In a move that’s expected to stir up staunch resistance from public pension managers, some Capitol Hill lawmakers have proposed new pension transparency regulations for local and state governments, even as new disclosure requirements are already set to kick in this summer.
Sponsored by Rep. Devin Nunes and introduced last week, the Public Employee Pension Transparency Act (PEPTA), asks 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 rate of return pegged to a Treasury rate of 4 to 5 percent, instead of the more widely used 7 to 8 percent return rate. While not mandatory per se, governments that don't participate would no longer be allowed to issue municipal bonds as tax-free.
Rep. Paul Ryan, who chairs the House Budget Committee, and Rep. Darrell Issa, who chairs the House Committee on Oversight and Government Reform, have signed on to co-sponsor the bill. A companion bill is expected to be introduced in the Senate this week by Sen. Richard Burr.
State and local government associations say the attempt by Capitol Hill lawmakers to regulate their pension systems amounts to a federal power grab -- one that, in the words of Michael Bird, federal affairs counsel at the National Conference of State Legislatures, is “wholly unnecessary and unwarranted.”
“The federal government is $17 trillion in debt, is virtually incapable of reauthorizing any piece of legislation, can’t agree on some of most basic policies and they’re going to, quote, help the states?” said Bird. “This is the government that is least poised to assist on an issue that state and local governments have handled up to this point.”
Opponents say PEPTA is superfluous in light of changes already slated to hit this summer. For one, new reporting requirements from the Governmental Accounting Standards Board 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 and likely have the effect of making a plan’s unfunded liability appear higher than it did in prior years. Additionally, Moody’s Investor Service this month began implementing changes as to how it calculates pension plans’ unfunded liabilities that are expected to go into effect this year. The changes, made in the name of more transparency, essentially use a less generous rate of return to calculate pension debt and threaten to hurt some cities’ bond ratings.
PEPTA’s proposed accounting methods and requirements would be more work on top of these changes, Bird said.
“You’re talking about using a rate that nobody uses and a fourth calculation [on pension balance sheets] to what already is, in some ways, a new regime,” he said.
But supporters said local governments are allowed to hide their true liabilities in the current system – to the detriment of the taxpayer. Nunes said in a prepared statement his legislation seeks to uncloud “opaque” state and local accounting practices which hide “pension funds [that] are driving an increasing number of states and municipalities toward insolvency.” In a separate statement, Burr noted that the bill's prohibition of a federal bailout of state and local government pension plans “empowers local authorities to make their own reforms by rejecting the illusory notion that problems can be ignored or hidden and later dumped on taxpayers.”
PEPTA was first introduced in late 2010 then again in 2011 but died in committee both times. In 2011, state and local governments, officials and public retirement systems all signed on to a letter in opposition of the proposal. That version of the bill garnered support from 51 co-sponsors.