Now that NJ State PBA members have had a chance to absorb the Governor’s Pension Commission report, the most frequent question asked is, “Will the legislature adopt this plan?” Or, more directly, “Are they going to take my pension away?”Anyone who has followed the path that led to poorly designed laws like Chapter 78 and arbitration caps know that in Trenton, anything is possible. But the reality is the odds are against the
adoption of the report as proposed.
There are a few factors that have slowed down the consideration of the plan. First, the governor’s defiance of the law in making the statutorily-required pension payments has left a seriously sour taste in the mouth of Democrats and Republicans who supported Chapter 78 because of the promise of eventual full-pension funding. Their comments to us indicate they are very uncomfortable agreeing to more pension cuts when the law they promised would fund the state pensions wasn’t followed. Second, there are certainly political considerations about upcoming elections that can’t be overlooked.
But most importantly, despite the sincerity of the Commission members in proposing these draconian cuts, their lack of analysis of PFRS has opened a door for the State PBA to highlight what the Commission didn’t tell the State Legislature. It also brought together a number of unlikely allies who previously would never have been on the same page about blocking this proposal from being applied to PFRS. Both of these have raised eyebrows in Trenton and strengthened the PBA position in the debate about the future of the pension system.
We are learning from our many meetings with legislators and their leadership that they are aware PFRS is well-funded, and that it represents only a small fraction of the state budget. This is an important step. There was little attention to such details from legislators during the Chapter 78 debate. Ensuring they know that the vast majority of PFRS is locally-funded relieves a concern that exists for the teacher’s pension system that is exclusively state-funded. That turns the debate from why not adopt the Commission plan to why is PFRS even in the discussion? The re-education process is extremely valuable to comparing the Commission’s recommendations to PFRS, and it has given the PBA a chance to propose some outside-the-box thinking about pensions that is gaining traction.
It is also interesting to watch the development of relationships between the PBA, FOP, FMBA and IAFF in crafting an agenda that formerly would have occurred independently. But what is most surprising is the discussions that have taken place with the NJ League of Municipalities. For decades, the League has served as the primary opponent of every collective bargaining and benefit enhancement PBA members have achieved or desired. But when it comes to the Pension Commission report, the League has stood firmly with us in opposing the inclusion of PFRS. Not only have substantial discussions taken place between the PBA and League to craft a similar strategy to oppose the Commission’s pension recommendations, but a working group has been developing to discuss next steps in the future of PFRS. While none of us know where this relationship will end up, or whether we will stay on the same page during these discussions (they have other reasons to oppose the reports that don’t involve the PBA), the fact we are currently in talks has captured everyone’s attention in the State House.
All of this has brought us to a place where we are thinking smarter about pensions in general in order to come up with a plan that ends the cycle of proposals to eliminate public employee pensions. One of the options on the table is for PFRS to split off from the state system and become, in effect, an independent pension system. This is not a unique concept. Many states have taken this approach for police and fire employees and have successfully managed their pensions, preserved benefits and watched their investments take off.
Colorado, Washington State, New York, Ohio and Illinois have well-funded police and fire pension systems that operate independently of the state. There are many benefits to this approach. Establishing a “labor-management board” would give the board complete legal authority over pension benefits, funding and investment strategies. Doing this takes the power away from the governor and legislature to fool around with pension payments, provided the new board is granted legal powers to compel funding. It would give the board power to invest its own funds and remove outside influence of political contributors that seems to have driven money-manager fees into the hundreds of millions of dollars. Retirement decisions and policy would be set by the board, and not the Division of Pensions which often refuses to enforce the PFRS Trustees directives. And it would give ownership of the plan directly to employees to carefully safeguard the future
of the pension system.
But these are concepts that must be carefully analyzed over time, and it is a proposal the State PBA won’t rush into. Working with partners like the National Conference of Public Employee Retirement Systems (of which we are members) and meeting with professionals from other states is helping to shape our thoughts as we look for best practices and to see if this can work in New Jersey. But let’s be clear: these are options for us to consider that must be right for PBA members present and future. Having an alternative to consider gives us flexibility in Trenton too that ensures there won’t be a rush to pass another poorly designed pension law or to strip away a benefit that was promised when you took your oath to protect and serve.