LEGISLATIVE REPORT
The PFRS Governance and Investment Act
Our plan to run the pension system independently
For more than a decade, New Jersey’ s elected officials, economic experts and union leaders have grappled with the health and funding levels of the State Pension System. Sadly, many of the proposals our elected officials have passed center on one of two themes: allowing government to skip making their actuarially-required payments or demanding cuts in benefits from employees and retirees. The numbers don’ t lie that both of those plans have been a miserable failure in growing the value of the Police and Fire Retirement System( PFRS).
We know from experience that pension reform concepts are never going away. And despite the healthy nature of PFRS, the unhealthy standing of the other state-funded pension systems place PFRS at risk of further dramatic cuts in the future. The NJ State PBA believes that the time has come to be bold and take control of the future of PFRS now.
Having witnessed the rapid passage of misguided pension reforms for PFRS under Chapter 78 and the uncertainty and cost associated with passing a constitutional amendment to fund the state pension system, State PBA members need to ask themselves if the time hasn’ t come for us to remove the state from its role in managing and investing your pension.
With that in mind, nearly 18 months ago NJ State PBA President Pat Colligan directed me to begin analyzing best practices in funding and managing police and fire pension systems across the U. S. After several months of research, including meetings with pension professionals, actuaries and lawyers in Washington, Ohio, New York, Colorado and Washington, D. C., to name a few, the State PBA has developed legislation that will fundamentally change how PFRS is managed.
Under our plan, PFRS will be transformed from a state-controlled system to an independent labor-management run system that relies on PFRS members, employers and pension professionals and not political appointees to manage and invest PFRS funds. The concept is simple: Remove politics and bureaucracy from running PFRS and replace it with professional pension management.
As it stands today, the Division of Pensions is an arm of the Treasurer’ s Office, and all decisions are subject to the whims of the governor’ s office. The attorney general is the lawyer for the Pension Board and can, and does now, override or refuse to implement Board-adopted policies. PFRS pension funds are invested by the State Investment Council, also falling under the control of the Treasurer and state employees. The state appoints the actuary and has the power to impact the
ROB NIXON
actuarial report that is presented to the public.
Under the current management structure, PFRS has gone from more than 100-percent funded before 2000 to roughly 76 percent today. And the state still managed to lose 1 percent in 2015 investing state pension money while spending hundreds of millions of dollars on private money manager fees.
By any analysis, this is not the best way to run what should be a successful pension system. So the State PBA has drafted a concept that seeks to undo all these mistakes.
Under the State PBA proposal, the PFRS Board of Trustees would be re-established with new powers to act as the sole, independent manager of the system. PFRS would remain a state pension fund, but our proposal turns over all management, policy and investment powers from the state to the new Board of Trustees. The Board would retain an executive director, chief investment officer and staff to run the day-to-day operations of PFRS. The Board would retain its own independent lawyers and actuaries. It would have oversight and auditing authority of the funds it doesn’ t have now.
Under the bill we have developed, the PFRS Board would be required to treat the full funding of the pension system as its primary obligation. But the Board will also be granted the authority to enhance member benefit levels and restore COLA in any form that is actuarially acceptable. The Board would be provided the power to reform the Accidental Disability process. In short, all powers of the Division of Pensions and State Investment Council will be turned over to the PFRS Board. Under our proposal, there will be no politics, no games and no gimmicks to fund and enhance PFRS.
I know many will read this and ask why we would want to make a move that seems so dramatic. In reality, what we are proposing already is in place and works well in many other states for police and fire pension funds. We are not breaking new ground. Quite the opposite. What we are suggesting takes the best practices from across the nation and incorporates them into New Jersey law.
What we have learned from meeting with police and fire pension professionals across the country is that this concept works to prevent politics from interfering in pension funding, and it focuses the PFRS Board’ s attention squarely on pension health by making it responsible for oversight of pension staff and investors. Whereas the state’ s daily, primary focus today is clearly not on the pension system, the new Pension Board would focus on nothing else, and it would have the power to act to protect PFRS without having to wait on a governor or the
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