Blocked by former Gov. Chris Christie last year, bipartisan sponsors of a bill that would give New Jersey’s police officers and firefighters more say over how their retirement funds are managed are now looking to get a new version of the bill to Gov. Phil Murphy.
While only minor changes have been made to the original measure that was rejected by the Republican Christie last May, it’s expected to get a far better reception from Murphy, a Democrat who ran for office last year with strong support from the public-employee unions that Christie frequently clashed with.
The new bill sponsored by Senate President Steve Sweeney (D-Gloucester), has already been passed by two Senate committees in recent days, and it could go before the full Senate by the end of the month.
The measure has strong support from the leaders of the top unions representing the state’s police officers and firefighters, who have loudly criticized the state’s handling of the broader public-employee pension system, including the funds for other employee groups that — unlike the retirement system for the police officers and firefighters — rely primarily on state pension contributions like the funds for teachers and judges.
Local government opposition
While the bill has strong union support, representatives for the state’s county and municipal governments continue to oppose it; they argue the policy change could give the union leaders too much control over major investment decisions. County and municipal taxpayers contribute far more than the union members themselves to their defined-benefit retirement plan.
But if Murphy ultimately signs the legislation into law, it could help counties and towns deal with a technical change to pension-system investment assumptions that Christie adopted in the final weeks of his tenure, a change that has resulted in most local governments — and their property taxpayers —being stuck with higher pension obligations this year. It’s a technical change but one that could have significant repercussions for municipalities as it requires more investment from government each year.
In all, the $77.5 billion state pension system is made up of seven different retirement funds, representing employee groups like teachers, judges, and police officers and firefighters. While the pension system as a whole is among the nation’s worst-funded retirement plans, some of the funds within the system are in better shape than others. In fact, the PFRS is in the best shape, funded at about 65 percent, according to the latest official actuarial reports.
The sponsors of the bill would put the management of the PFRS investments in the hands of an altogether new board of trustees. They say they are seeking to insulate the retirement fund for the police officers and firefighters from more drastic changes that may be needed to save the retirement systems for other employee groups, like judges and teachers. These groups are funded by a much higher ratio by state government, which has a long history of making only partial pension payments, or in some years, no contributions at all. Union officials have also grown frustrated with some of the investment returns that have been generated in recent years by the state Division of Investment under policies set by the New Jersey State Investment Council. While returns totaled more than 13 percent during the 2017 fiscal year, they were in the red the year before, and barely topped 4 percent during the 2015 fiscal year.
Seats on the board
Under the bill that cleared the Senate Budget and Appropriations Committee yesterday, half of the new PFRS board of trustees would be made up of active police officers and firefighters. Another four members would be appointed by the governor, with the requirement that they either serve or have served as an elected official or have worked as a top official for a municipal or county government, such as administrator or chief financial officer. The final seats would be filled by a retired police officer or firefighter and a representative of state government, giving the current or retired workers a clear, 7-5 majority.
The bill would also require a “supermajority” for votes on major issues like reducing or increasing member benefits.
Several union officials testified in favor of the measure during the committee hearing yesterday, including Eddie Donnelly, the president of New Jersey Firefighters Mutual Benevolent Association. He stressed that the board members will have a fiduciary responsibility to administer the funds in the best interests of stakeholders. He also said the new board would have a hard time running things worse than the state has when it comes to the pension system.
“It really can’t get any worse,” he said.
Unhappy with rate of return in past
Donnelly also cited Christie’s decision last year to unilaterally change the pension system’s assumed rate of return on investments from 7.65 percent to 7 percent, a seemingly minor accounting change that has instead left towns and counties facing hundreds of millions of dollars in additional pension obligations this year. The new PFRS board would be able to establish its own rate of return on investments, and could move down to 7 percent in steps instead of all at once to ease the blow.
“This is the stuff that this bill will prevent from happening again,” Donnelly said.
Patrick Colligan, president of the New Jersey State Policemen’s Benevolent Association, said the stakes are high for police officers and firefighters, since many rely on their pensions as a primary source of revenue in retirement.
“This is all we have,” Colligan said. “This pension is all we have.”
But earlier on during the hearing, John Donnadio, executive director of the New Jersey Association of Counties, took issue with giving current union members and retirees on the proposed new PFRS board the majority of votes.
“We are particularly concerned with the fact that this board is weighted heavily in favor of labor,” Donnadio said. He also questioned the fiduciary responsibilities written into the current version of the bill.
Michael Cerra, assistant executive director of the New Jersey State League of Municipalities, raised a similar issue, suggesting the board’s makeup should more closely reflect the pension contributions made by taxpayers, which cover about 70 percent, versus union members, which cover about 30 percent.
“We have to protect the interest of the taxpayers,” Cerra said.
The two groups issued similar warnings last year as the measure breezed through the Legislature and in his conditional veto issued last year, Christie ultimately agreed. Among other changes, he suggested the proposed PFRS board become a 14-member panel, with equal representation among the unions and government employers. Christie also insisted that in exchange for gaining more control over their retirement fund the police officers and firefighters accept a cap of $7,500 on unused vacation and sick time.
But the conditional veto was never put before lawmakers for a vote in either the Assembly or Senate as they instead waited for the more union-friendly Murphy to take office. Asked to comment on the bill’s revival yesterday, a spokesman for Murphy declined to comment, citing a general practice of the governor’s office not weighing in on pending legislation.