S5 Progresses

It seems inevitable that management of the New Jersey Police and Firemen’s Retirement System (PFRS) will be transferred from the Division of Pensions and Benefits in the Department of the Treasury to the Board of Trustees of the PFRS. Earlier this week S5 got a thumbs up from a Senate Committee (11 -1) and surprisingly the Office of Legislative Services (OLS) did have an opinion on the fiscal impact.

The OLS notes that the authority provided to the Board of Trustees of the PFRS under the bill may have a fiscal impact on the administrative costs of operating the PFRS. For instance, the bill requires the board to hire an executive director, actuary, chief investment officer, and ombudsman and retain experienced legal counsel. Administrative costs will depend on the board’s future decisions, such as a decision of the board to employ additional staff instead of continuing to use the services of the Division of Pensions and Benefits in the Department of the Treasury. Additionally, as the PFRS board chooses to make and execute agreements with public and private companies for the management of the investment of the PFRS, the administrative costs and investment expenses of the PFRS will be impacted.

The OLS notes that the bill may increase employer pension costs because the bill allows the board to reinstate cost of living adjustments for retirees and to alter any benefit set forth in statute for the PFRS.

Since the bill requires the board of trustees to conduct a review of the performance and funding levels of the retirement system and allows the board to petition the Legislature to consider legislation that reverts control of the system to the Department of Treasury or another agency, if the PFRS underperforms over the six-year period, the State and local government employers may incur higher employer costs to fund the PFRS pension fund. The converse is also true, if the PFRS out performs over the six-year period, the State and local government employers benefit from higher returns and may experience lower costs to fund the PFRS pension fund. As of June 30, 2016 (most recent), total administrative expenses allocated to the PFRS were $4,779,598, and investment management expenses and fees allocated to the PFRS were $1,837,898. Related consultant costs for an actuary, actuarial services, and other consulting costs for the PFRS were $1,188,034 in FY 2016. In FY 2016, the PFRS accounted for approximately 11 percent of total pension fund administrative expenses. Administrative costs for actuarial services (40 percent), medical reviews and exams (25 percent), elections (55percent), and travel (27 percent) were higher, as a percentage of total PFRS administrative costs, than other PFRS administrative costs.

In addition, the bill requires local governments to make their annual payment to the PFRS on a quarterly basis, which may require additional short term borrowing by these governments. The bill permits a local government to reduce the pension payment by the additional borrowing cost

S5 Sca (1R) Transfers management of PFRS to Board of Trustees of PFRS. 2nd Reading in the Senate

Last Session Bill Number: S3040   (1R) A99 Sweeney, Stephen M.   as Primary Sponsor Kean, Thomas H., Jr.   as Primary Sponsor Bucco, Anthony R.   as Co-Sponsor Oroho, Steven V.   as Co-Sponsor 1/9/2018 Introduced in the Senate, Referred to Senate State Government, Wagering, Tourism & Historic Preservation Committee 2/1/2018 Reported from Senate Committee with Amendments, 2nd Reading 2/1/2018 Referred to Senate Budget and Appropriations Committee 2/5/2018 Reported from Senate Committee, 2nd ReadingIntroduced – – 51 pages PDF Format    HTML Format Statement – SSG 2/1/18 – 4 pages PDF Format    HTML Format Reprint – – 50 pages PDF Format    HTML Format Statement – SBA 2/5/18 1R – 3 pages PDF Format    HTML Format Committee Voting: SSG  2/1/2018  –  r/Sca  –  Yes {5}  No {0}  Not Voting {0}  Abstains {0}  –  Roll Call SBA  2/5/2018  –  r/favorably  –  Yes {11}  No {1}  Not Voting {1}  Abstains {0}  –  Roll Call Sarlo, Paul A. (C) – Yes Stack, Brian P. (V) – Yes Addiego, Dawn Marie – Yes Bucco, Anthony R. – Yes Cruz-Perez, Nilsa – Yes Cunningham, Sandra B. – Yes Diegnan, Patrick J., Jr. – Yes Greenstein, Linda R. – Yes O’Scanlon, Declan J., Jr. – No Oroho, Steven V. – Not Voting Ruiz, M. Teresa – Yes Singleton, Troy – Yes