Advocates Seek Reforms For More Secure Retirement For N.M. Seniors
A nonpartisan statewide think tank is warning the high rate of seniors living in poverty in New Mexico could grow without significant changes. Think New Mexico is supporting legislation to curtail what policy experts there call a crisis in retirement security that is quietly growing throughout the state. KUNM spoke with Executive Director Fred Nathan about reforms he says are necessary to protect the state’s seniors, now and in the future.
NATHAN: About 80 percent of New Mexicans have $10,000 or less saved for their retirement. In other words, they're going to try to make it on Social Security alone. And so the average benefit in New Mexico's is a little bit less than fourteen thousand dollars and you need about twice that to subsist in terms of shelter and food and health care that's not paid for by Medicare or Medicaid.
KUNM: In New Mexico, people pay taxes on their Social Security benefits. Do other states have that kind of taxation?
NATHAN: No. New Mexico is one of only 13 states that tax Social Security benefits. And of those 13 states, New Mexico's tax treatment of Social Security is the second highest. So New Mexico's tax and Social Security benefits is a double tax on individuals. When New Mexicans are working, the state taxes the money that's taken out of their paychecks for Social Security, even though that money never reaches their bank accounts. Then they are taxed again on the benefits they receive.
KUNM: You're supporting several bills in this legislative session that would repeal or decrease those taxes on Social Security benefits. Would this have a big impact on the state's budget?
NATHAN: There are several bills that would just repeal the tax entirely and that would be about 60 to 73 million dollars. When you look in terms of the entire state budget, that's less than 1 percent.
KUNM: You're also supporting a bill called the New Mexico Work and Save Act that would create a system of individual retirement accounts for workers who don't have access to retirement savings through their jobs. How would this plan work? So even if your employer doesn't offer a plan, you could opt into the state plan?
NATHAN: That's correct. So participation would be completely voluntary for both businesses and workers. Businesses, and I should add nonprofits, choose whether they would like to offer the payroll deduction individual retirement accounts to their workers and workers would then choose whether or not to participate and how much they would like to save from each paycheck. Research shows that workers are 15 times more likely to save for retirement when they're able to have the savings automatically deducted from their paychecks. And that's the really important factor here and why this can make just a transformational difference in personal retirement savings.
KUNM: A growing number of people are freelancers or in the gig economy. What about them? Would they be able to access it?
NATHAN: Absolutely. And that's probably one of the most attractive features of this, is that you don't have to come from a big company. You can be a sole proprietor.
KUNM: The third leg of your policy proposals is about the pension system. Like many states are facing a problem with more beneficiaries being supported by fewer workers. One of the proposals that you are pushing for are reforms to the boards overseeing state pensions, like the Public Employees Retirement Association. Why does the governance need to change?
NATHAN: No one is required to have a background in finance or investments, even though this board is overseeing nearly $16 billion of retirement accounts for approximately 90,000 New Mexico state and local workers. The research indicates that pension funds that are overseen by qualified investment professionals do about one to two percent better. One percent of $16 billion is $160 million. And our point is this is some low-lying fruit that would pay enormous dividends to our pensioners if we'd simply change the makeup of this board and put some qualified people on it.
Note: There are seven bills introduced by Democrats and Republicans to reduce or repeal the Social Security tax. The New Mexico Work and Save Act passed the House Labor, Veterans and Military Affairs Committee on January 28.
This story is part of the project: Your NM Government. Funding for our legislative coverage is provided, in part, by the Thornburg Foundation, the New Mexico Local News Fund and KUNM listeners like you.