Think New Mexico, a nonprofit think tank that formed more than 20 years ago, has played a role in myriad significant state policies over the years. These include full-day kindergarten, lottery reform and the food tax repeal.

In 2019, the organization (thinknewmexico.org) released a policy paper on recommended reforms to strengthen retirement security for New Mexicans. Its suggestions include removing a tax on Social Security benefits; refining a previous bill from AARP that would create the option of automatic payroll deductions for retirement to private-sector employees whose jobs don't offer it; and increasing the qualifications for board members of the Public Employees Retirement Association [PERA]. These policy reforms come as the state is grappling with deficits both in PERA and the New Mexico Educational Retirement Board of approximately $12 billion.

SFR talked with Think New Mexico founder and Executive Director Fred Nathan about these initiatives, for which the organization will be advocating in the 2020 Legislature, which begins on Jan. 21. The interview has been edited for clarity and space.

How did the issue of retirement get on Think New Mexico’s radar?

We came across this amazing statistic that was just astounding, which is that about 62% of New Mexicans have nothing saved for their retirement, and 80% have $10,000 or less. And we thought, 'Wow, this is a huge crisis that no one seems to be addressing.' It's not just here—of course, it's worse here—there's just this general misunderstanding among many Americans that 'I don't have to save for my retirement because that's what Social Security does,' and a failure to understand that program was just created to supplement your retirement. You still need to save for your retirement.

You’re recommending a repeal of the state’s income tax on Social Security benefits, and your report notes we have the second heaviest tax on Social Security benefits in the country. How did that happen?

Historically, it happened in 1990 when the Legislature had a $12 million budget deficit. They were passing a complicated tax bill and, on the second to last page, it was just a one-sentence amendment. My guess is someone stuck it in, many of the legislators didn't know what was in the bill and what they were voting on and, once it's in law, then it's like, 'we need this revenue.'

It makes no sense if you look back at why [President Franklin D Roosevelt] and Congress enacted Social Security. It was designed to supplement the income of senior citizens, 50% of whom back then were living in poverty; it was just designed to help them live out their lives in dignity. It was never taxed until the same thing happened at the federal level: There was a budget problem in the early 1980s, so they started to tax it, and then we followed in 1990. It's astonishing that we're 49th in income [in the US] and yet we have the second highest tax on Social Security benefits.

Kiplinger Magazine ranked New Mexico low—39th—as a place for people to retire. Is that the main issue with this tax or is it about poverty among New Mexico’s elderly?

First, it's a fairness argument…it's a double tax. People are taxed when they earn the money and it's taken out of your paycheck and, since 1990, you're taxed when you take it out. The average benefit in New Mexico is $13,900 annually so, if you run the numbers, it's about $700 [in annual taxation], which is a lot of money to many New Mexicans. According to the federal Department of Labor, the typical senior citizen in the United States—not just New Mexico—needs about $28,000 [annually] for food, housing and health care over and above Medicare. If you have nothing saved, you're trying to make it on $14,000, which is about half of what you need.

Then, there's the economic development argument. Every dollar of Social Security generates about $1.71, according to AARP, in economic output. Many of those people are low- and middle-income people who would get that benefit of not having their Social Security benefits taxed—that's going to go right back into the economy. So, first of all it helps retirees already here and, secondarily, it would help to change our reputation nationally.

Another reform you’re recommending [The New Mexico Works and Save Act, HB 44] would provide automatic deductions for retirement plans to everyone, even if an employer doesn’t offer that benefit.  

It's targeted to those private sector employees whose employers don't provide that, and that's about 60% of private sector employees in New Mexico. It's not great anywhere. The No. 1 state is Minnesota, where about 60% have it; we're at about 40%. I was thinking about this over the weekend…About 55% of Americans, either through retirement or some way, are invested in the stock market. If you think about the wealth disparity in this country, I think it's because the top half have access or are invested in the stock market, usually through a retirement account, and that's compounding at 10% a year—this year at like 30%. Then you have the other half who are not exposed to the stock market, usually because they don't have a retirement account. This is a big deal in the sense that if we could get the other 60% of New Mexicans who are not invested into a private retirement account to supplement their Social Security, this crisis wouldn't be a crisis.

Do you have buy-in from the private sector businesses and/or from investment companies locally?

AARP tried this last year and they didn't have buy-in, principally because they wanted to mandate that businesses do this. We prevailed to make it a voluntary program, at least to start, because we think there will be more buy-in and, frankly, will reduce the opposition. The thing that makes it so sexy to a policy wonk is the statistics: People are 15 times more likely to save if they do it through automatic payroll deduction. One of the reasons there's such low access in New Mexico is that most businesses are very small and they don't have the bandwidth. This is designed to make it easy.

Think New Mexico is recommending the state increase the qualifications for people who serve on the PERA board. What prompted this?

Some researchers at Stanford did a fascinating study where they compared public pension boards across the country and they discovered that those funds that have qualified people on the board tend to have higher performance.

Huh.

It's completely logical. No one on [the PERA] board is required to have any background in investments or finance. They do have a few people, but many don't, and it's a completely dysfunctional board. There's a very funny quote [in our report] where state Sen. George K Muñoz [D-Gallup] says, 'it's a clown show over there.' Last year, they had a fight over the quality of snacks they're served. They literally spent seven minutes on this discussion…One board member talks about the level of service she's receiving from staff, which she thinks is inadequate…It's amazing these people are overseeing $16 billon of investments and they're arguing about the snacks.

In their last meeting, they were supposed to be meeting to discuss some recommendations by the Attorney General and the State Auditor about improving their policies and procedures. Instead, the meeting deteriorated immediately when one board member [Loretta Naranjo Lopez] accused another board member [Trustee Stephen Neel] of stealing her iPhone…She walks out of the meeting and makes a big speech about how she's leaving so they won't have a quorum to update their policies and procedures and just get them up to code. Everyone who is on that board will tell you: It doesn't work. So, we're working with Sen. Muñoz, who has a bill already introduced [Senate Bill 60] that would require that these people have some background in finance and investments.

Does that proposal have a common thread with Think New Mexico’s past work to increase qualifications for the Public Regulation Commission? 

Absolutely. We think it's a good thing now that all the members of the PRC have to have work experience, qualifications and educational qualifications that make them qualified to do those jobs, and the same goes for the PERA board.

Are you supportive of the PERA Solvency Task Force recommendations? 

By and large, yes. I'm not sure I would increase the contributions by the state and by the employees, but the [Cost of Living Adjustments] need to be addressed. Overall, I'm really impressed with the work of the task force on everything else.

It sounds like state retirees are not as sanguine.

Maybe our proposal on Social Security can be helpful there. All of the state retirees also collect Social Security, so while the COLA reforms are not being well received, maybe if we can repeal the tax on Social Security benefits, that will compensate those employees.

That’s a lot of reform. Are you optimistic it will all get heard?

Very optimistic.