New Jersey police officers and firefighters moved a big step closer yesterday to gaining control over the investment of their retirement accounts, as lawmakers in the Assembly and Senate gave final approval to legislation that would significantly restructure how their pension fund is managed.
But even as they celebrated those votes, it remains to be seen whether Gov. Phil Murphy will eventually sign off on the measure, which had previously been approved by lawmakers, but then conditionally vetoed by Murphy’s predecessor over concerns that it could end up hurting taxpayers in the long run.
Several lawmakers raised the same issues yesterday, and the bill, which has firm support from Democratic legislative leaders, will now likely pose the first significant political test for the Democratic governor, since he took office in January.
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 Police and Firemen’s Retirement System (PFRS) is in the best shape, funded at about 65 percent, according to the latest official actuarial reports.
Insulating the fund
The sponsors of the bill, including Senate President Steve Sweeney (D-Gloucester), are pushing to put 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 policy changes that may be needed to save the retirement systems for other employee groups, like judges and teachers. Those funds rely more heavily on contributions from 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.
Under the bill that the Senate and Assembly approved yesterday, half the new PFRS board of trustees would be made up of active police officers and firefighters. The governor would appoint another four members, 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, seven-five majority.
Representatives of local governments have previously raised concerns about that makeup, saying it doesn’t make sense to give labor a majority vote on the board when the government employers make more than 70 percent of the contributions toward the officers’ and firefighters’ pensions, versus the 27 percent paid by the workers themselves.
O’Scanlon: The bill has ‘fatal flaws’
Sen. Declan O’Scanlon (R-Monmouth) raised a similar issue during the debate in the Senate yesterday.
“There’s a handful of people in the room that actually have a handle on the risks this bill opens up our property taxpayers to,” O’Scanlon said. “This bill has several of what should be fatal flaws.”
After the bill ended up passing the Senate by a 34-2 margin despite O’Scanlon’s objections, he said he’s already heard reports of concerns coming from the office of Gov. Phil Murphy and is now counting on Murphy to be the “adult in the room.”
Murphy’s press secretary Dan Bryan did not respond yesterday to a request for comment on the bill, or the suggestion that the governor has some concerns about it. But acting State Treasurer Elizabeth Maher Muoio, speaking after her confirmation hearing before the Senate Judiciary Committee yesterday, said she expects the governor will be looking more closely at how the bill would impact some of the overall pension system’s complicated investments.
“We need to evaluate; some of those assets that are in those funds are not liquid, and the fact that we may have to liquidate them could end up costing all of the funds a significant amount of money, and we have a fiduciary duty to sort of look after all of our pension funds,” Muoio said.
“That will have to be looked at, I guess, and the governor I assume is going to be doing that now,” she added.
Meanwhile, when reporters asked Sweeney after the Senate voting session if he’s heard of any opposition to the bill in its current version from Murphy, or the governor’s staff, Sweeney said Murphy supported the measure as a gubernatorial candidate last year.
“I was the original sponsor of the bill, and it was very clear that he was going to sign the bill as it was written,” Sweeney said. “Now if he has changed his mind, and he has every right to change his mind, but it wasn’t too hard to see the bill in the original form.”