April 12, 2007

State senators from both political parties said at a hearing on Wednesday that they had been shocked to learn that they had voted again and again in recent years for measures that had left the state pension in great distress, and they faulted the state treasury for failing to explain to them the risks of what they were doing. 

“I had no idea we were in the company of some of the same corporations that I have condemned for not funding their pensions,” said Senator Shirley K. Turner, a Democrat from Mercer County. “And now, it seems, we’re in the same boat, and sinking.” 

The hearing, by the Senate Budget and Appropriations Committee, was called in response to a report in The New York Times last week that described how New Jersey has diverted hundreds of millions of dollars that should have gone into its pension fund, using unorthodox steps authorized by governors from both parties over a number of years. 

In response to The Times article, Gov. Jon S. Corzine of New Jersey has said that the state will change certain accounting procedures. He has also asked the state attorney general to investigate, with outside actuarial help, whether tax requirements, securities laws or other rules have been violated.

The attorney general, Stuart Rabner, will have to walk a careful line in such an inquiry, however. He is currently representing the State of New Jersey in lawsuits, filed by several employee groups, that accuse the state of failing to fund workers’ pensions lawfully. In those cases he is arguing that the state has acted legally. 

David Wald, a spokesman for the attorney general, said Mr. Rabner did not perceive any conflict between these roles. 

The office of the attorney general has also said in audited financial statements that the state’s pension plans are “qualified” as tax-preferred plans. Normally, only the I.R.S. can issue a ruling that a pension plan is qualified, after reviewing it to make sure it complies with the tax code. But New Jersey’s annual reports state that its pension plans are qualified “based on a 1986 declaration of the attorney general of the State of New Jersey.” 

The I.R.S. said it had no record that New Jersey had ever requested to have its pension plans qualified. “Just because the attorney general says it’s qualified does not mean it meets the requirements of the Internal Revenue Code,” said Andy Zuckerman, director of employee plans, rulings and agreements at the I.R.S. 

In the hearing Wednesday, the state treasurer, Bradley Abelow, tried to calm the senators’ deepest concerns about potential legal and financial problems facing the pension fund. But at the same time, he argued that their complaints of being kept in the dark were unfounded. 

“The financial position of the system’s funds is transparent, and stated in various publications in accordance with the required accounting standards,” Mr. Abelow said. He brought a list of places where information about the pension fund was available, including annual actuarial reports and monthly updates to each plan’s board of trustees. 

But Senator Barbara Buono, a Democrat from Middlesex County, said that was not enough. “There is not full disclosure to the Legislature,” she said, “perhaps not intentionally.” She said that she had tried to call a treasury official to ask questions but was told that it would violate protocol for him to come to the phone. 

Senator Buono also said she thought many of her fellow legislators had failed to live up to their responsibility to understand the implications of what they vote on. Once pension benefits are granted by the Legislature, they cannot be rescinded, even if lawmakers belatedly learn that they have misjudged the cost. 

Senator Buono has introduced a bill requiring top treasury officials to appear before the committee twice a year to explain the condition of the pension fund in plain English. But Senator Bernard F. Kenny Jr., the Democrat who is chairman of the committee, said he had no plans of moving the bill now. 

Some senators wondered whether any of the outside professionals helping with the pension fund were at fault, expressing confusion about the roles played by actuaries, auditors, lawyers and others. 

“If you’re paying someone who is consistently giving us bad advice, why do we continue to pay them?” Senator Turner asked. “Many times, you can find the financial people to give you the advice you want, so that you can do the things you want.” 

She said she wanted to know, for example, who had prepared bond offering statements that wrongly showed that the state had made hundreds of millions of dollars’ worth of pension contributions in years when it had really contributed nothing. 

Mr. Abelow declined to identify the lawyers who had prepared the offering statements for the state’s bond sales, but said they were “nationally recognized firms that are confirmed by the state auditor.”

And Frederick J. Beaver, the director of the Division of Pensions and Benefits, defended the outside actuaries. He recalled that when he joined the division in 2003, people had been asking the actuarial consultants whether they could “push the envelope” and save more money by diverting pension contributions. The actuaries advised against it, he said.

“These aren’t strip mall guys,” he said. 

Senator Leonard Lance, the minority leader, who is known to study financial bills carefully and who has sometimes been the sole opponent of popular — if costly — pension bills, said he felt it had been “enormously helpful” to hear the treasurer’s explanations and to get more meaningful information. 

He said after the hearing that he would co-sponsor the bill to require such testimony twice a year.

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