The new law takes effect July 1, and also will require current teachers and other educational employees to permanently pay more into their retirement system if they earn $20,000 or more a year. There will be no payroll contribution increase for those with salaries below that amount.
The changes are to improve the long-term finances of the pension system, which covers about 37,000 retirees and 61,000 working educators - from principals to janitors and college faculty.
For a teacher earning an average salary of $45,000, the payroll contribution increases over two years will lower take-home pay by $1,260.
There also will be benefit changes for new educators hired on or after July 1, including a minimum retirement age of 55.
"This proposal represents systemic reform to the state's educator pension system," Martinez said in a statement.
The Educational Retirement Board has a $6 billion gap between its assets and the projected benefits to be paid in the future.
The changes are expected to improve the pension system finances so that it's 100 percent funded in 30 years, with the growth in assets able to fully cover future retirement benefits for educators. Currently that "funded ratio" is 61 percent.
Similar finances problems grip public employee pension funds across the country because of investment losses during the recent national recession, generous benefits in some instances, a political reluctance to boost taxpayer contributions for retirement programs and a demographic trend of people living longer and collecting pension benefits for more years.
Cost-of-living increases for educational retirees are based on the federal government's Consumer Price Index, but have averaged about 2 percent. Under the new law, the yearly inflation adjustments for benefits will be lowered until the pension system is no longer underfunded - about 30 years.
The reductions will vary depending on the financial health of the retirement system and on a retiree's personal situation. The reduction will be smaller if a retiree worked for at least 25 years and receives an annual pension of about $18,000 or less currently. Those retirees, on average, will get a 1.8 percent cost-of-living increase - rather than 2 percent as in the past. Other retirees will see 1.6 percent inflation adjustments - a 20 percent reduction from what they otherwise would have received under the current system.
After an estimated 25 years, if the retirement program's finances improve as expected, inflation adjustments will improve somewhat and will be restored to the current system once the pension system is 100 percent funded.
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