Moody’s Investors Service said transferring management of the Police and Firemen’s Retirement System from the state to a board controlled by public employee unions may limit efforts to shore up the finances of the pension fund by reducing benefits.
Gov. Philip Murphy signed legislation in early July, divorcing the $26 billion public-safety retirement fund from direct state management and assuring that a majority of the pension trustees, seven of the 12 members, will represent public employees and retirees.
Murphy said the new structure would help “retiring police officers and firefighters feel secure as they move toward retirement, while also protecting the financial interests of taxpayers.”
Although Moody’s did not lower New Jersey’s credit rating, which already is the second-worst among states, the Wall Street company warned that the change could put at risk both the state and local governments, which bear 84 percent of the pension fund’s costs.
“PFRS now will be the only fund whose benefits, investment policies and actuarial funding policies will not be managed directly by the state,” said Doug Goldmacher, an assistant vice president at Moody’st. “Moving PFRS management to its own board may misalign the state’s interest in improving its pension funding with the new PFRS boards’ interest in maintaining benefits for its members.”
Although New Jersey’s pension funds are in worse shape than those of most states, it currently maintains “moderate legal flexibility” to cut benefits, as it did in 2011 under former Republican Gov. Chris Christie, who suspended cost-of-living adjustments after winning union concessions, cutting the unpaid pension bill by about 37 percent.
Democratic Senate President Stephen Sweeney, who was pivotal to enacting Christie’s machinations undermining public workers, sponsored the legislation giving control to the police and firefighter unions.
Although Wall Street is disconcerted by taking away the state’s financial flexibility, others say the move was needed to prevent politicians from cheating retired workers out of the benefits they earned.
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