New Jersey’s police officers and firefighters received control over their pension management decisions.
Gov. Phil Murphy signed a bill Tuesday that separates New Jersey's $26 billion Police and Firemen's Retirement System from the retirement plans of the state’s other public employees.
In May, Murphy had conditionally vetoed the legislation citing concerns that an independent PFRS board could destabilize the state’s entire pension system.
“The state must move forward with stable, reliable pension payments,” said Murphy in a statement after he signed a revised version of the legislation. “This bill is a good first step toward making sure that our retiring police officers and firefighters feel secure as they move toward retirement, while also protecting the financial interests of taxpayers.”
Murphy, a Democrat who took office in January, said lawmakers made amendments to the measure that concur with recommendations he made in his May 13 conditional veto.
The revised legislation requires an actuary to certify the long-term viability of the pension fund to help ensure its stability. The spinoff bill was also changed so that the PFRS’s $26 billion of assets stay within the State Department of Treasury to avoid an estimated $12 million of yearly expenses from immediately divesting and depositing those funds with the new PFRS board of trustees.
“No longer will PFRS members be forced to suffer from the poor decision making and political expediency that marked the State’s stewardship of our pensions over the years,” New Jersey State Police Benevolent Association president Patrick Colligan said in a statement. “This law ensures competent professionals and a focused Board of Trustees will protect the fund from abuse and control investment decisions designed only to grow the value of the PFRS.”
The state treasurer will also continue setting the expected rate of return for the PFRS fund under the finalized bill, but the new Board will be empowered to set its own internal targets. New Jersey’s discount rate for the state’s five pension plans was raised to 7.5% from 7% starting July 1, and will be lowered again in phases under a plan New Jersey Treasurer Elizabeth Maher Muoio unveiled in early March. The administration of former Gov. Chris Christie reduced the expected return rate to 7% from 7.65% this past November shortly before Murphy took office.
Bill sponsors touted the success of other states with similar policies where police and fire pension funds give trustees investment and policy making powers, including Colorado, Ohio and Washington. PFRS is in a healthier state than the state’s other individual pension systems with a more than 69% funded ratio compared to a 60.2% average for the other four funds, according to Murphy.
The public safety pension spinoff bill was signed two days after Murphy signed a $37.4 billion budget that raises pension contributions to 60% of New Jersey's actuarially determined contribution from 50%. Rising pension liabilities drove New Jersey to 11 rating downgrades during the Christie administration to the second lowest level of all states. The Garden State has general obligation bond ratings of A-minus from S&P Global Ratings, A3 from Moody’s Investors Service and A from Fitch Ratings and Kroll Bond Rating Agency.