Pensionary Disclosures

GFOA, in a new best practice document, wrote that state and local government issuers with pension obligations that could either affect their ability to pay debt service or hurt their financial condition should consider disclosing more pension information in their official statements. The document, recently approved by GFOA’s executive committee, says that for more extensive pension disclosures issuers should refer to guidance published in May by the National Association of Bond Lawyers. NABL worked on that guidance for more 15 months with a dozen muni market groups, including GFOA. Traditionally, most state and local governments have taken the pension-related information in their comprehensive annual financial reports, or CAFRs, and replicated that in their official statements, according to John Tuohy, deputy treasurer of Arlington County, Va., who worked on the GFOA best practice document. The organization now writes that if state and local governments’ pension obligations could be material to their debt service payments or could otherwise affect their creditworthiness, they may need to go further with their disclosures. The GFOA document recommends issuers develop procedures for determining the level of pension information that needs to be disclosed in their official statements. It says state and local governments should ask themselves a series of questions, including if the debt service on the proposed bond issue would be dependent on the same revenue source or sources as the pension obligations. Other key questions are whether there are pension-related legal restrictions or requirements that would place pension funding senior to debt service payments and whether there are pension-related trends that would be material to investors. The GFOA document says that if the answers to these questions show pension obligations could adversely affect the ability to pay debt service, then issuers should refer to the NABL paper, particularly its Appendix D, and should consider other sources for additional disclosures. These may include the pension plan’s actuarial reports, legal and legislative actions affecting pension plans or obligations, and pension information included in the government’s adopted budget.