Muni Board Investigating Greater Disclosure at Pension Funds

Motivated by the need for greater transparency in the municipal bond market, the Municipal Securities Rulemaking Board is looking into ways to broaden issuer disclosure of the standing of their pension plans.

(February 1, 2011) — The Municipal Securities Rulemaking Board (MSRB), which oversees the US municipal bond market, has begun investigating greater disclosure of massive state and local government pension liabilities to better guard investors.

The concern by the Board comes as public pensions around the country face increasing shortfalls, without regular and systematic compiling and disseminating of information about pensions. The Board could reportedly encourage issuers to submit to its Electronic Municipal Market Access site.

“It gets down to would an investor want to know the funding status of a pension plan and how it would impact the likelihood of their bonds being paid off or affect the credit quality of bonds that they’ve bought,” MSRB chairman Michael ­Bartolotta, the vice chairman of First Southwest Co., said in a conference call with reporters Monday. According to Reuters, Bartolotta told reporters that the Board is now in the early stages of discussions on expanded disclosure requirements. “The securities laws require disclosure of all material facts,” she said. “If there is a pension liability that could impact the budget or the finances or the credit quality (of a state or local government) that is a material fact that needs to be disclosed.”

By way of example — and warning — the US Securities and Exchange Commission (SEC) launched an investigation late last month into public statements by Illinois officials regarding the state’s massively underfunded pension fund — known as the worst-funded pension system among US states. The inquiry into Illinois’ pension reflects the heightened effort by the SEC, which even announced a special unit for investigating state pension disclosures last year, to seek greater financial disclosure from funds nationwide. In August 2010, for example, the SEC initiated its first action against a state, accusing New Jersey of securities fraud and claiming that when New Jersey issued $26 billion in bonds between 2001 and 2007, it fraudulently and erroneously portrayed its pension funds as adequately funded.

In October of last year, four former San Diego officials agreed to pay financial penalties to settle SEC charges accusing them of misleading municipal bond investors about the city’s fiscal problems. The suit accused the city’s officials of failing to disclose the size of the San Diego City Employees’ Retirement System’s (SDCERS) unfunded pension liability when the city sold bonds.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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