NEW JERSEY (Bloomberg) — New Jersey's $80 billion pension system, whose funding shortfall grew as lawmakers failed to make required state contributions over a 10-year period, is being probed by the Securities and Exchange Commission, a state treasury department spokesman said.The state's Division of Pensions and Benefits was contacted in late April by the SEC regarding a "confidential, informal inquiry" into New Jersey's retirement fund, Tom Vincz, a spokesman for Treasurer Bradley Abelow, said.

State officials have handed over thousands of pages of documents in response to requests by investigators conducting the probe, he said. The office of the US Attorney for New Jersey is also involved.

"The division is cooperating fully," Vincz said in a statement.

New Jersey Governor Jon Corzine, a Democrat who took office last year, has said the state failed to make required annual contributions to the pension fund in the decade before he took over as lawmakers sought to shore up state budgets.

The lapses helped to create a funding gap at the ninth-largest US retirement system that is estimated at as much as $56 billion.

The Star-Ledger of Newark reported today that the probe centres on the skipped payments and whether officials misled investors in state bonds about the impact of the lapses, citing two officials familiar with the investigation it didn't name.

Since 1997, the state has missed $8.1 billion in pension payments, the newspaper said.

"This is obviously a serious matter," said Senate Minority Leader Leonard Lance, a Republican from Hunterdon County. "The state is going to have to respond to this quickly."

Lance, the highest-ranking Republican in the state Legislature, said he didn't know any details of the investigation.

In an April public hearing, Abelow said that during the bull market of the 1990s, the state pension fund moved from a more conservative book value accounting system to one based on the market value of investments.

The change boosted the value of the pension fund as stocks soared and allowed state and local officials to reduce annual payments.

Steven Baker, spokesman for the New Jersey Education Association, said his organisation is suing the state to force it to make full pension payments each year and to make up any gaps made by the missed contributions. That case is scheduled to go to trial in June, he said.

"Our concern is that this has got to be dealt with responsibly. We know and have been saying for 10 years that things are being handled irresponsibly," Baker, whose organisation represents 200,000 current and retired public teachers and support staff, said in an interview.

"The state needs to make full, required contributions each year in order to make the pension fund stable."

The state has resumed making contributions under Corzine, putting $1.1 billion into the pension fund in the current fiscal year.

The governor has proposed contributing more than $1.1 billion in the fiscal year beginning July 1. Anthony Coley, Corzine's spokesman, referred all comment on the probe to Vincz.

The SEC's request for records follows an April report by the New York Times that said the state failed to make contributions or overstated payments to its retirement fund for years, calling into question how much money is in the system.

John Heine, a spokesman for the SEC in Washington, declined to comment.

Michael Drewniak, a spokesman for US Attorney Christopher Christie, didn't immediately return a call seeking comment.

David Wald, a spokesman for Attorney General Stuart Rabner, said the state hired Carmen Lawrence, a partner with securities law firm Fried, Frank, Harris, Schriver and Jacobson to handle the matter.

According to the firm's Web site, Lawrence is co- head of the securities regulation and enforcement practice in its New York office and is former regional director for the SEC's Northeast Regional Office.

Wald said Lawrence will be paid $495 per hour, with associates earning $180 per hour. He declined to say how long the case will take.

"The firm was hired for its expertise in connection with these SEC investigations," Wald said.

The New Jersey probe comes as SEC Chairman Christopher Cox, spurred by an investigation of the city of San Diego, is reviewing whether rules governing disclosure in the municipal bond market should be strengthened.

The agency has said it plans to increase enforcement actions against those who make false disclosures to municipal bond investors.