Since July 2011, when the Governmental Accounting Standards Board (GASB) proposed significant changes to its standards for pension accounting and financial reporting, municipal issuers, bond counsel, and financial advisors have been pushing for a clear set of guidelines for use in preparing municipal securities offering documents, typically referred to as official statements (OS).
This month, the National Association of Bond Lawyers (NABL) led a task force consisting of a broad array of municipal market participants in proposing a number of Pension Disclosure Considerations (the Considerations). The Considerations provide important guidance for municipal borrowers on how to prepare the portions of an OS dealing with the obligor’s pension matters in a way that is responsive to federal securities laws. They also come just in time as several states are actively pursuing the high-profile topic of pension reform.
The Considerations are the result of a collaborative effort among a dozen major muni-market participants and bond groups and will help jump-start a critical conversation that issuers, borrower’s counsel, and other finance professionals must conduct in order to determine the degree of pension disclosure appropriate for a particular offering.
Based on a review of GASB pension accounting and financial reporting standards, together with some high-profile enforcement cases brought by the Securities and Exchange Commission, the Considerations suggest four steps—conducting an initial analysis of the borrower’s pension plan or system; summarizing the pension contribution funding policy and general funding practices of the obligor; describing the pension plan investment policy; and disclosing any litigation, investigations, and labor relations issues that might affect the pension plan. Of particular interest are the plan particulars, such as 10-year historical trends revealing the actuarial value of assets, unfunded actuarial accrued liability (UAAL), funded ratio over time, and the UAAL-to-member payroll ratio.
The Considerations are not a checklist or template for what must be included in an official statement, and the burden of determining the content and extent of the disclosure is still largely left up to the parties involved in the offering. For example, the Considerations leave the decision to disclose (or not disclose) pension funding projections up to the obligor. At a time of enhanced focus on municipal market disclosures and on the fiscal and political implications of public-sector employment and pension costs, the Considerations provide important guidance for obligors in determining what is material to investors and how to comply with applicable disclosure standards under federal securities laws.
For more information, please contact William A. Hicks at 602.798.5423 or firstname.lastname@example.org, Kimberly D. Magrini at 215.864.8365 or email@example.com, or any other member of Ballard Spahr's Public Finance Group.
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