Washington’s Treasurer James McIntire is unhappy with Moody’s Investors Service’s recent change to how it evaluates state pension liabilities and costs.
In a letter dated last week to Moody’s CEO Raymond McDaniel and Senior Analyst Marcia Van Wagner, McIntire’s first sentence simply said “I am disappointed.”
McIntire said he disagreed with the rating firm’s new way of evaluating state and local government pensions liabilities and costs, to which he said no one else, including experts in the field, ascribe.
“I had hoped you would reconsider before continuing on this path that materially misrepresents Washington State’s pension system,” the letter dated April 25 said. “If you persist on this course of conduct, you will mislead investors, policy makers, and the public in violation of your obligations to them and to us.”
Last month, Moody’s said it placed 29 local government and school districts on review for downgrade because of its new pension methodology. It said no state ratings have been placed on review at this time and the updated methodology is not expected to have an immediate impact on state ratings.
The firm said it expects less than 2% of the local general obligation and equivalent ratings its covers will be reviewed for possible downgrade due to the pension adjustments.
Moody’s final adjustments include allocating multiple-employer cost-sharing plan liabilities to specific government employers based on proportional shares of plan contributions, and adjusting actuarial liabilities based on a high-grade, long-term taxable bond index discount rate as of the date of valuation.
The new changes will also replace asset smoothing with a market or fair value as of the actuarial reporting date, and the adjusted net pension liability will be amortized over 20 years using a level-dollar method to create a measure of the annual burden of the net pension liability.
The treasurer said Moody’s methodology fails to account for prudent pension funding, proper actuarial work and a consensus-based rate setting.
“Unlike private companies, state governments are sovereign entities that can’t go bankrupt, won’t go out of business, and aren’t going to be merger or acquisition targets. This allows our state to invest over a longer time horizon for higher returns,” McIntire said.
The treasurer said Washington ranks fourth-highest in the country for funding its pension program, with its pension plans funded at 113% of future liabilities based on independent actuarial analysis.