Officials at Moody's, which has collected data for 8,500 local governments and 14,000 public pension plans, say they will also consider recent plan changes or reforms not yet reflected in pension reports.
“Comparable disclosure across plans is a very worthwhile goal that helps inform bondholders and others,” said Donald Fuerst, senior pension fellow at the American Academy of Actuaries, Washington, which supports more consistent disclosure of public plan assets and liabilities. But he worries that without complete demographic data for each plan, “the methodology is going to be somewhat simplistic” and thus may have limited value or impact. “I don't think it's going to have any real significant change in how things go,” he said in an interview.
It will have “a dramatic change on government balance sheets,” said John Tuohy, Arlington County (Va.) deputy treasurer, who chairs the pension committee of the Government Finance Officers Association, Washington. “But what are they trying to accomplish? We fund so much of what we do through debt, which is short term, while pension obligations stretch out years. It really is a huge distinction.”
GFOA members are particularly concerned about pension funds “at or slightly above doing the right thing,” Mr. Tuohy said in an interview. “The reality is that nothing has changed for them, but you're tossing them into the concern bucket. I worry about them because the practical effect is the cost of the debt. That turns into real money, and that money has to come from somewhere.” Even for a solid pension system like the $1.7 billion Arlington County Employees' Retirement System, which is funded around 91%, Moody's review could cause that to drop as low as 75% by some unofficial calculations “while the circumstances haven't changed at all,” he said.
Along with the immediate spike in pension liabilities expected from the new liability measurements, public pension officials and advocates are also worried about being subjected to a “one-size-fits-all” approach. “Using a single discount rate to measure public pension plans will introduce greater distortion and result in less clarity, not more,” officials from the $40.2 billion Maryland State Retirement & Pension System, Baltimore, wrote to Moody's in its September comment letter. “It is difficult to see how the goal of greater comparability among plans will be achieved. ... It is unclear how comparability, even if it were possible, says anything about the state's ability to fulfill its obligations.”
A common metric for pension liability “is a very positive step for transparency,” maintained Josh McGee, vice president of public accountability at the Laura and John Arnold Foundation in Houston who studies public pension issues, in an interview. “Just like any other debt, (governments) should be worried about how it affects their credit rating. It doesn't actually affect what they owe. Hopefully it will push the others to do a better job of managing debt, and to have governments pay what they promise.”
It should also discourage government officials from diverting pension contributions for other purposes, he said. “Taking from the pension fund is convenient, but it is borrowing just like any other debt,” which plans should address sooner rather than later. He cited the example of the $116.3 billion Teacher Retirement System of Texas, Austin, which at 80% is relatively well funded, “but has no plan to pay off” that unfunded liability. TRS spokesman Howard Goldman said officials are now working with state legislators to consider options for addressing a $27.4 billion unfunded liability.