Last month, SEC Commissioner Daniel Gallagher was unsparing in his criticism of public pension funds.
Addressing the Municipal Securities Regulator Summit, Gallagher used words like “fraud,” “reckless” and “unrealistic” to describe the disclosure practices of pensions, and accused public funds of playing “numbers games.”
“Trillions of dollars in liabilities … are not appropriately reflected on government books, thereby seriously misleading investors about the riskiness of their investments in municipal securities,” said Gallagher.
This week, Commissioner Gallagher was faxed a letter, authored on behalf of national associations representing state and local governments and elected and appointed officials of public retirement systems, expressing “serious concern” over his comments.
“Your comments could lead many to believe that the disclosure issues are systemic, rather than individualized problems,” the associations said. Their letter pointed out that the $3.6 trillion in aggregated public funds is, in fact, 16 times annual liabilities.
In a diplomatic tone, the consortium, which includes the National Governors Association and the National Association of State Retirement Administrators, enumerated the changes most pensions have made to strengthen reserves in the wake of the Great Recession.
Increased contributions, reduced benefits, higher retirement ages and lower COLAs were among the modifications cited.
“The Center for Retirement Research at Boston College has examined these reforms and has determined that for most plans, the reforms fully offset or more than offset the impact of the financial crisis on the sponsors’ costs,” the letter said.
An attached fact sheet points out that public fund assets, which cover 15 million working and 8 million retired employees of state and local government, are currently higher than the pre-recession high of $3.2 trillion.
Perhaps as a reminder to the SEC, the letter notes that the represented associations previously formed a Pension Funding Task Force, and published a guide for policy makers to help review the effectiveness of existing funding policies, and to promote recommendations for new policies.
Annual required contributions are advisable, write the associations, as are new GASB standards that require supplemental accounting disclosures to assure the accuracy of projected revenues and liabilities.