By Bill McMorris | Old Dominion Watchdog
WASHINGTON, D.C. — Investment industry leaders are setting their sights on the largely unregulated public pension market in the wake of federal fraud charges against the state of New Jersey.
The National Association of Bond Lawyers‘s Pension Disclosure Task Force met here on Wednesday to hammer out a second draft of new transparency guidelines supporters say will protect municipal bond investors from the misleading accounting practices, which led the Securities & Exchange Commission to charge the New Jersey pension system with fraud a year ago.
“We saw a perceived need for guidance on (public pension) plans, given increased scrutiny from the SEC,” said Ken Artin, task force co-chairman. “You had a state being sanctioned by the SEC. It got everybody’s attention.”
NABL has set its sights on previously undisclosed information about state pension systems, including investment and legal information. Under some circumstances, bondholders could lose out to pensioners if pension fund money runs out and taxpayers must make up the difference.
The proposed guidelines would ask municipal bond issuers to include historic and predicted investment performance, as well as asset allocation, to assess the risks states take to achieve enough growth to pay out retirement promises. Pension systems lost billions in the market downturn, which, combined with inadequate funding from lawmakers, led to multi-trillion dollar funding gaps.
Such information is not only crucial to investors, but could help pension administrators avoid trouble with the SEC, Artin said. He is a partner at Bryant Miller Olive, an Orlando, Fla.-based law firm specializing in public finance.
“We’re not proposing standards,” he said. “We’re putting together guidance on what an issuer has to consider when you’re preparing disclosure on pension plans.”
Artin said the task force draft received a warm welcome from industry professionals. But not every bond lawyer is convinced the guidelines will be helpful.