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N.J. Gov. Murphy vetoes bill that would ‘jeopardize’ state pension fund health

New Jersey Gov. Phil Murphy

New Jersey Gov. Phil Murphy has vetoed legislation that he said could "jeopardize the overall health" of the pension systems within the $70.9 billion New Jersey Pension Fund, Trenton, adding the bill "creates broad proscriptions on the state's investment practices."

In a Jan. 31 veto message, he said: "The bill's sweeping prohibition against any investments that could pose a 'reputational risk' to the state's retirement systems, for example, could be interpreted to apply to a wide range of direct and indirect investments," he said.

The bill's terms might "be used to call into question investments that are objectively appropriate," he added.

The legislation was approved Dec. 17 by the state Senate 29-9 and by the General Assembly 67-6 with five abstentions.

Both votes are sufficient to achieve two-thirds majorities needed to override a veto. Democrats control both houses. Mr. Murphy is a Democrat as is Stephen Sweeney, the Senate president, with whom Mr. Murphy has clashed on issues such as raising taxes, the state budget, the state pension system, health benefits and emergency aid for the homeless.

The bill would place certain restrictions on the division of investment, which manages investments for the New Jersey Pension Fund, covering domestic equity investments in private equity, private real estate and private infrastructure in which the division of investment holds more than a 50% interest.

The bill "prohibits the division from approving any investment that has the potential to eliminate public-sector jobs, would pose a reputational risk to the state-administered retirement systems, or could bring public or regulatory scrutiny to the retirement systems," a legislative report describing the bill said.

"With respect to long-term operations financed by the division's investments, operators must make a good-faith effort to secure an agreement with a bona fide labor organization requesting to enter into such an agreement solely with respect to such operations in which the labor organization agrees not to strike, picket, boycott or take economic action against the operations for the duration of the investment," the report said.

"A bona fide labor organization is one which is a member of either the AFL-CIO or Change to Win, and has at least 100 collective bargaining agreements or 50,000 members in the same industry as the long-term operations," the report said.

Mr. Murphy's veto message said the bill "could undermine certain investment strategies that have been successfully utilized by the division to reduce fees and increase returns."

Many of the New Jersey Pension Fund's recent investments in real estate have been via separate accounts, in which the division of investment owned more than 50%, he said.

"In one recent example, the use of a separate account is expected to save the division approximately $39 million in fees over the life of the $300 million commitment," Mr. Murphy said. "This bill could significantly reduce the division's ability to take advantage of the savings opportunities available through this and similar investment structures."