TRENTON, N.J. - Trustees of New Jersey's largest public pension fund are trying to block the reappointment of Buck Consultants Inc. as actuarial consultant.
By a 4-1 vote, trustees of the $16 billion Teachers' Pension and Annuity Fund of New Jersey, last month expressed their lack of confidence in Buck, the pension fund's actuary for more than 70 years.
In a statement released after their vote, trustees charged Buck with bias in backing Republican Gov. Christine Todd Whitman's change in law on funding state pension plans last year. State contributions will be slashed by $5 billion over the five years ending June 1998.
The cuts will affect the pension funds for state teachers, police and fire department employees, and other state workers.
New Jersey law does not permit trustees to hire and fire actuaries, but they can veto a pick by a selection committee. A seven-member committee - composed of a trustee from each of the three pension funds, and four members appointed by the state treasurer's office - picks actuaries for the state pension funds.
Trustees of the three pension funds can veto the committee's choice of the actuary if they have good reasons, or what is known as "for good cause."
Buck also is the actuary for the $13 billion New Jersey Public Employees' Retirement System. Trustees of that fund did not issue a similar vote of no confidence.
Instead, trustees opted to ask state lawmakers for money to hire an independent consultant to review the selection committee's pick of an actuary.
Since the law doesn't specify what "good cause" is, or say what happens if trustees of one of the pension funds reject the actuary selected by the selection committee while the others approve the selection, the NJPERS board would like an outside consultant to review the actuary's selection, said Gary A. Saage, chairman of the NJPERS board.
The New Jersey Police and Fireman's Retirement System uses Milliman and Robertson for actuarial work.
Under the new law, employee contributions were raised to 5% of pay for most workers. Previously, employee contributions were linked to the age at which the employee became a participant in a state pension fund.
Employees who starting working for the state before age 44 generally contributed 3% of pay to their pension funds; older employees paid in 7% of their salaries.
In addition, inflationary increases in salaries have been cut to 4% a year from the 5% previously assumed.
The new law will reduce the buildup of assets in the teachers' fund alone by $12.5 billion over the next 20 years, according to the trustees' statement.
"The board now believes that Buck's conclusions as to the fiscal propriety of (the new law) were misleading, in many factual matters questionable, and in general predicated on .*.*. a bias in favor" of changes in the law, the trustees' statement notes.
Buck consultant rebuts charges
But Bob Baus, a consultant in Buck's Secaucus, N.J., office in charge of the account, rebutted the charges.
For one thing, he said, the pension fund will not have a shortfall. Under the previous funding method, the pension plan would build up a $9.5 billion surplus over a 30-year period. Now, pension assets will exactly match the projected liabilities in the long term, he said.
"It's wrong to say it's a shortfall. All it is doing is it eliminated the surplus," Mr. Baus said.
For another, Mr. Baus said a technical analysis of Buck's assumptions used by trustees of the teachers' fund to support their conclusion "is full of mistakes. They completely forgot it was a contributory system for one thing. And the math is all wrong. It doesn't add up," Mr. Baus said.
Peter A. Christensen, an actuary at the New Jersey Education Association, the teachers' union, and Actuarial Sciences Associates, a Somerset, N.J., consulting firm, analyzed Buck's assumptions for the trustees.
In an interview, Mr. Christensen said his calculations were checked by three other actuaries, "all of them skilled mathematicians, and none of them found anything wrong."
Buck also issued a statement saying it has agreed to provide the trustees with additional data in annual valuation reports they requested.
New Jersey Treasurer Brian W. Clymer also wrote a letter to William E. Geigerich, Buck's chief executive, saying the state has "continued confidence" in Buck.
Under the new assumptions, the state assumes the three public pension funds will continue to earn 8.75% a year on their assets, and that salaries will increase by about 6% a year. The change in the law did not alter the expected rate of returns assumption, but reduced the salary assumption from 6.25%.
The changes also assume inflation will increase at 4% a year indefinitely, down from 5% a year.
And the new law changed the funding method. Now, funding balloons as the participant ages; before, funding was spread evenly over time.
Furthermore, the law extended the amortization period for unfunded liabilities to 40 years from just less than 30 years and reverted from advance funding of medical expenses for retirees to a pay-as-you-go system.
A recent report by A. Foster Higgins & Co. of public retirement systems nationwide found the majority assume an 8% return on assets. And Buck's own survey of assumptions for corporate pension plans found the average assumed rate was 8.3% in 1993, the latest period for which information is available.
The Buck survey also found the average salary increase assumed by corporate pension plans was 5.4% in 1993.
Teachers' trustees plan veto
In their statement, trustees also said they plan to veto the reappointment of Buck; the seven-member selection committee recommended an extension of the contract.
The state just launched a formal search for an actuary for both the teachers' and employees' funds.
The selection committee is expected to announce its decision by October, said Harry Baldwin, chairman of the teachers' fund.
But Mr. Baldwin is not relying on a veto alone to block Buck's reappointment.
Trustees also are backing legislation by two Republican state senators that would give public fund trustees the right to hire and fire actuaries. And U.S. Rep. Robert E. Andrews, a New Jersey Democrat, plans to introduce federal legislation to give state and local government employees the right to sue state and local officials, including governors, for reducing employer contributions and cutting back promised benefits.
"The bottom line is that I firmly believe this trust would be far better protected in favor of the members and the taxpayers if it were in the hands of trustees," Mr. Baldwin said. "This way we are completely vulnerable to raids. It's not a partisan thing."
Losing the contract with the teachers' fund could cost Buck $68,000 a year in fees. Buck also receives $92,000 annually from the employees' fund, according to Mr. Baus.
The revolt against Buck by teachers' fund trustees is backed by the New Jersey Education Association, the teachers' union, and the Communication Workers of America.
The unions also filed a lawsuit against the state and the state treasurer in October, charging the new law is a breach of contract that violates their legal right to a fair hearing and constitutes a taking of property.
The controversy over Buck's actuarial assumptions started one year ago, after Ms. Whitman became governor.
Ms. Whitman, who was elected on a mandate to roll back state taxes, appointed a task force to examine ways to finance the tax cuts through cutbacks in pension contributions.
In testimony before the Legislature passed the changes, Buck officials said the changes wouldn't harm the financial condition of the pension funds. The new law cutting back state contributions to the pension funds was passed June 30.
