Presentation Title

The Effect of Public Pension Funding on State Credit Ratings

Advisor Information

Kenneth Kriz

Location

Milo Bail Student Center Omaha Room

Presentation Type

Oral Presentation

Start Date

8-3-2013 3:15 PM

End Date

8-3-2013 3:30 PM

Abstract

The two recessions after 2000, especially the recent Great Recession, has caused state government revenues to drop and thereby unfunded public pension liabilities to soar. Currently many U.S. states have pensions that are extremely underfunded. Underfunded pension liabilities are an implicit form of debt in state debt portfolio. In 2011, Moody’s began a new move for state government credit analysis which incorporates the unfunded pension liabilities into the debt matrices. As such, there is an increasing nationwide concern about credit threat of pension burdens on state bond rating assignment. In the private sector, researchers have concluded that pension funding status affects corporate bond ratings. In the public sector, however, very little research has investigated this link. More important, pension underfunding level reflects the underlying strength of pension management practice which may actually affect state creditworthiness indirectly. To date, no research has explored either the direct or indirect link between pension management practice and state credit ratings. This study will use panel data ordered probit model to investigate the impact of pension management practice and funding status on state credit ratings.

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Mar 8th, 3:15 PM Mar 8th, 3:30 PM

The Effect of Public Pension Funding on State Credit Ratings

Milo Bail Student Center Omaha Room

The two recessions after 2000, especially the recent Great Recession, has caused state government revenues to drop and thereby unfunded public pension liabilities to soar. Currently many U.S. states have pensions that are extremely underfunded. Underfunded pension liabilities are an implicit form of debt in state debt portfolio. In 2011, Moody’s began a new move for state government credit analysis which incorporates the unfunded pension liabilities into the debt matrices. As such, there is an increasing nationwide concern about credit threat of pension burdens on state bond rating assignment. In the private sector, researchers have concluded that pension funding status affects corporate bond ratings. In the public sector, however, very little research has investigated this link. More important, pension underfunding level reflects the underlying strength of pension management practice which may actually affect state creditworthiness indirectly. To date, no research has explored either the direct or indirect link between pension management practice and state credit ratings. This study will use panel data ordered probit model to investigate the impact of pension management practice and funding status on state credit ratings.