New Jersey Pension Hires Lawyer to Fight Christie’s Cuts

A Florida law firm has been appointed by New Jersey’s Public Employees’ Retirement System to handle a lawsuit over Governor Chris Christie’s planned contribution cuts.

New Jersey’s Public Employees’ Retirement System (PERS) has hired a Florida law firm to sue Governor Chris Christie over his plans to cut payments to state pension funds by more than $2.5 billion over the next two years.

Robert Klausner of Klausner, Kaufman, Jensen & Levinson will act on behalf of PERS as it seeks to overturn the governor’s decision to cut contributions in order to plug the state’s $694 million budget deficit.

At a meeting on June 30 Klausner was confirmed as the attorney of choice after a selection process by PERS trustees. He will “handle litigation against Governor Christie’s proposal to disregard the mandated pension payment”, according to the meeting minutes.

Separately, New Jersey’s Police and Firemen’s Retirement System (PFRS) is also seeking legal counsel to challenge the payment cuts.

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Governor Christie’s office has already drafted a 103-page defence document, stating that New Jersey is “at the brink of fiscal disaster… with only a small pool of unspent funds remaining”.

In the defence’s document John Hoffman, acting attorney for the state, said: “The state has carefully crafted a remedy that preserves essential services for the state’s most vulnerable populations, makes spending cuts across fifteen departments, and maintains a balanced budget in conformity with constitutional mandate.”

The defence claimed that, should the court find in favour of the pensions and order New Jersey to meet its payments, it would be “an impermissible trespass by the judiciary intot he essential functions of the executive branch”.

At the start of this year State Senate President Stephen Sweeney told the Star-Ledger newspaper he was prepared to shut down government in New Jersey if Governor Christie did not make payments as promised into the state’s $78 billion pension system, which includes PERS, PFRS, and several other public sector workers’ schemes.

This was followed in March by warnings over New Jersey’s municipal debt rating from credit rating agencies Moody’s and Fitch, linked to the pension payment cuts. Moody’s said the “one-time fixes” being used by the state “indicate above-average financial weakness”. Standard & Poor’s echoed this warning last month.

Implementation of investment strategy is a bigger key to investment returns than the strategy itself, Russell Investments has claimed.

Lloyd Raynor, associate director within the fiduciary manager’s Pension Solutions Group, argued that a focus on asset allocation over implementation as the main driver of pension fund returns was inappropriate if a pension fund’s investment strategy did not change.

He claimed this highlighted a flaw in a 1986 study by Brinson, Hood, and Beebower which has formed the basis of the asset allocation argument ever since. The study found that variation in returns between investment funds was primarily down to differences in strategy.

Raynor said this result had been “wilfully misinterpreted”, resulting in clients being told to focus on “high-level asset allocation at the expense of implementation”.

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Citing a pension client with a static risk tolerance—and therefore a static strategy—Raynor said in cases such as this “far from being unimportant, implementation becomes the key contributor to investment returns”.

“If there’s very little ability for a fund to adjust its high level strategy then that by definition no longer becomes the primary driver of performance for that fund,” he added. “Yes, an extra 1% per annum from adjusting strategy would be great but if it requires an extra 25% in equity and all the extra risk that that would involve, it’s unlikely to be a workable option in practice.”

He added an argument in favour of active management, saying “for the winners at active management full funding can be reached meaningfully earlier and with little impact on funding level risk”, if investors’ focus is on the implementation of strategy.