Summary
On May 17, 2012, the Public Pension Disclosure Task Force, convened by the National Association of Bond Lawyers, released its report which offers guidance for municipal bond issuers (and those who assist such issuers) in disclosing pension funding obligations to the market prior to the issuance of their municipal bonds.
On May 17, 2012, the Public Pension Disclosure Task Force, convened by the National Association of Bond Lawyers and comprised of various municipal finance participants (the "Task Force"), released its paper entitled "Considerations in Preparing Disclosure in Official Statements Regarding an Issuer's Pension Funding Obligations (Public Defined Benefit Pension Plans)" (the "Considerations," which is available here). The Considerations offer guidance for municipal bond issuers (and those who assist such issuers) in disclosing pension funding obligations so that investors will have all the material information they need to make informed investment decisions.
The Official Statement (“OS”) is the offering document that contains disclosures made by a municipal issuer about the credit quality of the bonds being offered to the market. Because municipal issuers are primarily responsible for the content of such disclosures in the OS and may be held liable under the federal securities laws for any misleading disclosure or failure to disclose any material fact, the Task Force has determined that disclosure about an issuer’s pension obligations should reflect the degree to which such obligations could (i) affect the issuer’s ability to make bond payments to investors, or (ii) place pressures on the basic functions of government that would affect the creditworthiness of the bonds.
If an issuer’s situation warrants additional pension funding information disclosure, the Task Force has offered the following as a starting point for the issuer to consider in ascertaining what information should be disclosed:
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General Overview of Pension Plan or System in which the Issuer Participates;
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Summary of Pension Contribution Funding Policy of Issuer;
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General Funding Practices of Pension Plan or System;
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Pension Plan Investment Policy and Practices;
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Litigation, Investigations and Labor Relations;
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Transfers of Investment Earnings;
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Pension Plan Reserves;
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Pension Obligation Bonds; and
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Any Other Reports, Studies or Analyses related to the Funding of the Pension Plan.
For a detailed discussion of the above disclosure points, see Appendix D of the Considerations.
To the extent that a municipal issuer's historical and anticipated pension funding obligations impose a major fiscal stress on its budget and financial condition, the more likely that more or all of this information is important to investors. Pension funding obligation disclosure is not "one size fits all" and the story of one issuer will be different from other issuers. Ultimately, issuers and their financing teams will need to determine if current circumstances warrant addressing pension funding credit implications in more detail. Saul Ewing's Public Finance Group is here to assist you in your disclosure efforts.
