WASHINGTON — A public pension disclosure project spearheaded by a bond attorneys’ group is expected to reach a critical milestone Tuesday when it should become clear whether a voluntary coalition of industry participants will reach consensus on the project or produce separate recommendations.
The meeting of the National Association of Bond Lawyers’ muni market task force on public pension disclosure will come one week after the Government Finance Officers Association’s debt management committee met in executive session with former NABL president John McNally, a partner at Hawkins, Delafield & Wood LLP in Washington, who launched the pension project last year.
That closed-door session, during the group’s winter meeting here, took place several months after NABL’s task force members divided over a key issue.
Issuers balked at providing future projections of a plan’s funding levels, calling them speculative and expensive to generate, while analysts favored such disclosure, saying it would boost transparency about possible credit risks.
“In my view, this is a showdown meeting,” McNally said. “The key issues of contention will be on the table and there is a need to finally resolve whether there is a consensus among the participants on the key issues, including projections.”
GFOA declined to comment on the most recent draft, citing a policy of not discussing the project before its finalization.
“Once completed we will provide comment,” Susan Gaffney, director of GFOA’s federal liaison center, wrote in an email.
Gregory Clark, a senior municipal credit analyst at Concordia Advisors LLC in New York and chairman of the National Federation of Municipal Analysts, also declined to comment.
Rachel McTague, a spokeswoman for the Investment Company Institute, said it was reviewing the updated draft and would submit comments to the group at Tuesday’s meeting.
According to McNally, the current draft will be revised after Tuesday’s meeting, but he hopes to produce a fifth and final draft by late March. Participants will deliver that draft to their organizations for approval.
The current draft, like the last version, generally would require financially unhealthy plans to prepare future projections of their funding status.
Specifically, if an issuer who is accessing the capital markets is aware of “a potential material-adverse financial trend” with respect to a plan’s annual required contributions, or should have been aware of such a trend, the issuer should “reasonably investigate” the trend.
That would include engaging an actuary to prepare a 10-year projection of annual required contributions, according to the guidance.
“The level of detail that will be needed by an investor and an analyst will depend in part on the financial health of the pension system,” McNally said.
NABL’s previous draft said a plan with one or more indications of “financial distress” should prepare future projections covering a 10-year-period.
Such indications include a funded ratio — the measure of assets to liabilities — of less than 80%.
Separately, the current draft identifies, for the first time, 50 individuals, including 12 NABL members who are participating in the pension project, as well as the 14 organizations they represent, which have been identified previously.
The draft also names the project’s two consulting actuaries: William Fornia, president of Pension Trustee Advisors Inc. in Centennial, Colo., and Kenneth Kent, principal consulting actuary at Cheiron Inc. in McLean, Va.
NABL floated its pension project in May, hoping to jumpstart a discussion among muni market participants.
As a backdrop, NABL cited recent heightened regulatory interest in public pension disclosure, including the SEC’s 2010 settlement of securities fraud charges with New Jersey, the first such settlement with a state.
In that case, the commission charged that the state misrepresented and failed to disclose to investors — who bought more than $26 billion worth of the state’s muni bonds between 2001 and 2007 — that it was underfunding its two largest defined-benefit pension plans.
Last spring, a few days after NABL first unveiled its pension guidance, SEC commissioner Elisse Walter, who is overseeing a review of the muni market, touted the bond attorneys’ effort, saying: “We are very pleased to see projects like this.”
Another SEC official, Mark Zehner, deputy chief of the division of enforcement’s municipal securities and public pensions unit, weighed in at a public pension conference here in June. He said NABL’s voluntary initiative was in everyone’s best interest, and market participants would “do a better job than someone within the Beltway.”
Still, if the task force cannot forge consensus, some groups could generate their own best practices, and that would be “a muddled mess,” McNally said.
Last May, after NABL unveiled its project, the National Federation of Municipal Analysts announced a plan to consider developing its own pension disclosure white paper. But the NFMA opted to forego its effort and work on NABL’s industry-wide undertaking.
“This is a test case of whether we can do it,” McNally said.
