Senate President Sweeney and Senator Kean sponsor S-5, which transfers the management of Police and Fire Retirement System (PFRS) to a Board of Trustees of PFRS. This legislation would disproportionately shift control of the PFRS, from balanced labor-management control, to a union-dominated (7-5) decision-making structure. The bill has been released by the Senate Budget and Appropriations Committee and can be scheduled for a final vote in the Senate at the next voting session. An Assembly companion will likely be introduced shortly.
The League, joined by our partners with the NJ Conference of Mayors and the NJ Association of Counties, adamantly opposes this legislation.
Funded entirely by property taxpayer dollars, municipal and county governments will spend an estimated $913.0 million in 2018 to subsidize the Police and Firemen’s Retirement System (PFRS), while PFRS members will contribute approximately $334.0 million to the defined benefit plan. In other words, property taxpayers will finance over 73.0% of PFRS in 2018, while PFRS members will pay 27.0%.
In its current form, the bill will allow public safety union members and retirees to enhance their own benefits; while forcing their public employers, and New Jersey taxpayers to assume a disproportionate amount of the risk.
The legislation gives the labor-management board, at its discretion, and at such time and in such a manner as it determines the ability to:
- Enhance any benefit set forth in N.J.S.A. 43:16A-1 et seq.; and
- Modify any such benefit as an alternative to an increase in the member contribution rate; and
- Reinstate, when appropriate, such reduced benefit to the statutory level without an additional contribution by the member.
The legislation would allow the PFRS to enhance member benefits without meeting the 80% target fund ratio. The target fund ratio is a measure put in place to ensure the financial stability of the State’s pension systems prior to enhancing member benefits and something that is required by the State’s other pension systems.
PFRS is not like a 401K. Rather, it is a defined benefit program in which the employers are responsible for any shortfall in funding. Employees’ contribution rates are fixed at 10% of their salary while the employers’ contribution rates are based on the funds needs and performance based on actuarial reports. Currently, that requires local employers to contribute 27.35% of the employees’ salary. As a result any shortfall due to a downtown in the economy, mismanagement of fund assets, or any enhancement in benefits ordered by the labor-controlled board, will be borne by property taxpayers.
The League, along with the New Jersey Association of Counties, opposes the bill for the reasons outlined above. We have requested the following taxpayer-friendly changes that will serve to protect the long-term health and viability of PERS as well as establish critical safeguards that require the new Board of Trustees to manage valuable property taxpayers’ dollars in an effective and efficient manner:
- Create a 15-member PFRS Board of Trustees comprised of an equal number of labor and management representatives with 1 independent member;
- Authorize the League and Association of Counties to make direct management appointments to the new Board of Trustees as is the case for the labor representatives;
- Prohibit the new Board of Trustees from enhancing member benefits until the system achieves a target funded ratio of 80% as required under current law;
- Require a vote of 2/3 of the full membership of the new Board of Trustees to enhance members benefits, and only after the system achieves a target funded ratio of 80%; and
- Establish a mandatory retirement age.
The League and Association of Counties further suggest that if the Legislature and Governor fail to amend the measure accordingly, then PFRS must be changed to a defined contribution plan where employees make greater contributions and assume a greater risk of loss as is the case with 401(k) investments.
Given the inaction on extending the 2% cap on binding interest arbitration awards, the sunsetting of employee health benefit controls implemented under Chapter 78, the restricting of SALT deductions on federal income taxes, and the long-term ramifications of enacting this legislation without the recommended safeguards, municipal and county leaders fear they are facing a perfect storm of uncontrollable property tax growth and substantial service cuts.
- Michael F. Cerra, Assistant Executive Director, firstname.lastname@example.org or 609-695-3481 x120
- Lori Buckelew, Senior Legislative Analyst, email@example.com, 609-695-3481 x112