Pensionary Tidings

State treasurers at their annual meeting this week voted to urge Moody’s to carefully consider the consequences of its proposed changes to analyzing public-sector pension data, warning it would muddy already complicated pension issues for the public and financial markets. The resolution noted that NAST has “severe reservations” about Moody’s proposed changes. Moody’s would allow the pension obligations of state and local governments to be compared and would treat pension liabilities like debt so that it can better analyze the long-term liabilities of governments:  “Moody’s reporting of new and different pension liability and cost information at the same time that public plans are beginning to transition to the new GASB pension accounting standards will create confusion among members of the public, investors and policymakers.” NAST also agreed to send a four-page comment letter to Moody’s in response to its proposed changes. There is apprehension that even if the changes are just for accounting purposes, it will be confusing for states that have different pricing and operating pension plans while they are beginning to comply with the new GASB rules. Moody’s first announced the proposed adjustments in July, which would nearly triple, from $766 billion to $2.2 trillion, the unfunded pension liabilities reported by state and local governments in 2010. The adjustments would highlight the weakest funded pensions and could result in rating downgrades for local governments, the agency said. In its letter, NAST noted: “NAST is concerned that the proposed methodology will produce misleading results that could in fact negatively impact the accuracy of financial reports in many cases and distort comparisons across state and local governments…This methodological approach may achieve standardization at the cost of accuracy and thereby distort market pricing of state and local government borrowing.” The resolution stated that NAST believes it “would be more appropriate to employ a discount rate which recognizes the fact that public sector pension plans are significantly different from their private sector counterparts.”