NJEA President Wendell Steinhauer today urged legislators to reject a proposal by Senate President Steve Sweeney to create a pension investment loophole. Sweeney’s proposal could pressure New Jersey’s beleaguered pension funds into making questionable investments in bonds expected to be sold by the state’s Transportation Trust Fund (TTF).
“Sen. Sweeney’s scheme to use the state’s pension fund to buy bonds from the TTF violates the fund’s most important investment principle: Every investment must be made only in the best interests of the pension funds and the employees and retirees who rely on them. If TTF bonds are the best investment available, the State Investment Council and the Division of Investment already have the ability to buy a significant stake in those bonds. They do not need the Senate President putting his thumb on the scale as they make their impartial investment decisions.
“There’s a reason the State Investment Council has wisely put a rule in place to prevent the pension fund from buying more than 10 percent of any bond offering. It ensures that the risk of any single investment is shared with other investors. It also helps prevent the fund from paying too much for its investments or getting too little in return by ensuring that others in the marketplace are willing to pay the same price for the same investment. Sen. Sweeney may be concerned that the market will not be willing to buy the TTF bonds, but it is not the pension fund’s place to do what other investors are not willing to do. In fact, if the bonds cannot attract other willing and enthusiastic investors, the pension fund should look very carefully at whether to invest in the bonds at all. On the other hand, if Sen. Sweeney is convinced that the TTF bonds will be a great investment, then he should trust the Division of Investment to reach the same conclusion without legislative meddling.
“Legislators have an important role to play in strengthening the health of the pension funds, but that role does not extend to making individual investment decisions. Legislators should focus their efforts on ensuring that the state meets its legal obligation to fund the pensions and leave investment decisions to the experts who have a fiduciary duty to manage those contributions wisely.”
NJEA is testifying against the bill in today’s Senate Budget Committee hearing of S-2184, the bill that would enact Sweeney’s proposal. NJEA urges all legislators to oppose the legislation.