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NFMA Eyes Pension Disclosure

MAY 11, 2011 7:26pm ET
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WASHINGTON — The National Federation of Municipal Analysts is considering developing a pension-disclosure white paper that could be completed by early 2012.

NFMA chairman Greg Clark said in a recent interview that based on feedback from members at the group’s annual conference in Charleston last week, analysts need a cohesive analytical framework for assessing public-sector pensions.

“We’ve had it in mind for a while,” said Clark, who made his comments in his capacity as chairman. “What’s the framework by which analysts should be assessing this information?”

An NFMA project would follow public sector pension-disclosure guidance released earlier this month by the National Association of Bond Lawyers.

NABL billed that undertaking, entitled “Considerations in Preparing Defined Benefit Pension Plan Disclosure in Official Statements,” as a discussion draft and an effort to jump-start a dialogue among muni market participants.

Securities and Exchange Commissioner Elisse Walter singled out NABL’s guidance during the NFMA conference, saying: “We are very pleased to see projects like this.”

Clark also applauded the NABL guidance, saying the NFMA would submit comments to the bond lawyers.

“My initial take on it is it’s a good step forward,” he said.

Still, Clark noted, the NFMA has been mulling a pension project since late last year. The goal would be to help analysts evaluate a pension system’s overall soundness, by scrutinizing basics such as its ­projected returns and actuarial assumptions.

In addition, Clark said, the NFMA would like to invite the Government Finance Officers Association to participate.

“I know nothing about it, but it certainly sounds like an interesting project,” said Frank Hoadley, capital finance director of Wisconsin and a member of the GFOA’s debt-management committee, adding it’s “an area that needs more light shed on it.”

At the NFMA conference, Hoadley voiced concerns about NABL’s pension-disclosure guidance, saying GFOA “would be most disconcerted” to see it become law or an SEC rule.

NABL, meanwhile, also expressed support of the NFMA’s efforts to join the pension debate.

“It is critical that this essential topic be analyzed from all perspectives, including not only the disclosure perspective of the project released by NABL last week, but also the financial analysis that is undertaken by municipal analysts,” said NABL president John McNally, a partner at Hawkins, Delafield & Wood LLP in Washington. “Accordingly, we think their project could complement the disclosure project.”

Clark, a muni analyst for 31 years who has led the NFMA since January, pegged disclosure as a top priority of his one-year chairmanship, along with education of members.

But issuer disclosure in general — not just by public-sector pensions — has long ranked as an NFMA concern, he said.

“We’re always trying to find ways to incentivize people to release financial information on a more timely basis,” he said.

Clark noted that another focus of his is to speak with regulators, such as the SEC and the Municipal Securities Rulemaking Board, and market participants, such as the GFOA, about boosting disclosure.

“There has been a huge improvement, I’d say, in the last 15 years,” Clark said. “But there’s still a lot of room for improvement.”

In particular, he noted, the MSRB’s EMMA system has been “a great leap forward.”

“Now you have all the information going to one place,” he said.

Still, as a muni analyst, he would like better access to monthly and quarterly financial statements from local governments, especially small issuers, either on EMMA or on issuers’ websites.

“Choice No. 1, you’d have it all on EMMA,” he said. “Obviously, it’s a lot easier to have one step rather than two.”

Clark, who recently left Morgan Stanley Smith Barney, where he was a financial adviser since May 2010, joins Concordia Advisors, a hedge fund manager in New York, next week as a senior municipal credit analyst.

He began his career as a muni analyst in 1980 at Moody’s Investors Service and, over the ensuing three decades, has logged stints in the bond insurance industry, at broker-dealers, and at European and U.S.-based commercial banks, including Marine Midland Bank, Donaldson Lufkin & Jenrette, and Financial Guaranty Insurance Co., now Assured Guaranty Municipal Corp.

Clark received a bachelor’s degree in history from the State University of New York at Oswego in 1975 and a master’s  degree in public administration from Syracuse University’s Maxwell School in 1980.

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A recent phenomenon is the emergence of bonds with shorter call protection as funding alternatives for municipalities. However, the shorter call protection also dampens the potential upside for investors, which in turn reduces the price they are willing to pay.

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