Pension billions: Can N.J. cops pick better investments than Wall Street pros?
A bad credit rating costs Garden State taxpayers millions of dollars in higher interest payments to
The new board has a majority of working and retired cops and firefighters, who pay up to 10 percent of their paychecks into the fund, plus a minority of local and state officials, who represent employers -- taxpayers -- who are on the hook for most of the pensions' expense.
Will the police and fire reps do a better job investing the people's billions for future retirees, than former Govs.
Over the past ten years, the Council pumped billions into high-fee hedge fund, real estate, and private equity managers. Returns were disappointing. After paying fees, plain
Union reps want to ditch the hedge funds. Will they do better in the future, if they put the money in low-fee stock index funds and other familiar securities?
And what happens if they do worse? Will pensioners suffer? Or will taxpayers?
"There will be some complications" separating the funds,
You can't just dump hedge funds, real estate funds, or private equity funds. The private investments
But the point of splitting the funds isn't really to make radically different investments. The point is that the local police and fire funds have more money than the state teachers', state workers', and judges' funds, compared to what they owe.
"Police and fire is in such good shape because, unlike the state, the local employers haven't been taking all these pension funding holidays in the last 30 years," said Magyar. "The state required the towns to make required contributions," even when that forced tax increases that made voters howl, even as the last few governors cut back on promised pension payments.
So the police and fire people, with more than
What if the police and fire reps, like previous investment boards, get bamboozled by smooth-talking investment managers and gamble away towns' hard-earned pension contributions? What if they buy plain-vanilla investments that fail to perform in the next ten to twenty years?
The funding formula
Magyar says there are powerful incentives not to invest so badly they'll need a bailout, however. Public workers want to regain cost-of-living increases. The longest-serving state employees with 40 years in public service can retire at up to two-thirds of their pay, plus
The local police and fire fund isn't there yet, but it's a lot closer than the teachers or the state workers.
When it comes to investing, bigger ought to be better. A single pension system should be able to negotiate volume discounts, consolidate costs, and buy assets smaller plans can't. It's a failure of
One thing's for sure: If results diverge, comparing teacher vs. police returns should give pensioners, their advocates, and taxpayers plenty more to argue about.
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