2020 New Mexico Statutes
Chapter 22 - Public Schools
Article 11 - Educational Retirement
Section 22-11-21.1 - Member contributions; tax treatment.

Commencing on July 1, 1983, each local administrative unit shall, solely for the purpose of compliance with Section 414(h) of the Internal Revenue Code, pick up, for the purposes specified in that section, member contributions required by Subsection A of Section 22-11-21 NMSA 1978 for all annual salary earned by the member. Member contributions picked up under the provisions of this subsection shall be treated as local administrative unit contributions for purposes of determining income tax obligations under the Internal Revenue Code; however, such picked-up member contributions shall be included in the determination of the member's gross annual salary for all other purposes under federal and state laws. Members' contributions picked up under this section shall continue to be designated member contributions for all purposes of the Educational Retirement Act and shall be considered as part of the member's annual salary for purposes of determining the amount of the member's contribution. The provisions of this section are mandatory, and the member shall have no option concerning the pickup or to receive the contributed amounts directly instead of having them paid by the local administrative unit to the educational retirement system.

History: 1978 Comp., § 22-11-21.1, enacted by Laws 1983, ch. 91, § 1.

Cross references. — For the Internal Revenue Code, see 26 U.S.C. § 1 et seq. For Section 414(h) of the Internal Revenue Code, see 26 U.S.C. § 414(h).

Provisions are salary reductions subject to FICA tax. — "Pickup" provisions of this section and Section 10-11-125 NMSA 1978, whereby the state designated certain employee pension contributions as employer contributions, constituted salary reduction agreements, and, as such, were subject to FICA taxes under 26 U.S.C. § 3121(v)(1)(B), 42 U.S.C. § 409(i)(2), and 26 U.S.C. § 3306(r)(1)(B), following the 1984 amendments to those sections. Pub. Employees' Ret. Bd. v. Shalala, 153 F.3d 1160 (10th Cir. 1998).

Exemption from income tax permitted. — The legislature may grant a special income tax exemption to one kind of public employee, teachers, yet deny the same exemption to other public employees. Vaughn v. State Taxation & Revenue Dep't, 1982-NMCA-112, 98 N.M. 362, 648 P.2d 820, superseded by statute, Pierce v. State, 1996-NMSC-001, 121 N.M. 212, 910 P.2d 288.

Repeal of tax exemption. — Because no private contractual rights were granted by the retirement plan, there was no impairment or breach of contract resulting from the 1990 repeal of the tax exemption provision and, although the plan conferred property rights that vested upon accumulating minimum earned service credits, those rights did not include the right to receive pension benefits exempt from tax. Pierce v. State, 1996-NMSC-001, 121 N.M. 212, 910 P.2d 288.

Because the retirement plan provided no contractual or vested right to receive an irrevocable tax exemption, there was no constitutionally protected private interest in the tax exemption and there was no due process violation when the exemption was repealed. Pierce v. State, 1996-NMSC-001, 121 N.M. 212, 910 P.2d 288.

"Trading" tax exemptions for health care. — Repeal of the state income tax exemptions for teacher pensions and public employee pensions does not remedy constitutional defects of the proposed retiree health care act under a theory that those exemptions would be "traded" for retiree health care. Those exemptions are not property rights, irrepealable contractual entitlements, or pension benefits. Hence, elimination of the favorable tax treatment for current retirees is not consideration for a multi-million dollar health care plan that the state proposes to provide them. 1990 Op. Att'y Gen. No. 90-03.