As reported by nj.com, the State of New Jersey is opening its books to the IRS regarding its troubled public employee pension funds to find out if it is in compliance with the federal tax code. In January, the State Treasury Department asked the IRS to review the tangle of rules and regulations that guide the pension plans, currently valued at $70 billion, for hundreds of thousands of state employees and issue what is called a determination letter, essentially signing off on how the plans are being administered.
Former state pension director Fred Beaver said he began seeking IRS approval before stepping down last year because he was concerned about the impact of changes to laws regulating the funds through the years. “I was concerned about an audit, and I wanted to make sure there were no surprises,” Beaver said.
The federal review comes as the state’s pension plans face uncertainty and increased scrutiny. With a shortfall of $54 billion, they are among the most underfinanced in the nation and at the center of a tug of war between Governor Chris Christie and Democratic lawmakers over how to stabilize the system. Last month, Standard and Poor’s lowered the state’s bond rating to among the lowest in the country, citing the poor financing levels of pension funds.
After the review, which could take years, the IRS might sign off on the pensions or suggest changes that, if ignored, could result in the agency stripping the plans of their tax exempt status. In short, the agency will examine how the state’s seven pension plans for public employees are being overseen, including how benefits are accrued and who is eligible for them. However, it will not look into how the plans became underfunded by $54 billion.