New Jersey police officers and firefighters moved a major step closer to getting more say in how their pensions are administered after the full Assembly voted yesterday in favor of a bill that would spin their retirement fund out of the broader state pension system.
The proposal to create a new board of trustees to administer the New Jersey Police and Firemen’s Retirement System now heads to Gov. Chris Christie; the Senate already voted in favor of the legislation earlier this month.
But Christie — a Republican who has tried to focus on improving the fiscal health of the grossly underfunded public-employee retirement systems during his two terms in office — has yet to give any indication whether he is in favor of the proposal. Opponents say the change will ultimately shift more risk onto taxpayers, something Christie has tried to prevent from happening in earlier reform efforts. Yet even if the governor chooses to veto this measure it may not matter; the bill has now passed both houses of the Legislature with enough votes to overcome a veto.
Officials from unions representing police officers and firefighters praised the bill’s advancement yesterday, saying the proposed new PFRS board is modeled on successful pension boards operating in other states. But representatives of municipal and county governments voiced concerns that the bill gives too much power to the unions at the expense of their government employers because the new panel would give more places on the board of trustees to the unions than the employers.
Years of underpayments
In all, the $72 billion state pension system is made up of seven different accounts, representing employee groups like teachers, judges and police officers and firefighters. While the overall system is grossly underfunded thanks largely to years of underpayments by the state — nearly $50 billion as of the latest official accounting — some of the individual retirement funds are in better shape than others.
For example, the retirement account for judges is in the worst shape, funded at only 36 percent. By contrast, the PFRS is in the best shape, funded at 70 percent. Part of the reason for the difference in funding levels is that the state is responsible for covering the employer contributions that are made into the retirement systems for the judges, while the PFRS employer contributions are generally made by local governments. And unlike the state, county and municipal governments are generally required by state law to pay their full employer pension contribution.
During the debate in the Assembly yesterday, Assembly Speaker Vince Prieto (D-Hudson) said giving the unions a chance to manage their own pension system means they would have more “skin in the game” than the current management structure allows. Right now, the state Division of Investment manages the overall pension system under policies set by the New Jersey State Investment Council.
Union officials have been growing increasingly frustrated with the pension system’s lackluster returns in recent years, and they’ve also raised concerns about investments in hedge funds and other so-called alternative investments that require fees to be paid to outside fund managers.
“This is one innovative way to make sure that we’re mindful of how we invest in the pension (system) and make sure the managing of it is (by) the people who care the most about it, the recipients,” Prieto said.
All of the risk put on taxpayers?
But the proposal also drew criticism from both sides of the aisle yesterday, with Assemblyman John Wisniewski (D-Middlesex) raising questions about the makeup of the new board of trustees. There would be seven slots for employee representatives versus five for government representatives. And since the bill gives the panel the authority to set contribution rates in addition to making investment decisions, he said the proposal puts all of the risk on the taxpayers if the new board’s investments turn out to be faulty.
“This is a bill that is not in the public interest,” said Wisniewski, who also raised concerns about whether the new board would be subject to the state Open Public Meetings Act.
Assemblyman Declan O’Scanlon (R-Monmouth) also came out firmly against the bill during the debate, saying the makeup of the new board would give the unions the ability to “crush property taxpayers.” Though Christie worked with lawmakers in 2010 to establish a 2 percent limit on local property tax increases, they allowed several exceptions to the cap, including costs associated with covering employee-pension benefits.
“We are absolutely not just flirting with danger, but inviting serious danger,” O’Scanlon said.
Christie has yet to say anything publicly about the bill, and his office did not respond to a request for comment yesterday. But Christie’s former state treasurer, Andrew Sidamon-Eristoff, wrote in NJ Spotlight earlier this week that he has numerous concerns, including the loss of economies of scale that the pension-system members are now benefitting from and the challenge posed by removing shares of complicated joint investments for only the police officers and firefighters.
Bill may be veto-proof
O’Scanlon said he hopes Christie takes action to address the bill’s flaws, suggesting a conditional veto or even outright veto could be looming.
“I believe the governor’s office will have the good sense to fix it, or veto it,” O’Scanlon said.
In the end, it may not matter how the governor feels about the issue. Though there have been many instances during Christie’s tenure where lawmakers have passed bills with a veto-proof majority only to see GOP members change their minds when confronted with an override of the governor, the PFRS bill cleared the Assembly yesterday by a comfortable 61-4-10 vote, and the vote in the Senate was even wider, passing by 37-0 margin. To secure an override, it takes 27 votes in the Senate and 54 in the Assembly.
The concept of giving employees more say over their retirement systems’ investment decisions was included in a series of recommendations made by a nonpartisan commission of benefits experts that Christie impaneled in 2014. It’s also been supported by Senate President Stephen Sweeney (D-Gloucester), who is sponsoring the bill in the Senate.
But the management change proposed by Christie’s benefits panel was only supposed to occur after a freezing of the existing defined-benefit pension system and the creation of a defined-contribution cash-balance fund, recommendations that have not been enacted.
‘…almost 20 years of pension gimmicks’
Still, union officials say they’ve been researching a takeover of their retirement account for the last two years, going across the country to find out what’s worked in other states, as well as what hasn’t.
“The fact is that almost 20 years of pension gimmicks have reduced the funded value of the PFRS from over 100 percent in 2000 to just over 70 percent funded today, and the steps we are taking to gain control of our financial future are critically important to all of our members and their families,” said Patrick Colligan, president of the New Jersey State Policemen’s Benevolent Association.
“This legislation installs a system we have seen work in other parts of the country to ensure people receive the pensions they earned at no harm to taxpayers and we look forward to having the same opportunity here in New Jersey,” Colligan said yesterday.
“This is a commonsense bill,” said Ed Donnelly, president of the New Jersey State Firefighters Mutual Benevolent Association. “It protects taxpayers, municipalities and gives our members peace of mind that the pension will be preserved.”
But Michael Cerra, assistant executive director of the New Jersey State League of Municipalities, cited the concerns about the makeup of the proposed new board of trustees while calling the Assembly vote a “defeat for the taxpayers.”
“Under this plan, the control is with labor and the risk is with management, which by extension is property taxpayers,” Cerra said.
“The issue is really the risk,” said John Donnadio, executive director of the New Jersey Association of Counties.