The New Jersey legislature has passed legislation for the second straight year to give police officers and firefighters control of their pension fund, and once again the measure faces an uncertain fate in the governor’s office.
The bill, which would spin off management of the Police and Firemen’s Retirement System from New Jersey’s severely underfunded $76 billion pension fund, was approved 24-2 Monday in the state Senate 24-2, 67-2 in the Assembly.
Former Gov. Chris Christie vetoed similar legislation last year calling it “a blank check for public workers” that lacked safeguards for taxpayers.
“This will give the unions the ability to make the best investment decisions for their members,” Senate President Steve Sweeney, D-Gloucester, said in a statement. “It has worked effectively with private-sector unions and with public sector unions in other states where the investment returns under union management have outperformed public boards.”
Murphy's press secretary, Dan Bryan, did not respond to a request for comment on the bill.
Acting State Treasurer Elizabeth Maher Muoio told reporters after her confirmation hearing Monday that she expects Murphy when deciding whether to sign it will look closely at the cost impact to the overall pension system if the police-firefighter plan was forced to deplete all hedge fund holdings.
New Jersey had the worst pension funding level of the 50 U.S. states for the 2015 fiscal year at only 37%, according to a report released last year by Pew Charitable Trusts. In an effort to boost contributions, Muoio announced in early March a plan to raise the assumed rate of investment return for the state’s five pension funds to 7.5% from 7% before lowering it again in phases through 2023. Former Treasurer Ford Scudder had cut the discount rate to 7% from 7.65% in November during the final days of Christie’s administration.
A high pension burden weighed heavily in New Jersey's 11 downgrades under Christie to the second lowest rating among U.S. states. The Garden State’s general obligation bonds are rated A3 by Moody’s Investors Service, A-minus by S&P Global Ratings and A by Fitch Ratings and Kroll Bond Rating Agency.
New Jersey’s Police and Firemen’s Retirement System had $24.5 billion of net assets at the end of the 2017 fiscal year, according to the State Investment Council’s annual report. Bill sponsors said the fund is just under 70% funded.
Sweeney, who co-sponsored the bill with Republican Minority Leader Tom Kean, R-Westfield, noted that the measure adopted best practices from the states of Washington, Ohio, and Colorado, where police and fire pension funds provide trustees with investment as well as policy making decisions. Sweeney said the State Investment Council’s policies in recent years have resulted in lower than average returns compared to investments in lower-fee indexed funds or other investments.
“Giving management to the pension beneficiaries removes political interest from the investments and places greater responsibility with the employees who will benefit from the pensions,” said Sweeney, who oversees two pension funds in his role as an international vice president for the Ironworkers Union. “When it’s your own money, you take the responsibility very seriously.”