Healthy Gains Reported for Pension Returns at NJ State Investment Council Meeting
Bump of over 8 percent for fiscal 2017 announced, even as Christie mulls bill giving cops, firefighters more control of their pension investments
Union officials in recent weeks have questioned the state’s management of public-employee pension investments as lawmakers have advanced a bipartisan measure that would give the police and firefighters more control over their retirement system.
But with that bill now sitting on Gov. Chris Christie’s desk, new investment-return figures suggest the state pension system has been doing much better over the past few months amid a period of general economic growth and healthy stock-market gains.
In all, state pension-system investments are up 8.6 percent during the 2017 fiscal year, according to data released yesterday during a public meeting of the New Jersey State Investment Council. The returns are even more impressive over the past 12 months, topping 15 percent.
To be sure, the pension system still has its significant challenges, including an unfunded liability that’s close toaccording to the state’s official calculations, and possibly much more by other estimates. The state has also for years not been contributing the full amount that’s needed based on the latest actuarial assessments to put the pension system back on a path to solvency. The current state budget provides only about 40 percent of that total.
But the new figures indicate investment performance, at least in recent months, does not seem to be a major issue for the $71 billion pension system, which covers the retirements of roughly 785,000 current and retired workers. Investments are up 7.87 percent over the past five years, and up 15.26 percent over the 12-month period through the end of February. The pension system’s assumed annual rate of return is 7.65 percent.
“It is nice to be able to report on a period that offers good news,” said investment council chair Tom Byrne at the beginning of the meeting yesterday.
The improved investment performance — fiscal year 2016 investment returns came in nearly 1 percent in the red — arrives just as Christie is deciding what to do with legislation that lawmakers sent him last week that would spin the retirement plan for police officers and firefighters out of the broader state pension system. Union officials haveamid the years of state pension underfunding, criticizing the state’s handling of investments, pointing to fiscal year 2016 returns, and questioning the acquisition of stakes in that require fees to be paid to outside managers.
Managing money for police and firefighters
Thewould create a new board of trustees to manage the assets of the Police and Firemen’s Retirement System, which has an estimated $24 billion market value. Right now, the state Division of Investment manages the investments on a daily basis for the overall pension system, under policies set by the investment council.
The legislation, which receivedfrom lawmakers last week, would also give employees seven of the 12 positions on the proposed board of trustees, meaning they would have a clear majority. But representatives of municipal and county governments have voiced concerns about that composition, saying unions would have too much power at the expense of government employers, ultimately putting taxpayers at risk if the board’s investment strategies prove faulty.
Concerns have also been raised about how shares of complicated investments that right now are a part of the broader pension system could be removed for only the police and firefighters. That issue came up during yesterday’s investment-council meeting, with Christopher McDonough, the director of the Division of Investment, indicating it is still being reviewed.
“We’re still working through what the effect would be on the portfolio if the bill were to be passed in its current state,” McDonough said. “There would be, very clearly, challenges in segregating the assets of any one individual plan from the portfolio given the structure of the current system.”
He also said an initiative launched last year that involvessome of the hedge-fund investments is progressing, with allocations dropping from 11.2 percent in September 2016 to 9 percent at the end of last month. The goal of getting hedge-fund allocations down to 6 percent would likely be met in early 2018, McDonough said.
Tipping his hand
For his part, Christie has yet to tip his hand as lawmakers await his decision on the PFRS bill. Though the concept of giving employees more say over their retirement-system investments was included in amade by a of benefits experts that Christie empaneled in 2014, that proposed change was only supposed to occur after the existing defined-benefit pension system was frozen in favor of a new defined-contribution cash-balance fund. Those recommendations and others put forward by the commission, which included Byrne as a member, have not been embraced by Democrats who control the Legislature.
Christie, a second-term Republican, acknowledged during a recent appearance on NJ 101.5 FM radio that the bill doesn’t do exactly what the benefits experts recommended, but he also offered little indication of which way he’s leaning.
“I have 45 days” to review the legislation, Christie said. “We’ll take a good look at it and we’ll see what we want do with it.”
Byrne, who has raised questions about the bill, said he’s yet to speak with Christie about the proposal. But he said he has discussed the measure with lawmakers, including some who voted for the bill but may also be having some misgivings.
The notion that some lawmakers could change their minds is important because, while the bill passed both houses of the Legislature with veto-proof majorities, if Christie were to issue a veto or a conditional veto the issue would then go back to lawmakers for consideration. Christie has never had one of his legislative vetoes overridden since taking office in early 2010, but the politics surrounding the PFRS legislation could pose a firm test to that record. All 120 legislative seats are on the November ballot, and the unions have made it clear the bill’s adoption is a top priority.
“I have talked to — and I won’t say who — I have talked to certain state legislators who voted for it and are troubled by it,” Byrne said. “There are the realities of political pressure, too.”