Moody's To Make Pension Changes Next Month

LOS ANGELES - Moody’s Investors Service said it expects to finalize its approach to making adjustments to the pension data reported by U.S. state and local governments in April.

Changes to state ratings are not immediately expected but some local government ratings may be put on review for downgrade as a result.

“Among local governments, the rating agency expects that less than 2% of the total population of general obligation and equivalent ratings will be placed under review for possible downgrade,” analysts wrote in a special comment on Monday. “As pensions are just one of many factors Moody’s considers in a rating, any downgrades resulting from the subsequent reviews are likely to be limited to two notches.”

Moody’s issued a request for comment last July seeking feedback on its proposed pension adjustments. These adjustments included allocated liabilities of certain pension plans to governments based on how much they contribute to those plans, using point-in-time prices instead of averages to value pension assets, changing the way in which future pension benefit payments are transformed into present values, and translating these changes into an annual cost.

“The new pension adjustments are designed to enable greater comparability of these long-term liabilities and to inform Moody’s analysis of credit risk,” analysts wrote. “The new adjustments will not create new reporting, disclosure or performance requirements for issuers.”

The ratings that will be affected are those of local governments whose pension obligations relative to their resources place them as significant outliers in their ratings categories. To determine these outliers, Moody’s will consider available reported and adjusted pension data.

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