Lax governmental accounting standards that have allowed systemic underfunding of public pensions would amount to fraud were those public plans subject to laws governing the private sector, according to SEC Commissioner Daniel Gallagher.
“In the private sector, the SEC would quickly bring fraud charges against any corporate issuer and its officers for playing such numbers games,” said Gallagher. “And, we would also pursue and punish the so-called fiduciaries who recklessly seek yield to meet unrealistic accounting assumptions. We should not treat municipalities any differently.”
With the most grievous shortfall — Gallagher did not name the city or state — each household in that municipality is on the hook for more than $88,000 in unfunded pension liabilities. Median income in the unnamed city is $47,000.
In Detroit, pensions will be bailed out with an infusion of liquidated assets and federal relief, but general obligation bondholders are only expected to recover 10-13 percent of their principal.