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N.J. unions seek control of own pension plan

Public workers have been complaining for years that the state relies too heavily on investments in hedge funds and other so-called alternative investments. Now, Senate President Stephen Sweeney (D., Gloucester) is effectively saying: Fine, you give it a try.

TRENTON — New Jersey lawmakers are considering relinquishing management of the pension plan for police and firefighters from the state to the unions that represent them. Public workers have been complaining for years that the state relies too heavily on investments in hedge funds and other so-called alternative investments.

Now, Senate President Stephen Sweeney (D., Gloucester) is effectively saying: Fine, you give it a try. And most of the unions are embracing the challenge.

"It's my pension. I need to wake up and see it's being cared for, that it's being invested smartly," Patrick Colligan, president of the Policemen's Benevolent Association, said during a Senate Budget Committee hearing Thursday. "And we can't, respectfully, count on the State of New Jersey to do that anymore."

The committee advanced the legislation on a 10-1 vote, with two abstentions, and it is expected to head to the full Senate for a vote Monday. The bill has not been introduced in the Assembly.

Overall, New Jersey's pension system is the worst funded in the country, according to Bloomberg. But of the seven underlying plans, the police and firefighters' is relatively well-funded.

Union leaders appear worried that their plan could be infected by ones with bigger liabilities. "The whole reason we started looking into this is because of the stability of the other funds," Ed Donnelly, president of the New Jersey State Firefighters Mutual Benevolent Association, said in an interview.

"When it's your money, you take it a hell of a lot more serious," Sweeney said.

The Police and Firemen's Retirement System (PFRS), the pension plan for some 41,000 police and firefighters, had about $23 billion in assets as of June 30, according to actuarial reports.

The plan has 70 cents for each dollar in future benefits it owes to beneficiaries. An 80 percent funded ratio is generally considered financially healthy.

By contrast, the $23 billion Teachers' Pension and Annuity Fund, which covers 154,000 members, has 47 cents for each dollar it owes.

The gap stems from the fact that the police and firefighters' pension plan is primarily funded by local governments, while the teachers' plan is funded by the state, which has ignored or slashed pension contributions to help balance the budget, a constitutional requirement.

The full $72 billion pension system is run by a Treasury Department unit, with oversight from the State Investment Council.

By law, the 16-member investment council is composed of nine employer representatives picked by the governor and seven labor representatives.

Under the legislation up for a vote in the Senate on Monday, the police and fire pension plan would be managed by a new board of trustees, with majority labor representation. It would empower the board to change contribution and benefit levels, and the retirement age.

The board would hire its own investment managers, actuaries, and other professionals to manage the fund.

Criticism of the state's management may not be entirely fair. Labor leaders note that the investment return for fiscal year 2016, which ended June 30, was -0.93 percent. But New Jersey was hardly alone in missing its benchmarks; nationally, public plans had a median increase of 1 percent.

Still, the state's investments have returned $5.7 billion above benchmark over the last decade, according to Tom Byrne, chairman of the State Investment Council.

"But practically speaking, there is no way that investment returns can be good enough to cover the unfunded liability in the system. The far bigger problem, as most know, is the state's lack of sufficient contributions into the funds over the past two decades," Byrne wrote in an annual report in January.

In an interview Friday, Byrne said he thought the legislation, supported by most police and fire unions, "is driven primarily by a fear that their funds might be commingled with other pension plans down the road."

"I don't think that will ever be a live issue," he said.

"The downsides that I see are loss of bargaining power, loss of investment expertise, and administrative costs of unwinding a good many of the investments that they're currently in," Byrne said. "Those costs could add up to be more than people are contemplating in their haste to get a bill passed."

Even one of the four unions whose members are included in the police and firefighters' pension fund opposes the idea.

"Many of the assets in which the current system are invested are not divisible from shared ownership with the other retirement systems. This restricts the ability of the proposed board to effectively manage assets," Robert D. Klausner, a lawyer for the Professional Firefighters Association of New Jersey, wrote in a letter to the Senate Budget Committee.

"Moreover," he wrote, "segregating the PFRS assets into a stand-alone plan will diminish the ability of the system to engage in the type of investment diversification and spreading of risk that the current pooled assets allow."