Proponents contend the enhanced disclosures — which would require use of new actuarial assumptions that could dramatically expand the size of liabilities for many public plans — are needed to promote reforms of financially troubled public pension funds.
“The demand for transparency isn't coming from Congress; it is coming as a result of very alarming warnings by well-respected analysts across this country,” Rep. Devin Nunes, R-Calif., who introduced the bill in the House on Dec. 2, said in an e-mailed response to questions. “If we ignore these warnings, we will have learned nothing from the subprime mortgage crisis.”
Representatives of state and local governments and unions counter that the bill, the Public Employee Pension Transparency Act, amounts to an all-out assault by the federal government on state and local government autonomy.
“It's a terrible proposal, and we're obviously going to oppose it,” said Mark McCullough, a spokesman for the Service Employees International Union, Washington.
Opponents also contend the measure could raise the burden on taxpayers by lowering the discount rates public plans use to calculate their liabilities.
“Inaccurate and inflammatory descriptions of the state of public pensions and unnecessary calls for federal intervention are unwarranted and only serve to confuse the public and unduly alarm state and local government retirees,” said a Dec. 8 statement issued by a coalition of local government groups, including the National Association of Counties, the National League of Cities and NASRA.
But representatives of taxpayer groups say the legislation's reporting reforms are needed to ensure the public has a more accurate understanding of the size of obligations that could eventually fall into their laps.
“Our members are concerned that ... they'll be asked to pay for it (underfunding), both through higher corporate taxes and higher individual taxes,” said Aliya Wong, executive director of retirement policy for the U.S. Chamber of Commerce, Washington.
The reforms also could put public plans on a more equal footing with corporate plans, Ms. Wong said. “While many private employers have had to cut their benefit packages, the government has not,” she added.
One of the bill's key provisions would require public plans to use a discount rate based on Treasury bond rates that are now in the 3% to 4.5% range. While corporate plans use a discount rate based on a blend of high-quality corporate bond rates determined by Treasury, now around 5.5% to 6%, many public plans use a discount rate of 8%. A lower discount rate results in larger liabilities, meaning that a plan's government employers would have to contribute more into the plans in the short term.
Using the lower Treasury-based rates called would present a distorted picture of the liabilities by tying them to current interest rates, NASRA's Mr. Brainard said. “It results in an exaggeration of liabilities by several times,” he said. “It would cause extreme volatility in funding levels and costs.”
Mr. Brainard said the combined total unfunded liability of state and local public plans using an 8% discount rate, based on the long-term expected return on investment for public plans, is about $750 billion to $1 trillion.
Joshua Rauh is an assistant professor of finance at the Kellogg School of Management, Northwestern University, Evanston, Ill. Using Treasury rates for the discount, Mr. Rauh calculated the combined total unfunded liability of state pension plans at $3 trillion and the total unfunded liability of municipal plans at $574 billion.
Mr. Rauh said in an interview that discounting the liabilities at 8% assumes incorrectly that an 8% return can be assumed without risk. “You only get a return of 8% if you take risks, and (these are) risks for which taxpayers bear the downside,” he said.
As to the bill's attempt to bar a federal bailout of public pension funds, critics say the plans are not seeking or anticipating such assistance.
“This is a pure scare tactic,” said the SEIU's Mr. McCullough.
“There is no federal backstop for public pensions, nor are public pensions asking for such a backstop,” added Lisa Lindsley, director of capital strategies for the American Federation of State, County and Municipal Employees, Washington.
“People who are feeding this rumor have another agenda,” Ms. Lindsley continued. “They would like to see government services drastically reduced at all levels of government.”