TRENTON, N.J. - Trustees of the New Jersey Teachers Pension and Annuity Fund are asking a state judge to relieve them of fiduciary responsibility for the $17 billion-plus fund if they are unable to hire outside lawyers to settle a dispute with Gov. Christine Todd Whitman's administration.
The request comes as part of an ongoing battle over 1994 changes in the law that allowed the state to cut its contributions to public pension funds. The changes were initiated by Gov. Whitman's administration.
Trustees say they need outside legal counsel because State Attorney General Peter Verniero, who normally would provide legal advice to the pension fund, has a conflict of interest. He's also the top lawyer for the administration.
"It's a way of putting a little bit of pressure on the court: If you don't do what we are asking for in the first place, then you are saying we are not fiduciaries," said Harry Baldwin, chairman of the teachers' fund.
The trustees presented the judge with the fiduciary option in response to the state's request that the lawsuit be thrown out.
In legal papers, the state has said trustees have no right to challenge legislation "on the grounds that you disagree with the policy judgments made by the governor and the Legislature."
The state also contends the attorney general "has the exclusive right to speak for the state in matters of litigation."
Trustees have voted to hire the Washington law firm of Groom & Nordberg to represent them, but can't go ahead until the judge gives the green light.
They initially had attempted to hire New Jersey lawyers, but none accepted, according to Ian Lanoff, the Groom and Nordberg lawyer the trustees want to hire. He said the instate lawyers all had conflict of interests because they also do work for the state.
And, the attorney general's legal briefs say even if the pension fund had the right to hire independent counsel, it cannot hire out-of-state attorneys because "there is no lack of local counsel capable of handling this matter, nor any demonstration of an inability of the board to retain local counsel."
The judge is expected to hear the case May 2.
Trustees say their fiduciary responsibility requires them to study any changes in funding rules. It also should allow them to establish a code of ethics that lets them obtain necessary fiduciary education - including hiring outside attorneys.
"It is usually fine for the attorney general to be representing the board, but when you are at loggerheads with the state . . . it is ludicrous," Mr. Baldwin said.
If the judge allows them to hire outside lawyers, trustees intend to file suit, asking for re-examination of the 1994 law changes and a reassesment of the consequent change in the funding method.
Those 1994 changes "damaged the fund," Mr. Baldwin said.
Trustees say their funding concerns have been bolstered by Gov. Whitman's new proposal to wipe out the shortfall in the state pension funds through a $2.9 billion sale of pension obligation bonds.
They say they know nothing about this proposal, other than through media accounts.
Trustees also say they have been harassed by state officials trying to force them to drop their request for outside lawyers. In an April 14 court filing, the trustees said the attorney general threatened them with civil penalties a year ago for holding a private discussion with the law firm they hoped to hire.
Trustees also contend Deputy State Treasurer James A. Archibald asked the New Jersey Executive Commission on Ethical Standards to investigate the trustees for letting the New Jersey Education Association pay for some of their expenses to attend pension educational seminars.
The state ethics commission concluded it was wrong of the trustees to accept the expenses from the state teachers' union.
Meanwhile, the New Jersey Education Association agreed to drop its lawsuit against the state, which charged the 1994 changes were unconstitutional. The union officially will drop the suit when the Legislature passes the governor's proposal to sell pension obligation bonds.
"If the law is not passed, we are back to square one," said Peter Christensen, actuary for the NJEA.
He said Gov. Whitman's administration guaranteed all vested plan participants would receive pensions according to the current benefits formula.
Under the current formula, state employees receive pensions linked to their salary and years of work experience. The agreement does not cover new employees, whose pension benefits may be cut in future years.
The Communication Workers of America, District 1, another plaintiff in the suit, worked out a separate accord with the administration, and agreed to drop the lawsuit.
Under the agreement, all vested workers are ensured they will receive their pensions under the existing benefit formula. The CWA was able to obtain two concessions: the vesting period was cut in half to five years from 10; and the employee contribution was cut to 4.5% of pay for the next two years, from the current 5%, according to Mary Lou Murphy, a spokeswoman for State Treasurer Brian Clymer, who participated in the talks. The cut in employee contributions will be extended beyond the next two years if the stock market's performance keeps up and the fund generates surplus returns. The CWA, the largest employee union in the state, has about 36,000 members covered by state pension plans.
Meanwhile, trustees of the teachers' pension fund say if they are granted the right to hire an outside lawyer, they might challenge the settlement if they disagree with it.