SEC Pries into NJ's Underfunded Pension System

June 1, 2007 ( - The Securities and Exchange Commission (SEC) has kicked off an investigation into reports that New Jersey redirected massive amounts of money out of its beleaguered pension fund and whether that is the reason the $80 billion pension has primarily gone unfunded since 1993, Bloomberg reported.

The investigation was sparked by New York Times stories that said the state’s treasury reported market gains promptly, but notations of market losses didn’t get the same expedient treatment, according to Bloomberg. The news stories said that money meant to cover health care costs and other excess state funds were diverted into the pension fund.

The stories further said the state failed to make contributions or that it overstated payments to its retirement fund for years, calling into question how much money is in the system – which currently has a funding gap estimated to be as much as $56 billion.

The SEC will investigate to see whether state officials misled that agency’s officers previously in matters regarding state bonds and the impact of market lapses, according to Bloomberg.

The state’s Treasury Department has released  a statement saying that the N.J. Division of Pensions and Benefits was contacted in April by the Securities and Exchange Commission.

State lawmakers began discussing the possibility of alternative investment strategies in 2005 (See  NJ Gov Candidates Battle over Pension Issues ), and in January 2006, the fund turned to hedge funds in an effort to try to dig itself out of a $30-billion deficit. The plan meant that approximately $300 million in assets would be funneled into four hedge fund firms(See  NJ Turns to Hedge Funds to Overcome Pension Deficit ).