A. The amount by which an eligible public employee’s salary is reduced pursuant to a salary reduction agreement shall continue to be included as compensation for the purpose of computing retirement benefits under the Public Employees Retirement Act [N.M. Stat. Ann. Chapter 10, Article 11], the Educational Retirement Act [N.M. Stat. Ann. Chapter 22, Article 11] and the Judicial Retirement Act [N.M. Stat. Ann. Chapter 10, Article 12B]; provided this inclusion does not conflict with federal law, including federal regulations, pertaining to the Federal Insurance Contributions Act or to Internal Revenue Code, Section 125 pertaining to cafeteria plans.

B. The amount by which an eligible public employee’s salary is reduced pursuant to a salary reduction agreement shall not be considered as gross income for purposes of computing New Mexico income tax, state unemployment tax and state worker’s compensation and federal income taxes to be withheld and paid on behalf of the employee.