WASHINGTON (Reuters) - Public pension and finance groups are striking back at a member of the U.S. Securities Exchange Commission who said last month that state and local retirement systems mislead people about their true financial conditions.
Last month Commissioner Daniel Gallagher said that governments were not appropriately accounting “trillions of dollars in liabilities” in pension benefits promised to workers.
“Your comments could lead many to believe that the disclosure issues are systemic, rather than individualized problems,” wrote 11 major public finance groups, including the bipartisan National Governors Association, in a letter to Gallagher dated Monday.
“Public pension funds hold some $3.6 trillion in assets, professionally managed and invested in diversified portfolios. This amount equals 16 times the annual payout of these funds, assuming no additional contributions or investment earnings.”
The groups, which also included the National Association of State Retirement Administrators and the U.S. Conference of Mayors, added that since the 2007-09 recession many states have made reforms and closed funding gaps. A recent Boston College analysis found their changes “fully offset or more than offset the impact of the financial crisis,” they added.
The financial crisis devastated the chief source of revenues for public pensions - investment returns - just as the recession forced many governments to cut their contributions to the retirement systems. Recent Federal Reserve data shows state and local government employee retirement funds were short $1.37 trillion at the end of the first quarter of 2014, a much smaller gap than the $1.5 trillion shortfall in the first quarter of 2013 but larger than the $1.12 trillion gap five years earlier.
The fight over funding has recently heated up again, as new government accounting standards for public pensions come online this month.
Gallagher said the new standards still leave opportunities for state legislatures to hide underfunding.
The associations, though, said the standards require plenty of disclosure on how much actuaries recommend states contribute, funding history, and the underlying assumptions used to calculate how much a state should pitch in for pensions. Beyond the standards, they added that credit rating agencies are now looking closer at pension obligations and the groups themselves provide guidelines for disclosures of pension obligations.
Reporting by Lisa Lambert; Editing by Lisa Shumaker