Treasurers Ask Moody’s to Consider Consequences of Pension Analysis Changes

E-newsletter Issue #101 | September 27, 2012

State treasurers from across the nation are supporting a National Association of State Treasurers resolution asking Moody’s Investors Service to carefully consider the consequences of its proposed changes to the way it analyzes public pension data.

Twenty-four state treasurers adopted a 10-point resolution during the NAST Annual Conference asking Moody’s to consider revisions to its proposed pension reporting changes. The treasurers also requested the ability to review the revised procedure and the data prior to its public release.

Moody’s Investors Service in July sought public comment from market participants on its plan to implement adjustments to how it reports public pension information from state and local governments. In a company release, Moody’s noted that its proposed adjustments “will improve the comparability and transparency of pension information across governments …”

Treasurers are concerned the new methods will create confusion for the public and investors. They also assert that Moody’s new method will drastically increase states’ liabilities and decrease states’ asset values, potentially tripling the reported amount of unfunded liability nationally.

“We are asking Moody’s to think through, in a more comprehensive and sophisticated fashion, what they are attempting to look at,” said NAST President and Nevada Treasurer Kate Marshall.

Many state treasurers have expressed concerns that the data could cause confusion at a time when public pension funds are beginning the transition to new Government Accounting Standards Board, or GASB, pension accounting standards. Treasurers also took issue with Moody’s choice to use a “high grade long-term corporate bond rate” as a benchmark, rather than a discount rate that recognizes that public sector pension plans are significantly different than their private sector counterparts.

North Carolina Treasurer Janet Cowell, chairwoman of NAST’s Pension and Trust Investment Committee, said the discount rate Moody’s proposes to use is a major concern and the proposal essentially lowers the value of state assets and increases liabilities.

Treasurers also asked Moody’s to address the inconsistency in valuation dates among plans when implementing its adjustments and to address the differences in actuarial cost methods in its proposed procedure, among other things.

They outlined their concerns in a letter to Moody’s noting that the proposed methodology will produce misleading results that could negatively impact the accuracy of financial reports and distort comparisons across state and local governments.


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