New Jersey Governor Phil Murphy has conditionally vetoed legislation that would transfer the management of the Police and Fire Retirement System (PFRS) to a Board of Trustees. In his veto message, Gov. Murphy proposed several significant changes to Senate Bill No. 5, which are summarized below.
Proposed PFRS Reform
As discussed in greater detail in a prior article, Senate Bill 5/Assembly Bill 3671 (S-5/A-3671) seeks to transfer management of the PFRS from the Division of Pensions and Benefits in the Department of the Treasury to the Board of Trustees of the PFRS. The Board, which would be comprised of labor and management representatives, would be vested with all the functions, powers, and duties relating to the investment and reinvestment of money in any fund or account under the Board’s control, as well as all functions, powers, and duties relating to the administration of the PFRS retirement system.
The Conference of Mayors (NJCM), the Association of Counties (NJAC), and the New State League of Municipalities (NJSLOM) opposed the bill in its current form. Their criticisms largely revolved around the lack of adequate protections and safeguards for New Jersey taxpayers.
Gov. Murphy’s Proposed Changes
In his veto message, Gov. Murphy expressed support for the overall goals of the legislation. However, he noted that several changes must be made for him to sign it. Gov. Murphy wrote:
My recommended changes address these and related technical concerns while preserving the board’s control over the management and allocation of its investments. I am confident that these changes strike an appropriate balance by both empowering the new board with the management of PFRS while continuing to protect the stability of the State’s pension funds, the expectations of PFRS members and, ultimately, the financial interests of the taxpayers of this State.
Below are several of Gov. Murphy’s proposed changes, as summarized by the NSLOM:
- Requires at least eight (8) votes of the 12-member board for any change in benefits;
- Prohibits any enhancement or reduction of benefits, including cost of living adjustments and changes to employee contribution rates, unless an actuary certifies that it does not increase employer contribution in the current year, and that such a change will not impact the long-term viability of the fund;
- Requires a majority of the authorized membership for a quorum;
- Removes the language permitting the actuary to be an employee of the Board of Trustees;
- Requires the actuary to be a fellow with the Society of Actuaries & an active member of the American Academy of Actuaries;
- Removes the Board of Trustees’ authority to investment and reinvest the fund’s monies, as the power remains with the State Investment Council and Division of Investments;
- Gives the Board of Trustees the authority to formulate and establish, amend, modify or repeal polices that will govern the methods, practices, and procedures for investments, reinvestments, purchase, sale or exchange of transactions, which the State Investment Council would follow for the PFRS fund;
- Gives the Board of Trustees the authority to review and approve agreements which may be necessary and convenient for investment management;
- Gives the Board of Trustees the authority to inspect and audit the respective PFRS accounts and funds administered by the Division of Investments. (Trustees are also permitted to take appropriate action as necessary to effectuate the long term viability of the system.);
- The State retains 100% control over the Common Pension Fund L, which is the fund that includes the revenue from the State Lottery transfer;
- The Executive Director serves without a term and may be removed upon notice and public hearing by a majority vote of the Board of Trustees;
- Requires the Executive Director to act as a fiduciary to the retirement system and on behalf on the interest of the beneficiaries of the system;
- Prohibits the Executive Director and Chief Investment Officer from being engaged in any other profession or occupation;
- Changes the duties of the Chief Investment Officer to develop investment methods, practices and approaches and to coordinate with the Investment Committee;
- Expands the qualification requirements of the Chief Investment Officer to include experience in direct management, analysis, supervision or investment of assets;
- Requires a majority of the Investment Committee members to be qualified by training, experience or long-term interest in the direct management, analysis, supervision or investment of assets. (Can be supplemented by academic training or practical experience in the fields of economics, business, law, finance, or actuarial science.);
- State Treasurer remains the custodian of the funds;
- Removes the mandated employer quarterly pension fund payments;
- Removes the withholding of any property tax relief payments for non-payment of pension payments; and
- Removes the Police and Fire Retirement System representatives from the State Investment Council.
The legislation now goes back to the New Jersey Senate for its consideration. We will continue to track its progress and post updates as they become available.
For more information about the proposed bill or the legal issues involved, we encourage you to contact a member of Scarinci Hollenbeck’s Government Law Group.