Understanding the potential impact of unfunded pension liabilities on a municipal bond issuer’s credit quality requires analyzing both the amount of the liability and whether the issuer has an adequate plan for closing that gap. In a new white paper, BAM Vice President and Pension Actuary Les Richmond explains why funding policy is a key component of pension affordability, and therefore crucial to BAM’s credit analysis.
Mr. Richmond explains that while liability analysis has been widely adopted as a best practice by credit analysts, it will always remain a point in time measurement. The more complex process of reviewing funding policy can give analysts insight into the future trajectory of an issuer’s pension funding level.
The paper provides detailed explanations of how analysts can use GAAP-compliant financial statements to draw their own conclusions about funding adequacy.
Click below to download the complete white paper.