TRENTON — Leaders of the state’s largest public-safety unions are pushing a plan to shift control of their pension fund investments to a union-dominated board, rather than the state. But their colleagues in the smaller unions are resisting the possible change.
The New Jersey State Policemen’s Benevolent Association and the New Jersey Firemen’s Mutual Benevolent Association have been developing the plan for two years, and they’ve worked with the Office of Legislative Services and legislative leaders on draft legislation.
Ed Donnelly, president of the NJFMBA, said the change would ensure all employee contributions are credited to the pension fund and end what he called exorbitant fees paid by the Division of Investment to hedge-fund managers.
“We feel that it takes the political game and the political football that sometimes gets played by Trenton politicians out of the equation,” Donnelly said.
The push has opened a rift with other police and fire unions, however.
The New Jersey State Fraternal Order of Police and the Professional Firefighters Association of New Jersey aren’t on board with the proposal, which they said was developed without their knowledge or input.
Pete Guzzo, a lobbyist for the NJFOP and PFANJ, said the FOP prefers to wait to see the results of the 2017 gubernatorial election. The union has endorsed Democratic candidate Phil Murphy, a former Goldman Sachs executive who studied the pension funds as head of a task force under then-Gov. Richard Codey.
“Knowing his background, the position more or less is let’s wait, not rush into it. See what happens with the election,” Guzzo said. “If Phil Murphy comes into office, see what solutions he’s presenting. See how the climate develops.”
Guzzo said the Police and Firemen’s Retirement System is about 76 percent funded, putting it in much healthier position than other funds in New Jersey’s pension system.
“The system is not that bad off, compared to other systems. It’s not in dire need right now of acting quickly,” Guzzo said.
To Donnelly, that relative health is a reason to act. Some union officials have voiced concerns that if all six of the pension funds were to be blended together, the better-funded ones, like PFRS, would suffer if merged someday with the funds for teachers and other public workers.
Donnelly said he and others traveled for two years studying how union-managed public-pension investments have fared in other states.
“It’s not like we’re reinventing the wheel. It’s being done all over the country and it’s working all over the country. And we believe that it can work here in New Jersey,” Donnelly said.
“By taking the governance of the pension system over, we’re actually giving ourselves the ability to have the professionals and the actuaries, the investment brokers, answer to the board, which will be made up of our members,” he said.
Senate President Stephen Sweeney, D-Gloucester, has long advocated for the approach, which was also endorsed, as part of a larger move to defined-contribution benefits, in 2015 by a Benefits Reform Task Force appointed by Gov. Chris Christie.
“Wherever they’re managing their money, they’re doing better,” Sweeney said.
Sweeney oversees investments of two pensions for the ironworkers’ union where he’s an executive.
Sweeney said the approach benefits taxpayers as well as union members. He said unions, once overseeing the investments, have a stronger interest in addressing issues such as the ease with which people can obtain a disability pension.
“You’re at the table hiring the investment advisors. You’re hiring the actuaries. You’re making the decisions on what investments you should make and not. It’s funny how you treat your own money different than someone else’s,” Sweeney said.
The draft bill would shift management of the PFRS from state control to a board on which labor appointees would have a majority of the positions – two fire, two police and one retiree, along with four employer representatives. The board would control investment decisions and design of the plan.
The smaller FOP and PFANJ say that if the plan is to move forward, the labor appointees should specifically come from each of the four unions. Guzzo said otherwise, the PBA and FMBA candidates would swamp those from the smaller units.
The PFANJ said the legislation is “poorly thought out,” can’t compel the state to begin making full contributions to the funds and could shift blame for subpar investment returns to the unions.
“There are many pitfalls to the notion of the ‘unions’ taking over the responsibility of the PFRS,” PFANJ president Dominick Marino wrote in a Dec. 1 letter to lawmakers. “As much as we have issues and concerns with the state of New Jersey and its current handling of our pension system and the other pension systems, it is still our current position to leave it as it currently exists.”