Updated October 30, 2026. Quick answer: New Mexico PERA sets its annual COLA with a statutory formula tied to investment return and funded ratio, with a floor of 0.50%, and pays it on the last business day of July. For July 1, 2026 the rate was 2.50% for two protected groups and 0.50% for every other eligible retiree. The 2027 rate is not set yet.
More on public pension retirement ages and eligibility: the New Mexico PERA retirement age and eligibility rules for Tier 2 and Tier 1.
How the PERA formula works
The PERA COLA page says: “Pension reform enacted by Senate Bill 72 during the 2020 legislative session requires that PERA use a statutory formula to calculate the annual COLA rate.” The page gives the formula: “[Return on Actuarial Value of Assets minus COLA Hurdle Rate] multiplied by Funded Ratio equals Initial COLA”. It defines the hurdle: “Statute defines the hurdle rate as the investment rate of return required to fund a cost-of-living adjustment in excess of one-half percent, as determined by the association’s actuaries.”
The page sets limits: “COLA cannot be less than 0.50%. Maximum COLA depends on funded ratio. If funded ratio is less than 100%, maximum COLA is 3.00%. If funded ratio is greater than 100%, maximum COLA is 5.00%.”
The July 1, 2026 rates
PERA lists the statutory rates for eligible retirees as of July 1, 2026. The first protected group is “2.50% for retirees who retired with at least 25 years of service (and disabled retirees regardless of service) whose annual pension is $25,000, or less;” The second is “2.50% for a closed group of retirees who attained at least age 75 prior to July 1, 2020; or 0.50% for eligible retirees who do not meet the above-mentioned two qualifying factors.” The PERA page prints no funded ratio or return behind the 0.50% rate, so this page cannot show how the formula produced it.
Who is covered and who is left out
PERA states: “The COLA is calculated only on pension amounts paid for service credit under the Public Employees Retirement plan.” It adds: “COLAs for Magistrate Retirement plan or the Judicial Retirement plan members are paid as statues and rules allow.” For retirees with benefits from both systems, “For reciprocity retirees with Educational Retirement Board (NMERB) benefits, the COLA is calculated only on the PERA benefit portion.” A PERA overview presentation dated August 4, 2026 says: “VFF Retirees are not eligible for a COLA”.
When the COLA starts and when it is paid
PERA says: “There is a two full-calendar year COLA eligibility period for members who retire under normal retirement.” “If you retire due to a disability or if you are at least age 65 prior to your first COLA eligibility date, the COLA eligibility period is reduced to one full-calendar year.”
“The COLA will be paid on the last business day of July following the full-calendar year.” PERA also says: “Eligible COLA recipients receive a notification letter in July each year advising them of the increase in their pension payments.”
Where 2027 stands
The 2027 PERA COLA is not set yet: it depends on a statutory formula that PERA applies each July, with 2.50% rates for two protected groups, and this page updates when PERA publishes the July 2027 rates. The August 4, 2026 overview presentation gives no 2027 rate either.
A worked example
As a computed illustration (not a source figure), a retiree in the 0.50% group with a monthly pension of $2,000 (invented, for the computation) would see an increase of $10 (computed) a month. A retiree in a 2.50% group with the same pension would see $50 (computed) a month.
Common mistakes
- Assuming everyone gets 2.50%. For July 1, 2026 PERA lists 2.50% for two groups and 0.50% for eligible retirees outside them.
- Expecting a COLA in the first years of retirement. PERA sets a two full calendar year wait for normal retirement, reduced to one year for a retiree who is disabled or who is at least age 65 before the first COLA eligibility date.
- Treating the 2026 rates as the 2027 rates. The formula is applied again each year and PERA has not published a 2027 rate.
Related: New Mexico PERA retirement decisions, how public pension decisions work, and whether New Mexico taxes pensions.
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Answer againSources
- New Mexico PERA, Cost-of-Living Adjustment (COLA): www.nmpera.org
- New Mexico PERA, PERA COLA Overview (stakeholder presentation): www.nmlegis.gov
- Related official page (not quoted): IRS Tax Topic 410, Pensions and annuities: www.irs.gov
- Related official page (not quoted): IRS Tax Topic 411, Pensions: the General Rule and the Simplified Method: www.irs.gov
Read from the primary documents linked above on October 30, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer or the IRS itself is the right place to confirm anything consequential.