page 2, line 2, after the words member coverage plan 1 remove the words "after January 1,

2003 but before".

3.

Page 2, line 3, remove "January 1, 2007".

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL

Adult correctional employees covered by a plan other than state police member and adult correc-

tion officer member coverage plan 1 will not have their service credit increased by 33%.

GG/yr