News Stories

The New Mexico Educational Retirement Board (ERB) investment portfolio gained 18.6% for the year ended June 30, 2010, exceeding its customized benchmark by 5.90 percentage points.  Even more importantly, the return exceeded the actuarial target return of 8% by a significant margin.  Investment returns added $1.3 billion to the fund balance during the fiscal year ended June 30th. 

Bruce Malott, Chairman of the Board commented:  “I would like to personally commend the staff and Board for the hard work that has gone in to restructuring our investment portfolio and strategy to deal with a wide variety of market conditions.  The benefits of these efforts are clearly evident in our annual investment results which rank in the top 2% of U. S. public pension funds of $1 billion or more in assets.”

“It is gratifying to see the efforts of our Board, staff and plan consultants validated by these superior results” said Bob Jacksha, the Chief Investment Officer of the $8.2 billion fund.  “The strategic asset allocation adopted by the Board in 2007 is once again proving to be quite effective in improving investment results.”

By asset class for the year, domestic equity returned 14.2%; foreign equity 18.3%; fixed income 20.3%; absolute return funds 14.4%; private real estate 0.2%; REIT’s 55.6%; private equity 24.3%, and real assets 4.2%.

For the three and five-year periods ended June 30, the ERB’s investment portfolio returned an annualized -2.8% and 4.0%, respectively, versus the benchmarks’ return of -3.5% and 3.2%.

The complete performance report will be available shortly on the NMERB website: http://www.nmerb.org/fundstatus.htm

The ERB is the defined benefit pension plan for the State of New Mexico educational employees, including K through 12 and colleges and universities. 

ERB Returns 40.4% for 12 Month period ending March 31, 2010

Albuquerque, NM – Investments by the New Mexico Education Retirement Board realized an impressive 40.4 % return for the 12 months ended March 31, 2010, netting $2.34 billion for the fund that pays retirement benefits for retired teachers and education employees.

The fund grew from $6.21 billion on March 31, 2009 to $8.55 billion on March 31, 2010, and ranked in the 9th percentile of the Public Funds over $1 billion universe, according to NEPC, the Fund’s advisor. In other words, the ERB Fund performed better than 91 percent of the more than 52 Public Funds in that  universe.

During the 5-year period ended March 31, 2010, the Fund returned 5.3% per annum, ranking in the top 11% of its Public Fund peers, a significant improvement over prior 5 year periods.

“While there are a number of factors that contributed to the recent improvement in the Fund’s absolute and relative returns, much of the improvement can be credited to the impact of the Board-approved diversification strategy which has systematically reduced the Fund’s reliance on volatile equity market returns as the primary driver of Fund results” explained Bruce Malott, the ERB’s Board Chair. “The Fund’s significant allocations to domestic equities (26.6% of the total Fund) returned 49.9%, emerging market equities (12% of the total Fund) returned 85.8%, credit opportunity strategies (6.6%) returned 52.1%, core fixed income (25.7% allocation) returned 22.3% and real estate investment trusts (REITS) (3.8%) returned 113.5%.  These allocations all contributed to the strong annual results, but also position the Fund well for the future.”

HB 239 Passed and Signed by Governor Richardson, no COLA decrease

HB239 passed and signed by the Governor ensures there will not be a decrease in our retirees’ monthly benefits. Previously Section 22-11-31 (B) of the New Mexico Educational Retirement Act required that decreases in the Consumer Price Index will cause retiree benefits to decrease. Since the Consumer Price Index showed a decrease from 2008 to 2009 the result would have been a -0.4% reduction in a retiree’s monthly benefit. HB239 changed the language to state “Annuities shall not be decreased in the event that there is a decrease in the Consumer Price Index between the next preceding calendar year and the preceding calendar year.” While it is unfortunate that our members will not be receiving a cost of living adjustment increase this year they will not suffer a decrease this year or in the future.

Social Security Numbers and 1099 Forms

Rule Change: Allowed Service Credit Rule

The following is a proposed ERB rule change that will be on the agenda at the regular Board meeting on Friday, December 11, 2009. The meeting will take place at the New Mexico Educational Retirement Board Office, 6201 Uptown Boulevard NE, Suite 203, Albuquerque, New Mexico 87110, beginning at 9:30 AM. If you wish to make a comment on the proposed rule, please send your comments no later than Friday December 4, 2009 by email to rulechange@nmerb.org or by regular mail to: ERB, 701 Camino de los Marquez, Santa Fe, NM 87505.

view proposed rule change (pdf)

Facts Behind Recent Coverage of Lawsuits

Santa Fe, NM, June 29, 2009 – The Educational Retirement Board (ERB) takes its responsibilities to its retirees, members, and the taxpayers very seriously.  Although the ERB ordinarily will not comment on lawsuits concerning the agency or its investments, when unfounded, baseless claims are made in the lawsuits and at press conferences, the ERB will respond to bring needed clarity.

On June 16, 2009 Frank Foy, the ERB’s former chief investment officer, filed another lawsuit alleging wrongdoing on the part of current and former members of ERB’s Board of Trustees and employees in relationship to several ERB investments. 

It is important to note that it is very easy to bring a lawsuit.  And, it is very easy for some plaintiffs and their lawyers to include all manner of unsubstantiated allegations, questionable claims, and innuendo in a lawsuit.  There is no test of whether those claims can be included before a lawsuit is filed.  That does not come until later.  That is a key reason why courts frown on the parties and their lawyers ‘trying’ a case in the press rather than in court, although there are some who will attempt to do that. 

New Mexico has a new law that allows plaintiffs who successfully bring private suits against those who would defraud the State to recover large sums of money for themselves and the State.  Used properly, the new law will benefit the State as well as those plaintiffs.  But, as with any tool, the new law can be subject to abuse by those seeking publicity and personal benefit.  Only time will show whether the checks included in the new law will keep it from being abused. 

The history of this litigation goes back to 2005, when the legislature allowed the ERB to do what already had been done in many other states: diversify its investments to bring more strength and stability to the pension fund.  Frank Foy was the ERB’s chief investment officer when that process began and played a crucial role in hiring investment managers such as Austin Capital Management and advisors such as Aldus Equity, both of which occurred in 2006.

That was before Bob Jacksha was hired as the ERB’s Chief Investment Officer, a position of trust and responsibility for which he is well-qualified.  Mr. Jacksha’s skill and training made him a logical choice for the job and he earned it on merit.  Allegations in Mr. Foy’s lawsuit about Bob Jacksha’s supposed role in events that occurred before he started working at the ERB only highlights the phantom threads used to weave the web of intrigue or “matrix of corruption” alleged by Mr. Foy and his lawyer. 

ERB Trustees, who serve as our governing board, also have been unjustly maligned.  This also includes former state Treasurer Doug Brown, a past Trustee and public servant of solid record and reputation.

The litigation process will test Mr. Foy’s claims and weed out those without any basis in fact or law.  In the meantime, it is important not to accept as fact unsubstantiated allegations, questionable claims, and innuendo or to allow them to harm the reputations of honorable people. 

New Mexicans have well-founded concerns about the actions of some in relation to investments made by ERB and other state agencies.  The ERB has not ignored those concerns.  However, rather than grandstanding, the Board of Trustees asked staff to carefully review what occurred and determine what well-founded legal action can be taken to recover damages.  Staff has completed part of this review and will make recommendations to the Board.  This process may not result in the same headlines, but the ERB believes the process will be more successful. 

Under the Board’s direction, staff also is continuing to tighten its due diligence procedures.  These procedures were put in place in 2007.  The ERB continues to improve those procedures based on what has been learned in New Mexico and elsewhere.

ARP Optional Switch To Defined Benefit Forms Available

Recently the Legislature enacted a number of changes to the Alternative Retirement Plan (“ARP”), which is available to qualifying participants.  Among the changes to the ARP, participants who have made contributions to the ARP for 7 years or more will have a one-time opportunity to become members of ERB’s regular defined benefit retirement plan.  ARP participants will have 120 days after becoming eligible to elect to switch to the regular defined benefit plan.  Additional materials explaining this option will not be available until later this summer.  In the meantime, due to requests by ARP participants, the ERB has provided a guide and a form to the Human Resource Departments at the colleges and universities for use by those eligible participants who are considering switching to the regular defined benefit plan.  ARP participants should contact their employer’s Human Resources Department for information about the option to change to the regular defined benefit plan.

ARP participants should consider the following when deciding whether to change to the defined benefit plan:

• The option to switch to the regular defined benefit plan is a one-time option.  Participants will not have a second option.

• The option is only available for 120 days after the participant has contributed to the ARP for 7 years.  The 120 day period is absolute; extensions are not available.

• Participants will not be able to buy credited service in the defined benefit plan for the time they were in the ARP.  Balances in the ARP will remain in that plan until the participant retires.

• Participants who elect to switch to the defined benefit plan will be new members in that plan.  They must have five (5) years of contributory employment after switching to become vested members in the defined benefit plan.  They will not receive credit for time in the ARP plan.

• Switching to the defined benefit plan is not the best choice for every eligible participant.  Age, years in the ARP, number of years remaining to planned retirement, salary expectations, and other retirement resources are a few of the factors that should be considered when deciding whether to make the switch.  Participants should estimate what they expect to receive as a pension from the defined benefit plan before making a decision.

download >> ARP Information Brochure

download >> ARP Election Form

Changes to Income Tax Withholding?

New IRS tax tables have been published to reflect the Making Work Pay tax credit and other changes resulting from the American Recovery and Reinvestment Act of 2009. This tax credit is based on “earned income”. The IRS definition of “earned income” includes wages and earnings from self employment. The IRS definition of “earned income” specifically excludes pension and annuity income. If the NMERB were to use the new withholding tax tables, our members could potentially have a large balance due when they file their federal taxes for 2009 and 2010, as they are not eligible for this tax credit on their NMERB pension.

If you would still like to adjust your withholding, please contact our payroll department at (505) 827-8030. Please be aware that any decreases in withholding could result in interest and penalties being owed on your federal taxes.

Investment Update

With volatility in worldwide investment markets the ERB again finds itself with media attention. We welcome the opportunity to educate our membership and all of our stakeholders regarding our portfolio.
Recent attention focuses on ERB’s performance results for the year and quarter ending December 31, 2008. Looking at only one year or one quarter is not meaningful as pension funds are long-term market participants. At June 30, 2008, over the previous three and five year periods, the Fund ranked in the top third of the Independent Consultant Cooperative’s Public Funds Universe. The preliminary results of the first quarter for 2009 show the ERB’s performance to be around the median of our peers.

Nevertheless the Board is concerned and continues to monitor its investment decisions and performance regularly. This monitoring includes reviewing asset allocation and transitioning from an asset allocation heavily dependent on the equity markets to one employing greater diversification. The Board, and its investment consultant, strongly believe that as the portfolio diversifies away from a high concentration of equities and into alternatives such as private equity, that returns will improve and risk will diminish.

Contrary to other representations, the ERB will continue to be able to meet its obligations to retirees. With a current fund balance of $6.5 billion the ERB has adequate funds for years to come.
ERB continues to be on the forefront in recommending changes to ensure the solvency of the fund. ERB’s board initiated the charge for benefit changes that resulted in the new 30 year service requirement for new members joining after July 1, 2010. The ERB will continue to provide innovative recommendations and leadership through participation on the Retirement Systems Solvency Task Force created in Representative John Heaton’s House Bill 573. This legislation was signed by Governor Richardson on April 10, 2009.

Transparency is critical to our membership. Through the Fundstatus link stakeholders can access a vast amount of investment information.

ERB Response to Lawsuit

On January 14, 2009, Frank Foy, a former investment officer for the ERB, held a press conference unveiling a lawsuit in which he seeks over $300 million in damages for himself and on behalf of the State of New Mexico for alleged wrongdoing involving certain investments by the ERB and the State Investment Council.  In addition to naming a number of firms and individuals in the investment, accounting, and legal professions as defendants, the suit also names Bruce Malott, Chairman of the ERB’s Board of Trustees and Gary Bland, New Mexico’s Investment Officer and a member of ERB’s Board as defendants.  Neither the Board of Trustees itself nor the ERB are named as defendants.  Mr. Foy alleges that the ERB was improperly pressured to make the investments and that he was falsely accused of sexual harassment and creating a hostile work environment because he opposed those investments.

The ERB believes that Mr. Foy’s allegations are unfounded and that his lawsuit is without any merit.  The investment that is the subject of Mr. Foy’s lawsuit was approved in accordance with ERB’s procedures.  Mr. Foy participated in that process and recommended approval of the investment.    As Chairman Malott stated, “it is unfortunate that he now seeks to exploit recent headlines for his personal vendetta.”  In addition, the ERB stands behind the actions it took in response to the allegations against Mr. Foy of sexual harassment and creating a hostile work environment.

ERB Exposure to Madoff Hedge Fund

As part of our overall investment plan, ERB allocated approximately 10% of our assets to hedge funds. One of our hedge fund managers has an investment in a fund managed by Bernard Madoff.  As the press has widely reported, Mr. Madoff is alleged to have committed fraud in the management of several hedge funds.   

While the ultimate outcome of this investment is unclear at this time, we do know that our maximum possible exposure is $9.75 million.  Although this is not an insignificant amount, it represents only 0.15% of our total fund balance.  Regardless of the outcome, it will not affect the payment of retiree benefits.  It will not have an impact on the stability of the fund.

We are examining all of our options in this matter with an eye toward maximizing our return of capital on this investment.

Callers Claiming to Represent ERB

ERB has received reports that an individual claiming to represent the New Mexico Education Retirement Board (“ERB”) or an entity with a similar name has contacted ERB retirees.  The individual said he wanted to meet with them to provide information about changes in their benefits or about additional benefits that are available to them. This individual does not represent the ERB.

Member confidentiality is very important to the ERB.  The ERB does not provide member information to private vendors.  In addition, ERB employees will never ask to come to a member’s home or ask a member to meet them anywhere other than at our offices.  If a caller claims to represent the ERB, you may verify their identity by asking for their name, hanging-up, and calling the ERB at the following numbers: toll free – 866-691-2345; Santa Fe – 505-827-8030; Albuquerque – 505-888-1560; and, Las Cruces – 575-647-3313, and asking if that person works for the ERB.  Only contact ERB employees at their offices.

By exercising caution, retirees can protect themselves from unwanted sales calls, investor fraud and identity theft.  More information about investing and identity theft can be found at the New Mexico Regulation and Licensing Division’s web site and at the New Mexico Attorney General’s web site.