Bruno Responds to Donnelly on Proposed PERS Split: ‘Your Assessment Seems a Bit off the Mark’

Bruno

Thank you for taking to the time to read my letter of concern that was addressed and sent to Legislators.  As you can see, the letter was not a criticism of the PFRS but an observation that warrants concern if another split is to occur.  While the document is two pages in length, the PFRSNJ reference comprises a total of 1 sentence and a follow up question.  Hardly a condemnation of your system or your staff, many of whom I know and respect.  Like your staff, our staff also continued to work when the Division and other State Offices, Agencies and Divisions screeched to a halt, at least in the visible sense.  Services were maintained everywhere by dedicated public workers who worked from home, accepting calls and emails and coordinating services.  It was a herculean effort across the entire spectrum.

Your assessment that costs did not increase seems a bit off the mark.  For example, having to contract or hire a CIO and Executive Director at a collective cost of $500,000 just in salary when one person was doing that job before the split at a significantly smaller salary was the type of administrative cost increase I was referring to in my letter to them.

The reference was never meant, nor did it explicitly attempt, to critique the departure of the PFRS.  The one and only mention was the drastic increase in administrative costs which was based on salary data prior to the split and then after the split.  That is a matter of public record and it supports exactly what I said.

I am sure the salary increases for your attorneys (which are substantially higher than that of the DAG’s) and the support staff, the doctors, the CIO and Executive Director and other titles required by statute are more than deserving and should in fact be matched by the Division with regard to their staff with substantially similar titles and duties; however, to indicate that those costs did not increase seems disingenuous.  That is not to say that your costs are, or are not, low as a percentage of your fund or as compared to similar funds.  That was not the point being made.  Instead, having in essence, 3 CIO’s, 3 Executive Directors, 3 medical boards, etc. (if the Local part were to split) where one has been enough is, by sheer virtue of the number of positions and salary “higher administrative costs” than it would have been without a split when these services were shared by people doing the job in substantially lower salaries . Additionally, partially separating while still sharing services with the Division is still a passed through cost by definition.  That is Public Policy 101.  The fact that some of those services are typically the responsible of ANY board secretary or support staff but are permitted to be done by Division staff is, again, an observation not a critique.  The purpose of the letter of concern to Legislators was to alert them to the misrepresentations by those responsible for pushing this Bill without a single request for information from the people elected to protect the Fund or from an Actuary…ANY actuary.  The blatant misrepresentations that this will save money for taxpayers, that the investments have been mismanaged, that the State is being subsidized by Locals, or that the normal cost increases for the Counties and Municipalities was because of any of those factors…are blatantly false.

We fully understand that Senator Sweeney has a desire to get rid of the Defined Benefit pension for public workers in favor of a hybrid defined contribution plan.  We also know that studies by Universities and Labor watchdogs have consistently demonstrated how that has failed in at least three states who are reversing their previous decision and a couple local pensions as well.  But destabilizing the current system is not the way to achieve his ill-conceived goal.

I have been a union representative for 44 years of my life.  I was President of my Chapter for 27 of those years, a Local Staff Rep and Organizer for 10 years with the Statewide Local and their Political Director for 7 years until I left to retire from my State job.  You need not speak to me about representing the workers, I’ve lived my entire life doing just that.  But as an elected fiduciary, my statutory duty is to protect the member’s money and to act in their best interests, regardless of union affiliation, or lack thereof.  For that reason, I have asked our Actuary to be prepared to speak to the concerns that have been raised by the Board (which I might add is comprised of SIX Trustees elected from the ranks of those whose money is entrusted to our care, not appointed by anyone.  The other three (3) are appointees (2 gubernatorial and one from the Treasurer).  We agree with your premise, “The decision making (sic) process should not be left to a small group of Wall Street types who seek power and influence…” which is why we believe the bulk of any Board should be elected from the ranks of those whose sweat, and toil lie at the root of the funding.

Notwithstanding your indignation as to the reference of passed through work, again,  I referenced that as an example of how some costs are harder to ascertain as they are shared services even though one might assume they would not be shared and that they need to take that ambiguity into account when studying the costs, thus the question that followed that statement.

Lastly, your reference to the PFRS not having split from the Division of Investments was NEVER a matter of contention and was not even a footnote in my comments. Other than the aforementioned two sentences, the entirety of my letter was wholly about the Local split from PERS and nothing to do with you, your staff or your system.  As a sitting member of the State Investment Council, I was one of three people attempting to reduce fees and get rid of Hedge Fund Investments.  Since my tenure on the Council, we have done exactly that… reduced hedge fund allocations from 12.5% to 6% to the current 3%.  Our fee structures have been renegotiated which occurred because our pooled money allows us to make larger buy-ins of $100 million or more which gets us rates of 1% or 1.25% instead of the typical 2% if we dropped the investment to smaller sums like $50 million once the Fund is split.  And some investments would be closed off to smaller investments Those are simple and incontrovertible facts.

Additionally, while it is true that some of our investments have not hit the benchmark which had been artificially high for decades, the assumption rate has been getting scaled downward making it more realistic, which, unfortunately, raises the unfunded liability automatically in the process.   The reality is that our investments have been meeting or exceeding expectations overall, especially when looked at over the long haul like 5 years, 10 years, and 25 years.  The last 9 months have us at over 17% …gaining over $6 Billion.  I’m no wall street giant, but that sounds pretty good to me.

I appreciate your letter defending your system and its staff, but my two sentences in a two-page letter to other people did not condemn or criticize anyone.

Your indignation has been communicated and noted, but again, it was never inferred or explicitly stated to be an attack on you, your staff or your system.  My comments were concerns about splitting the Local part from the PERS.  PFRS was not part of that, and never was.  But separating a larger Fund to make two smaller ones with duplication of services will cost more than it currently costs, no matter what the percentage is  as compared to each fund.  And it will absolutely hurt our investment ability if the two funds are split.  It remains our concern. While I’m truly sorry Senator Sweeney saw fit to involve you in this.  Two sentences out of two pages mentioned your system as a reference to cost increases and the passed through costs that are difficult to assess.    No insults were delivered nor were any intended.  I respect the work you and your staff do, just as I respect the outstanding work of ALL public workers who braved this pandemic to deliver services under some of the most challenging conditions ever presented to this country, including the Division of Pensions and the Division of Investments staff.

I am always available to talk, but I stand by my comments to the Legislators, but not as YOU understand them.  I do apologize for the misunderstanding by anyone who read the comments designed for a different audience.  I may have a different understanding once our actuaries weigh in, which is why I invited the Legislators to delay passage and asked them to listen in on our Actuary Meeting scheduled for April 22, 2021 at 10am, but the wage data that is clearly available to the public supports what I said.  Salaries rose drastically…WHILE THEY SHOULD HAVE FOR EVERYONE as I have consistently stated on the record.  But to be clear, that observation of salary increases was NOT a criticism, just a factual observation.

Respectfully,

Tom Bruno

Chair, NJ PERS

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