Every January, a howling can be heard in and around Santa Fe, New Mexico. Sometimes, it’s just the wind coursing through the nearby Sangre de Cristo mountains. More often, the howling is coming from the members of the New Mexico state Legislature, which convenes every January for a 30- or 60-day session. The howling is the annual complaining about the fact that the New Mexico Legislature is the only one in the country that does not receive an annual salary. Instead, it receives a daily per diem based on the IRS travel reimbursement rates for Santa Fe. This year, the amount is $247. Strangely silent from the complaining legislators is any discussion of a need to modify their retirement plan. You will soon see why.
The primary statutes controlling legislators’ retirement pay are contained in New Mexico Statutes at Large (NMSA) 10-11-43.1 to NMSA 10-11-43.5. It is an extraordinarily generous defined benefit plan. Unlike any other state legislator pension plan in the country, a legislator in New Mexico can retire after only ten years of service and immediately start receiving a pension regardless of his age. It is not uncommon for ex-legislators in their thirties and forties to start receiving pensions.
To show the generosity of the plan, I will use the following hypothetical. A 28-year-old man is elected to the New Mexico Legislature and serves for ten years from January 1, 2015 until December 31, 2024. He starts receiving his pension in 2025, when he is just 39 years old. His life expectancy in 2025 is another 35.94 years. He makes the following plan contributions during his ten years in the Legislature:
Year
Amount
2015
$600
2016
$600
2017
$600
2018
$600
2019
$1,000
2020
$1,000
2021
$1,000
2022
$1,000
2023
$1,000
2024
$1,000
Total
$8,400
The formula to determine the retirement benefit after ten years of service is the per diem for Santa Fe in 2025 ($247) times (14%) times (90) times years of service (10). $247 * .149010 = $31,122 annual pension. When the annual pension is multiplied by the life expectancy of 35.94, the total comes to an astonishing. $1,118,524. That figure is 140 times the $8,000 pension contribution amount made by the legislator.
But wait. Cost of living increases are permitted in the pension two years after the pension begins. Here are the figures, assuming a 3% cost of living increase beginning in year 3 and each year thereafter until the end of the 36-year actuarial period.
Year
Annual payment
3% cost of living increase
Yearly total
2025
31122
31122
2026
31122
31122
2027
31122
933.66
32055.66
2028
32055.66
961.6698
33017.33
2029
33017.33
990.5199
34007.85
2030
34007.85
1020.235
35028.09
2031
35028.09
1050.843
36078.93
2032
36078.93
1082.368
37161.3
2033
37161.3
1114.839
38276.13
2034
38276.13
1148.284
39424.42
2035
39424.42
1182.733
40607.15
2036
40607.15
1218.215
41825.37
2037
41825.37
1254.761
43080.13
2038
43080.13
1292.404
44372.53
2039
44372.53
1331.176
45703.71
2040
45703.71
1371.111
47074.82
2041
47074.82
1412.245
48487.06
2042
48487.06
1454.612
49941.67
2043
49941.67
1498.25
51439.92
2044
51439.92
1543.198
52983.12
2045
52983.12
1589.494
54572.62
2046
54572.62
1637.178
56209.79
2047
56209.79
1686.294
57896.09
2048
57896.09
1736.883
59632.97
2049
59632.97
1788.989
61421.96
2050
61421.96
1842.659
63264.62
2051
63264.62
1897.939
65162.56
2052
65162.56
1954.877
67117.43
2053
67117.43
2013.523
69130.96
2054
69130.96
2073.929
71204.89
2055
71204.89
2136.147
73341.03
2056
73341.03
2200.231
75541.26
2057
75541.26
2266.238
77807.5
2058
77807.5
2334.225
80141.73
2059
80141.73
2404.252
82545.98
2060
82545.98
2476.379
85022.36
2061
85022.36
2550.671
87573.03
Total
2000396
With an assumed cost of living increase of 3% per year beginning in year 3, the total comes to the extraordinary figure of two million dollars after 36 years. This is 250 times the original contribution of $8,000. Mexican drug cartels would be envious of the profit margin.
Gluttony, thy name is the New Mexico state Legislature’s pension plan.
Image via Pxfuel.