NABL states that it created its own Pension Disclosure Task Force last year in light of the heightened focus of SEC on the quality of disclosure concerning state and local government defined benefit pension plans contained in bond issuers’ Official Statements. Their discussion draft was released on May 2, 2011, and initially raised concerns among some issuers about a “one-size-fits-all” approach.
When assisting an issuer in the preparation of pension disclosure, the NABL draft suggests that the following information “should be considered:”
- General Overview of Pension System
- Summary of Fiscal Health
- General Funding Practices of Pension System
- Funding Status of the Pension System
- Investment Policy
- Litigation, Investigations
- Transfers of Investment Earnings
- Reserves
- Pension Obligation Bonds
- Independent Reports
- An Actuarial Value table, indicating the AVA, AAL, UAAL (actuarial value), the Funded Ratio, member payroll, and ratio of UAAL (actuarial value) to member payroll.
- A Market Value table, indicating the market value of assets, AAL, UAAL (market value), Funded Ratio, member payroll, and ratio of UAAL (market value) to member payroll. (This table would only be necessary if the plan does not use the market value of assets as the actuarial value of assets.)
- A Comparative Ratios table, presenting the comparison of the actuarial value of assets to the market values, the ratio of the AVA to market value and the funded ratio based on AVA compared to funded ratio based on market value of assets.
- An Annual Employer Contribution Status table, indicating, on a Fiscal Year basis, the ARC, Employer Offsets, if any, the actual contribution and any amount unfunded.
- A Prospective Funding Status table, indicating the projected ARC, Employer Offsets, AVA, AAL, UAAL, and Funded Ratio.
However, NABL officials point out that these prospective funding status projections are only to be considered for such a table “if available.” If they have been developed, whether internally prepared or publicly available, then NABL believes that they should be disclosed. But NABL has stressed that it is not otherwise calling for their development.
In an interview with The Bond Buyer, Maryland Treasurer Nancy Kopp summarized the situation by saying that the ultimate goal is to “arrive at an understanding of what information would be most beneficial to the potential purchasers of our bonds and what is just extraneous information.”
Treasurer Kopp is representing both the National Association of State Treasurers (NAST) and the National Association of State Auditors, Comptrollers, and Treasurers (NASACT) on the newly-created “Municipal Market’s Task Force on Public Pension Disclosure” that NABL has brought together to review NABL’s initial draft. Dana Bilyeu, the Executive Officer of the Public Employees' Retirement System of Nevada, is representing NCTR and NASRA on this new group. Mary Beth Braitman and Terry Mumford ith the Ice Miller law firm also participated by telephone on behalf of the National Association of Public Pension Attorneys (NAPPA). The Government Finance Officers Association (GFOA) is also on the new Task Force.
This Task Force met in Washington, DC, on June 28th for the first time, and, following a general discussion of the draft, members have been asked to provide formal comments to NABL by July 25. NABL’s pension task force will then redraft the guidance, based on these comments, and the NABL Pension Disclosure Task Force will reconvene for more discussions with the new Municipal Markets Task Force in Washington on Aug. 24. The goal is to complete the comprehensive pension disclosure project by December of 2011.
The NABL effort can play a very significant role in helping temper the SEC’s growing interest in municipal bond disclosures related to issuers’ pension plans. For example, the same week that the NABL draft was released, SEC Commissioner Elisse Walter gave the keynote address at the National Federation of Municipal Analysts (NFMA) Twenty-Eighth Annual Conference. In that speech, she singled out the NABL effort, saying that “I think this is an excellent topic for collaborative industry efforts and see a huge potential for disclosure improvements.”
In that same speech, Commissioner Walter spoke of the SEC’s desire to strengthen protections afforded to investors in municipal securities. She explained that the series of field hearings she has held on this subject was in preparation for a staff report concerning what was learned during the hearings, including “any recommendations for legislative changes, new or changed rules, and suggested high quality industry practices.”
She also discussed the SEC’s lack of authority to set even general disclosure requirements or require that reports be issued on a periodic basis in the municipal securities arena, noting that in order to obtain “information improvements,” the Commission has been forced to rely on its authority over the professionals in the marketplace and its antifraud jurisdiction. She said that the SEC staff is currently preparing an update to its interpretive guidance (issued in 1994) regarding the application of the antifraud provisions of the Federal securities laws to municipal securities and municipal securities market participants.
Finally, she spoke of the need for additional authority from Congress to further enhance investor protections in the municipal securities market. In this regard, she specifically alluded to the Nunes PEPTA legislation and the May Ways and means Committee hearing on the legislation, referenced in the first story of this E-News :
“I believe that additional authority from Congress would be quite helpful. Of course, it’s far too early to tell if this will go forward, but I am extremely pleased that a number of key Members of Congress have indicated an interest in municipal securities market reform and, in particular, more timely and consistent financial disclosure by municipal securities issuers. In fact, tomorrow there is a hearing on Capitol Hill concerning the measurement and transparency of funding levels of State and local pension plans, including whether municipal issuers should lose their ability to issue debt that is tax-preferred under Federal income tax law in the absence of making certain pension disclosures.”
While she didn’t endorse the Nunes legislation, mentioning it the context of “municipal securities market reform” is very disturbing.
In summary, while there are some serious concerns with the NABL draft, the overarching message is that unless there is self-regulation in this area, the SEC is clearly willing to use its antifraud powers to obtain what it sees as appropriate and necessary -- and to seek legislative authority from Congress to be able to do even more.
