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N.J. legislators, governor in showdown over first responders’ pension plan

New Jersey Gov. Chris Christie
Gov. Chris Christie has called for greater financial accountability for an independent Police and Fireman’s Retirement System.

New Jersey legislators are fighting with Gov. Chris Christie over the fate of the Police and Fireman's Retirement System, the third-largest plan in the $73.6 billion New Jersey Pension Fund, Trenton.

In March, the state General Assembly and Senate passed bills by wide margins that would create an independent PFRS, removing it from management by the state Treasury Department and removing the department's division of investment as its investment manager. The department said the actuarial value of PFRS assets was $25.4 billion as of July 1, 2016.

In early May, Mr. Christie issued a conditional veto, demanding more financial accountability for an independent PFRS. “I refuse to hand PFRS a blank check while handing the taxpayers the deposit slip,” he said in his veto message. Under New Jersey law, legislators can prepare a bill that addresses his objections, then submit it to the governor. If they don't — or if he rejects their response — legislators can try to override his veto with a two-thirds vote in each house.

PFRS had a funded ratio of 70.3% based on July 1, 2016, actuarial valuations, according to the Treasury Department. The overall New Jersey Pension Fund funded ratio was 56.5%. Both of these funded ratios reflect combined state and local payment components. Ninety-six percent of the PFRS actuarial value of assets is based on its local component, whose unfunded ratio is 74.5%.

Supporters say an independent PFRS can achieve better performance than being lumped in with the six other pension systems within the New Jersey Pension Fund. Others worry that the bill allows PFRS to play by a different set of rules than those of other pension systems, and could put further pressure on the state budget.

“The real objections are that police and fire (members) can set their own benefits,” said Thomas Brendan Byrne Jr., chairman of the State Investment Council, which formulates investing policies for the division of investment, which manages investments for the pension fund.

Mr. Byrne is a member of the New Jersey Pension and Health Benefit Study Commission, which issued pension and health-care system recommendations in February 2016, including, under certain conditions, independence for pension systems.

“If the unions want to take responsibility for assets and liabilities, we actually prefer that,” said Thomas J. Healey, chairman of the bipartisan commission that Mr. Christie created via executive order. As currently written, however, the legislation would mean “they can increase benefits, but the person holding the bag is the taxpayer,” he said.

Other commission proposals included freezing existing pension plans and creating a cash balance plan, neither of which has been adopted.

Some bond rating firms worry about the PFRS bill's potential impact, too. “Our concern is if benefits are increased or if the (cost-of-living adjustment) is reinstated,” said David Hitchcock, senior director for U.S. public finance for S&P Global Ratings. The New Jersey Supreme Court ruled last year the state's suspending of COLAs for public pensioners was constitutional.