NEW YORK--(BUSINESS WIRE)--Fitch Ratings is implementing several additional steps to enhance its analysis of U.S. state and local government's defined benefit pension obligations. According to the report issued today, Fitch expects that limited negative rating actions are possible as a result of the enhanced framework, but does not expect such action to be widespread. Local government credits are more likely to experience negative rating actions than state credits, as labor-related costs are a larger part of local government budgets.
Fitch recognizes the limitations of pension information currently disclosed by governments and pension systems that make it difficult to compare one plan to another and accurately allocate participating governments' pension liabilities in state cost-sharing plans.
"We believe that our enhanced analysis will improve comparability and facilitate an increased focus on pension obligations as part of the broader analysis of state and local government credits," said Laura Porter, Managing Director at Fitch. "While governments are facing substantial pressures from their pension obligations, we expect most state and local governments to withstand these pressures, with many taking steps to adjust contributions and/or benefits to ensure adequate pension funding."
To enhance its pension analysis, Fitch will create standardized investment return and asset valuation scenarios. Fitch will consider the funded ratio of a system with a 7% investment return assumption, which Fitch considers a reasonable adjustment for comparison purposes, rather than the funded ratio as reported by the system. Fitch generally considers a funded ratio of 70% or above to be adequate and less than 60% to be weak, while noting that the funded ratio is one of many factors considered in Fitch's analysis of pension obligations.
Fitch notes that there is cause for near-term concern about a number of public sector defined benefit pension plans and recognizes the considerable strain that these obligations will place on many government budgets in the coming years. However, Fitch believes that the vast majority of governments will meet their obligations.
Fitch will host a teleconference to discuss highlights of the report on Friday, Feb. 18th at 2pm EST. Laura Porter, head of Fitch's U.S. States Ratings group will lead the call along with other senior members of the U.S. municipal finance team. A Q&A session will follow their remarks. Participants may email questions in advance or during the call to firstname.lastname@example.org.
To participate in this teleconference, interested parties should call +1-877-713-4667 (domestic) or +1-706-634-1958 (international) five minutes prior to the 2pm EST start time and give the conference ID# '45704653'.
A replay of the teleconference will be available starting two hours after the teleconference is completed and will be available until March 18th close of business. To listen to the teleconference replay, participants should call +1-800-642-1687 (domestic) or +1-706-645-9291 (international). The conference ID number for the replay is '45704653'.
Fitch's special report titled 'Enhancing the Analysis of U.S. State and Local Government Pension Obligations' is available on Fitch's website at 'www.fitchratings.com'.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research: Enhancing the Analysis of U.S. State and Local Government Pension Obligations