Many Wary of Trenton Plan to Privatize Pension Fund

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Many Wary of Trenton Plan to Privatize Pension Fund

By David Kocieniewski, The New York Times

September 4, 2003

TRENTON, Sept. 3 — The McGreevey administration's plan to allow private investment firms to manage New Jersey's multibillion-dollar employee pension funds is beginning to emerge as a sensitive issue in several pivotal legislative elections this fall.

New Jersey is one of just two states that allow public employees to manage a major pension portfolio, and after the downturn in the stock market three years ago reduced the value of the retirement fund by almost a third, the state treasurer began lobbying to hire outside investment managers and diversify the fund's holdings.

But the leaders of some state workers' unions say the plan would cost the state millions of dollars to cover the outside fund managers' fees, and warn that investing too heavily in high-risk assets like hedge funds could endanger workers' pensions. With legislative elections just two months away, some Republican candidates are describing the plan as a pay-to-play scheme that would allow Mr. McGreevey and his fellow Democrats to use the lure of lucrative investment contracts to rake in campaign contributions from investment firms.

Today, just hours after a handful of state workers picketed outside the treasurer's office at the State House, Assemblyman Reed Gusciora, a Democrat from Princeton, joined union leaders in blasting the plan.

"I'm surprised that the administration has not learned the lesson from the boondoggle privatization schemes of the Whitman administration, which were more interested in political donations than taxpayer savings," Mr. Gusciora said.

New Jersey's pension funds are now valued at about $60 billion, down from $85 billion in August 2000.

Although the stock market plunge caused heavy losses for most institutional investors, the state treasurer, John E. McCormac, said New Jersey's pension system, which holds only low-risk securities, had performed worse than similar funds in other states.

Despite opposition from some union leaders, the state has hired a consulting firm to analyze the portfolio and advise the state on whether, and how, to diversify its holdings. If, as expected, the consultant recommends that the pension system broaden its portfolio, Mr. McCormac said he would have no choice but to contract with outside financial managers because state investment employees are not permitted to buy and sell hedge or venture capital funds.

But leaders of the union that represents the 60 employees in the Division of Investment, who now manage the pension fund, said the McGreevey administration was painting a misleading picture of the pension fund's performance. Joseph Golowski, a retired state auditor who is now consulting for the union, said the return earned by New Jersey's pension fund had been in the top 10 percent of all retirement systems in the country in recent years. Rae Roeder, the president of Communications Workers of America Local 1033, said the administration's attempt to disband the Division of Investment was politically motivated.

"It's the last remaining pot of gold in the state," she said.

Although the administration does not need legislative approval to change its investment regulations, some lawmakers have called for public hearings to establish an oversight body to monitor the way investment contracts are awarded. State Senator Peter Inverso, a Republican from Mercer County who faces a difficult re-election battle in a district heavily populated with state workers, said he would lobby the administration to drop the plan.

"I am greatly concerned that the pension system and its beneficiaries will fall victim to political contributors who are anxiously lining up for a return on their investment," Mr. Inverso said during a rally last week.

In New Jersey, where a succession of political corruption scandals has bred deep suspicion of elected officials, that apprehension is one of the major obstacles facing the McGreevey administration's proposal.

Orin Kramer, whom Mr. McGreevey appointed to head the State Investment Council, said he believed that the administration could win the confidence of the public only if it set up a system that was open and accountable. "The policy will speak for itself," he said.

In the partisan and highly politicized atmosphere in Trenton, however, Mr. Kramer's credentials have also become a factor in the debate. While Mr. Kramer helped develop public policy in the Carter White House and was chairman of financial regulation commissions during the administrations of Gov. Mario M. Cuomo in New York and Gov. Pete Wilson in California, he is also a major Democratic fund-raiser and was finance chairman of Mr. McGreevey's election campaign in 2001. That makes some union officials wary.

"It just makes no sense to open up the system to even the appearance that campaign donations might be influencing decisions," said Mr. Golowski, the union consultant. "The system we have now was set up 50 years ago because of a scandal, and it has been scandal-free for more than 50 years. In New Jersey, that's fantastic."