Hearing Conducted on Transparency and Funding of State/Local Government DB Plans

June 24, 2011

The House Ways & Means Committee Oversight Subcommittee conducted a hearing on the transparency and funding of state and local government defined benefit plans in May 2011. This was an initial hearing following reintroduction earlier this year of the Public Employee Pension Transparency Act in the House (H.R. 567) by Representatives Devin Nunes (R-CA), Paul Ryan (R-WI), and Darrell Issa (R-CA); and introduction of a companion bill (S. 347) in the Senate by seven republican senators.

The bills are essentially unchanged from the version introduced late last year in the House, which required state and local governments to report pension funding levels to the Department of the Treasury annually using an extremely conservative methodology in order to preserve the tax exclusion for interest on state and local government bonds. Plan sponsors would be further required to disclose how they planned to eliminate unfunded liabilities and to subsequently report on their success in meeting those objectives.

The hearing focused on whether enhanced disclosures about these plans’ financial health and changes in the plans’ actuarial assumptions are warranted, with witnesses concentrating their remarks on the bill reintroduced in the House. Three witnesses strongly supported the bill, recommending several changes, including requiring plans to use a standardized smoothing period and mandating the discount rate be determined using Treasury spot rates at one point in time (instead of averaging the Treasury yield curve over a 24-month period as called for in the bill).

A speaker who did not take a position on the bill noted that government pension assets and liabilities are factors used by Moody’s in its credit analyses of government-issued bonds, and said that the bill will increase both access to plan data and the complexity of the information disclosed. One witness called the bill a “solution in search of a problem,” adding that it would lead to public confusion, concern the bond markets, and create a new federal bureaucracy.

The bill has not garnered bi-partisan support in the House or Senate. No additional hearings or votes are scheduled on the bill at this time.