Public pension managers are gearing up for another battle against what they say would be costly -- and unnecessary -- accounting disclosure requirements being floated on Capitol Hill even as new disclosure rules take effect this summer.
If introduced, the bill, the Public Employee Pension Transparency Act (PEPTA), would ask state and local governments to file annual reports with the Treasury Department disclosing how they calculate their unfunded pension liabilities. The measure would require governments to use a so-called "riskless rate of return" pegged to a Treasury rate of 4 to 5 percent, instead of the more widely used 7 to 8 percent. While not mandatory per se, governments that don't participate would not get to issue municipal bonds as tax-free.
On Monday, Jeannine Markoe Raymond, director of federal relations for the National Association of State Retirement Administrators, said the effort was nothing more than the federal government protecting its own financial interests by dictating to state and local governments.
“They’re concerned about what kind of hot water you’re in and whether you’re going to come to them with a bail out,” she said, addressing an audience of county administrators at the National Association of Counties’ annual legislative conference in Washington, D.C.
Opponents of the legislation say it’s costly and unnecessary: New reporting requirements from the Governmental Accounting Standards Board set to kick in this summer will change the way public pension plans account for their portfolio gains and losses in the coming years. That change is expected to have additional administrative costs, Raymond said. It will also likely have the effect of making a plan’s unfunded liability appear higher than it did in prior years.
Additionally, Moody’s Investor Service last year proposed several changes in the name of disclosure as to how it calculates pension plans’ unfunded liabilities that are expected to go into effect this year. Pension debt was adjusted using a long term corporate bond rate (5.5 percent) instead of a pension fund’s typical 7 to 8 percent. Government payments to pension funds are then adjusted to reflect the lower discount rate. Other factors included in the unfunded liability calculation were the need to fully fund pensions by the time employees retire and a 17-year amortization period for unfunded pensions.
PEPTA was introduced in 2010 and again in 2011; last week, Rep. Devin Nunes, R-Calif., sent an email to colleagues asking for co-sponsors to the bill.
“Unlike private pension plans, public employee pension plans are allowed to use unreasonably high discount rates to calculate their liabilities. In fact, many use unrealistic expected rates of returns on their plan assets, the value of which is often inflated, to discount their pension liabilities,” the email said, adding that state and local government pension plans could be underfunded by as much as $3.8 trillion total.
Nunes adds that the bill is supported by the Americans for Tax Reform, Americans for Prosperity, American Conservative Union, Citizens Against Government Waste, National Taxpayers Union, Americans for Limited Government, U.S. Chamber of Commerce and Free Enterprise Nation.
If the bill is introduced, expect to see another letter (like the one below, from 2011) circulated by state and local governments, officials and public retirement systems in opposition of PEPTA.
Raymond said Monday that she hopes there can be more outreach this year to Congress about the state of pension plans and what’s coming up for state and local pension accounting.
“[PEPTA] has a cost to state and locals, it has a cost to federal -- we’re hoping that will make this hard for Congress to do because they are looking for a lot of revenue and we don’t think this raises revenue,” she said. “In fact it’s quite the opposite.”