New Jersey Gov. Phil Murphy issued a conditional veto of a bill that allows the state Police and Firemen's Retirement System to operate independently with a revised board of trustees, saying legislation would "risk immediately destabilizing the value" of the $76.7 billion New Jersey Pension Fund, Trenton.
"I certainly sympathize with the motivations underlying the bill," the governor said in a Thursday veto message that offered a series of "technical corrections" to make the legislation acceptable. "The stakeholders advocating on behalf of the bill are rightly frustrated."
Legislators can rewrite the bill and resubmit it to the governor or they could vote to override the veto. The legislation was passed in March with veto-proof majorities in both the Democrat-controlled Senate and General Assembly.
Former Gov. Chris Christie, a Republican, issued a conditional veto of a similar bill in May 2017. Although Democrats held veto-proof majorities in the Senate and General Assembly, the Legislature didn't act.
In his veto message, Mr. Murphy said transferring $26 billion in pension assets to an independent PFRS would destabilize the entire system.
"In this regard, more than a quarter of PRFS' assets are tied up in investments that would require significant time, as well as some cost, to liquidate," he wrote.
"Immediately transferring assets would also require the (new PFRS) board to replicate investment management functions currently performed by the state's division of investment, creating extra expenses that the treasurer advises could cost the PFRS fund an estimated $12 million a year," he added.
One of his recommendations was to keep the assets under the auspices of the division of investment within the state Treasury Department.
Among other recommendations, Mr. Murphy said the legislation should include a requirement that an actuary certify the soundness of benefits changes enacted by a new PFRS board.
Mr. Murphy also objected to the legislation allowing the board to set its own assumed rate of return for investments. "The assumed rate of return has broad implications for the state, municipalities and counties, as well as for other pension systems," he wrote.
The rate of return for the New Jersey Pension Fund is 7.65%. It will be cut to 7.5% for the fiscal year starting July 1 and will be reduced gradually over several years to 7%.
Mr. Murphy said PFRS should be treated differently because "in relative terms, PFRS is the healthiest of the state's individual pension systems with a total funded ratio of more than 69%," compared to the 60.2% average for the other pension funds.
PFRS members contribute 10% of salaries to the pension fund, "a higher contribution level than many other public sector employees contribute to their respective pension funds," he wrote. "These factors support adopting a different approach for PFRS, to treat it differently than our other retirement systems."
The legislation transfers the police and firefighters' pension fund from the Treasury Department to a newly constituted board of trustees with 12 members instead of the current 11. Police and firefighter union members will hold seven of the board seats, up from five currently.