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Newsmakers

NJ Gov. Shifts Police, Firefighter Pensions to Unions

Moving the $26 billion retirement plan eases their concern that it may end up bailing out weaker plans.

By Chris Butera

New Jersey Gov. Phil Murphy has signed a bill divorcing the state’s $26 billion Police and Firemen’s Retirement System from its current management, handing it to their unions to run.

Effective immediately, the bill transfers control of the police and fireman fund to the plan’s 12-person board of trustees, which in effect gives the public workers’ unions control. Previously the state Division of Pensions and Benefits managed the fund, with the State Investment Council and Division of Investment in charge of its allocations.

The police and firefighter unions feared that their plan might someday be pooled with pensions for teachers and other public workers, which are much weaker, to bail them out. The Police and Firemen’s Retirement System is 73.1% funded. New Jersey’s state funded ratio is 31%, the worst in the country. The unions also weren’t happy with the state agencies’ putting pension money into hedge funds. 

The bill requires the police and fire pension to have an actuary to certify the funds’ long-term viability, and the state treasurer will continue to set the fund’s rate of return. The pension plan’s board will set the rest of the fund’s internal targets. Its board of trustees will consist of active and retired police and firefighters as well as state and local government representatives.

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Murphy conditionally vetoed the bill in May, calling for some safeguards for taxpayers, which were met in June. He called the new bill “a good first step” toward the personal security of retiring police officers and firefighters, as well as a benefit for taxpayers.

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Home > News > Market Moves > New Tax Law Will Aid PE-Owned Companies, Study Says
Market Moves

New Tax Law Will Aid PE-Owned Companies, Study Says

PitchBook: Lower corporate tax rates and immediate write-offs will juice profits.

By Larry Light

The revamped tax code will be a boon to private equity portfolio companies, a study by the PitchBook research group finds.

Slicing the corporate tax rate to 21% from 35% will boost free cash flow and also PE-owned companies’ enterprise value (EV), which is the market value of common and preferred stock and debt, minus cash and investments.

That in turn should increase EV/EBITDA (earnings before interest, taxes, depreciation, and amortization) multiples, PitchBook says.

But the new tax law also will keep debt in check, according to the research firm: PE outfits will limit leverage to no more than six or seven times EBITDA. That’s because interest deductibility is now capped at 30% of EBITDA.

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Still, an upside is that the Tax Cuts and Jobs Act encourages more buyouts, since asset purchases now can be expensed immediately on tax forms, as opposed to written off gradually over a number of years. This new feature of the tax code, PitchBook writes, gives “companies an immediate tax savings for investing themselves.”

By the same token, PitchBook warns that fewer exits from buyouts will occur in less than three years. Reason: That’s how long, under the new statute, that PE operators must keep a portfolio company to realize favorable long-term capital gains taxes on carried interest, the share of the profits from divesting a PE asset.

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