NJ Cops July18 | Page 29

LEGISLATIVE REPORT The signing of SB 5: How it happened and what it means for PBA members Governor Murphy signed the State PBA’s signature legislative priority into law on July 3, setting the PFRS on a path to its most fun- damental changes in nearly 30 years. Senate Bill 5 removes PFRS from control of the state treasurer, Division of Pensions and the State Investment Council and grants to the Board of Trustees substantial, independent authority to ROB NIXON put the pension system back on a path to full funding. When the takeover of the system is complete, professional pension management will replace politics and funding gimmicks as the priority for restoring and enhancing the health of PFRS into the future. Many members have wondered why the State PBA would take such a dramatic step to reorganize the management and investment power of the pension system. Looking back at the mistakes of the past and the success of other states’ pension funds tells the whole story. PFRS once was one of the healthiest pension systems in the U.S. In the late 1990s, the PFRS pension was funded at well over 100 percent. But through state intervention, public em- ployers were directed to skip their pension payments. It was thought that the fund could live off its investment success. But 9/11 happened, and then the stock market and housing mar- ket collapsed, zapping those investment portfolios. Rather than end the pension holidays and get the govern- ment back on track to making its full payments, the state and local governments continued to kick the can down the road. By the time the full payments resumed, PFRS had been cheat- ed out of more than $2 billion in contributions. The math that shows how great a failure avoiding the pension payments was doesn’t lie. Instead of being funded at the mid-90 percent level today (where it would be if all the payments were made during the financial crisis), PFRS is mired in the low 70-percent range, with the state s howing zero clue how to move the needle high- er. When Governor Christie was elected, his solution to the pension funding crisis was to blame employees and cut ben- efits. Despite its health and simpler path to full funding, PFRS saw member benefits reduced twice in two years. When we learned that Governor Christie’s Pension and Benefit Review Commission was planning to recommend blending all the system finances and putting every employee in a 401K, our mission was clear: protect PFRS before the state destroyed it completely. For several years, I had been attending pension conferences around the nation, specifically those held by the National Con- ference on Public Employee Retirement Systems (NCPERS) focusing on police and fire pension systems. It was clear from those meetings that not every state had a pension crisis and The big moment: Governor Murphy holds up Senate Bill 5 after signing the law to remove PFRS from state control. that we could learn a lot from what was working elsewhere. At the direction of State PBA President Pat Colligan, I be- gan to research the best practices of healthy police and fire pension systems nationwide. From those gatherings, we hired an actuary, met with national and state pension experts, read dozens of state laws and best practices and held countless meetings with legislators and police and fire union leaders that led to the law that Governor Murphy signed. The law makes several major changes to the management and powers of PFRS. First, a new Board of Trustees will be es- tablished. The board members will serve as fiduciaries with a legal obligation to focus on fully funding the pension system and to protect its assets from abuse and mismanagement. The new Board of Trustees will consist of 12 members – seven employee and five employer representatives. The pres- idents of the NJ State PBA, FOP, FMBA and PFANJ will each appoint one trustee. Active members of the PFRS will elect one law enforcement and one firefighter member, and retired PFRS members will elect one member, similar to the way it works now. The governor will appoint four local government employer members (as recommended by the League of Mu- nicipalities and the Association of Counties) and one state government representative. The Board of Trustees will have the power to hire profession- als – an executive director, chief investment officer, actuaries, lawyers, money managers and staff – to run PFRS day-to-day CONTINUED ON PAGE 30 www.njcopsmagazine.com ■ JULY 2018 29