TRENTON – The Senate today approved bipartisan legislation authored by Senate President Steve Sweeney that would authorize the police and firefighter unions to manage their own pension funds. The bill, S5, would transfer management of the Police and Firemen’s Retirement System from the Division of Pensions and Benefits in the Department of the Treasury to the Board of Trustees of the Police and Firemen’s Retirement System.
“This will give the unions the ability to make the best investment decisions for their members,” said Senator Sweeney, who oversees two pension funds as an International Vice President for the Ironworkers Union. “It has worked effectively with private-sector unions and with public sector unions in other states where the investment returns under union management have outperformed public boards.”
The bill gives more management responsibilities for the investments made under the PFRS to employees and union members. The board would act exclusively on behalf of the contributing employers, active members of the retirement system, and retired members as the fiduciary of the system. The primary obligation of the board would be to direct policies and investments to achieve and maintain the full funding and continuation of the retirement system for the exclusive benefit of its members.
Republican Senate Minority Leader Tom Kean, Jr. is a co-sponsor of the legislation.
The fundamental nature of the PFRS plan would not be changed by the bill.
There are many examples of employee and union-managed pension plans in the private sector. In addition, Washington, Ohio, and Colorado’s police and fire pension funds provide trustees with a variety of fiduciary responsibilities, investment, and policy making powers. This bill is modeled after best practices from those states.
The bill would vest with the board of trustees all the functions, powers, fiduciary responsibilities and duties pertaining to the investment or reinvestment of pension funds, including the purchase, sale or exchange of any investments or securities in any funds or accounts under the control and management of the board.
“Giving management to the pension beneficiaries removes political interest from the investments and places greater responsibility with the employees who will benefit from the pensions,” said Senator Sweeney. “It’s a matter of enlightened self-interest for people who have skin in the game. When it’s your own money, you take the responsibility very seriously!”
At almost 70 percent funding, the PFRS is more sound than other funds. In recent years, returns on investments by the State Investment Council have resulted in lower than average returns compared to investment in lower fee indexed funds or other investments.
The bill would require the 12-member PFRS investment board to include three active police officers and three active fire fighters. The Governor would appoint four trustees who either hold, or have held, an elective public office or have been employed by a municipal or county government as an administrator, manager, or chief financial officer to represent the interests of local government employers. The board would also include one retired police officer or firefighter and a high-ranking state employee to represent state government.
A “super majority” vote of at least eight members would be required to take any actions increasing or reducing member benefits – including cost-of-living increases — or employer contributions if they are not consistent with actuarial recommendations, according to the bill.
The Senate vote was 34 – 2.