LEGISLATIVE REPORT
Reviewing the pension bill
The passage of legislation to transfer management of the PFRS to an independent board of trustees demonstrated what can happen when indisputable research and analysis are combined with hands-on personal and detail-oriented lobbying.
For nearly two years, we spent countless hours in meetings with national pension leaders reviewing laws and pension policy to make
ROB NIXON sure our concept not only made sense, but that we could incorporate the best practices into the PFRS. Any PBA member who came to Trenton to help lobby the bill through final passage in the State Assembly joined an effort that spanned months and included dozens and dozens of meetings with legislators to ensure that they understood what the bill is intended to accomplish. In the end, we passed a bill that represents the most dramatic shift in PFRS policy in nearly 30 years.
For the past decade, PFRS members have borne the brunt of pension reform efforts that focused on taking away their benefits and shifting costs on their backs while relieving government of responsibility for failures in managing the state’ s pension system. Our bill changed that narrative by showing that the pension system can flourish when it is managed solely to benefit PFRS members by focusing primarily on restoring the fully funded level of the pension system.
Let’ s be clear as to what this bill does. First and foremost, it establishes a clear legal and financial mandate that the purpose of the PFRS Board of Trustees is to set policy that brings about the full funding of the pension system. It can do that by giving a revised PFRS Board independence from political interference through the employment of its own staff of professionals whose one and only goal is to grow the value of the pension fund.
We have been asked what we mean by“ political interference” with the fund. It is a pretty basic but serious problem and explains why the system isn’ t fully funded today. PFRS currently is managed by the State Division of Pensions and its funds are invested by the State Investment Council. The Division and the Investment Council have something in common: They fall under the control of the State Treasurer. The State Treasurer is appointed by, and works for, the governor. The governor appoints the Director of the Division of Pension and the Chair of the Investment Council. Their goals, by extension, are the goals of the governor.
This is not a Chris Christie phenomenon. A look back into the 1990s, when PFRS was fully funded, shows that all governors since Christine Todd Whitman operated the pension system much the same way. When they needed to shift costs within the state budget or wanted to give residents property tax relief, they did so by cutting pension contributions or by granting deferrals to kick pension costs down the road.
The Division of Pensions made policy decisions based not on fully funding the pension system but on addressing whatever political need for the governor of the day. When the costs became too large, it became all too easy for Gov. Christie and legislators to blame employees through benefit cuts and cost-shifting.
But it didn’ t do a damn thing to increase the value of the pension system – PFRS specifically. A lack of payments into the PFRS because of pension deferrals made system liabilities spike. Not having that money to invest meant that PFRS lost out on more than $ 2 billion in assets in its portfolio. We know from actuarial analysis that PFRS would be funded today in the mid 90-percent range had all those funds made their way into PFRS.
There isn’ t enough space here to discuss the exorbitant expenses on fees to money managers that exploded in this administration, or the Division of Pensions’ intentional misreading of the requirements for eligibility for“ 20 and out” and other benefits or issues we have uncovered through how the Division works with the PFRS actuary. So, yes, there is clear interference in pension management in New Jersey dictated by politics alone that scream out to be addressed.
It is also necessary to contend with opposition from the League of Municipalities about the proposed PFRS Board membership. Even though the League fully supported the concept of making PFRS independent in policy and money management for months in private meetings, they decided to pull out of talks at the last moment despite being given protections in the bill they had asked for.
Local governments have zero representation on the PFRS Board today. Our bill offers them a voice and power in how the system is managed by giving them seats on the new Board. But what they want is to be the majority voice, and when we wouldn’ t yield on that, they protested.
After years of pension deferrals and their role in the reduction in PFRS value today, it simply defied logic that the PBA would agree to turn over managing the fund to local governments. They are paying the price for their pension deferrals today, but we simply can’ t support giving them exclusive power to cut their costs without benefiting PFRS retirees or the future fully funded status of PFRS. Government’ s track record managing PFRS is far too poor to trust managing it any longer, and it is ridiculous for any mayor to suggest otherwise.
The bill sits on the governor’ s desk as we go to print. He can sign it, veto it or recommend changes and send it back to the legislature for consideration. We have met with his staff to discuss the bill and potential issues and we remain open to an honest discussion. It is our hope we share the same goal: ensure the fully funding of the PFRS. If that is the case, then there is no reason this bill shouldn’ t become law. d
8 NEW JERSEY COPS ■ MARCH 2017