TRENTON -- Police and firefighters would gain control of their now-state-run pension fund under a measure that won final approval in the Assembly Thursday.

The bill (S3040) transfers management of the $26 billion pension fund to an independent panel overseeing investments and benefits. Police and fire union leaders seeking the change said the state wasted their money on costly hedge funds and underfunded the system by billions of dollars.

The Police and Firemen's Retirement System, while healthier than its counterparts, is $11 billion short of what it would cost to pay for promised benefits, according to actuary reports.

Union leaders said their goal is to fully fund the system and protect police and firefighters' benefits. The portion funded by local governments is 74.5 percent funded, while the much smaller share funded by the state is 41.2 percent funded.

"The fact is that almost 20 years of pension gimmicks have reduced the funded value of of the PFRS ... and the steps we are taking to gain control of our financial future are critically important to all of our members and their families," Patrick Colligan, president of the Policemen's Benevolent Association, said Thursday after the vote.

The Assembly passed the measure 61-4, with 10 abstentions.

Assembly Speaker Vincent Prieto (D-Hudson), who sponsored the bill in the lower chamber, defended it from allegations that it allows a newly created board of trustees to gamble with taxpayers' money.

Decision-making would be vested with "the people who care most about it," Prieto said. And beneficiaries, both retired and active, would become "the stewards of their future."

The board of trustees could change members' contributions to their pensions, the formula for determining payouts and retirement age. They could also enhance or cut benefits.

The Division of Pensions and Benefits currently manages the fund, which is part of a $72 billion government worker pension fund, while the State Investment Council directs the investments.

The legislation provides for certain safeguards for taxpayers, namely that a management-side appointee would have to vote with the beneficiary representatives who hold the majority on the board to overrule their consulting actuary's recommendations, Prieto said.

Assemblyman John Wisniewski (D-Middlesex), a candidate for governor, argued there is no question the pension system is in crisis, but the power shift "does not solve the problem, and potentially creates larger problems."

"It is like saying to your father, 'Give me the money, I'll go to Atlantic City, and if I'm successful, I get to keep it. And if I'm not, you lose.'" Wisniewski said.

A spokesman for Gov. Chris Christie declined to comment on the bill. Members of the governor's pension and health benefits commission and his former treasurer have warned the legislation puts taxpayers at risk.

Tom Byrne, chairman of the State Investment Council and a member of the commission, said transferring the management without the liabilities is "leaving the taxpayers ultimately holding bag."

The state League of Municipalities has argued that because taxpayers bear the risk of the board's investment strategy and other choices, their representatives deserve an equal number of seats on the panel.

Samantha Marcus may be reached at smarcus@njadvancemedia.com. Follow her on Twitter @samanthamarcus. Find NJ.com Politics on Facebook.