(TRENTON) – Legislation Assemblyman Gordon Johnson sponsored to give police and firefighters more control over their pension fund was signed into law on Tuesday by Governor Murphy.
The bill (A-3671) transfers management of the Police and Firemen’s Retirement System from the state to the Board of Trustees of the Police and Firemen’s Retirement System, granting more investment responsibility to employees and union members, with the board acting on behalf of contributing employers, active members of the retirement system and retired members.
It will vest the board with 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 or accounts under the control and management of the board.
“If the unions want the ability to make investment decisions for their members when it comes to their retirement savings, then we should give them that opportunity – the same as private sector unions do for their members,” said Johnson (D-Bergen). “This is their money and they should be able to decide what’s best. If the police and firefighters who put their lives at risk for us daily feel they can do better with smarter investments, we should not stand in their way.”
The law gives more management responsibilities for the investments made under the PFRS to employees and union members. The board will 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 will 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.
“Letting the police and firefighter unions manage their own pension funds removes politics from the equation and puts responsibility where it should be – the people who directly represent the members,” Johnson said. “This is their money, and we know this works effectively in the private sector. Police and firefighter sacrifice each and every day for our safety, and if they feel this move can boost their system, we should give them the opportunity.”
The fundamental nature of the PFRS plan will not be changed by the bill, and Johnson noted that there are many examples of employee and union-managed pension plans in the private sector. Also, 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 police and fire unions should decide on their own what’s best for their members’ retirements,” Johnson said. “If the police and fire feel they can make smarter and more efficient decisions for their members, we should give them that opportunity.”
Johnson noted that at almost 70 percent funding, the PFRS is more sound than other funds, and that 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 law will require the 12-member PFRS investment board to include three active policemen and three active firemen. The governor will 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 will 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 will be required to take any actions increasing or reducing member benefits — with the exception of restoring cost-of-living increases — or employer contributions if they are not consistent with actuarial recommendations, according to the law.
“The unions know what’s best for their members,” Johnson said. “This bill does nothing to change the fundamentals of the retirement system, but allows police and firefighters to make smart decisions when it comes to investments and doing what they see as necessary to strengthen their system. Letting them determine the appropriate level of risk in the investment portfolio is a reasonable change.”
The bill was approved by the full Senate on June 21 and the General Assembly on June 25 and was initially advanced through the Assembly Appropriations Committee.