Premium
Impact of Unfunded Pension Obligations on Credit Quality of State Governments
Author(s) -
MARTELL CHRISTINE R.,
KIOKO SHARON N.,
MOLDOGAZIEV TIMA
Publication year - 2013
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/j.1540-5850.2013.12013.x
Subject(s) - pension , actuarial science , liability , business , yield (engineering) , credit rating , benchmark (surveying) , quality (philosophy) , pension fund , state (computer science) , finance , accounting , economics , philosophy , materials science , geodesy , epistemology , algorithm , computer science , metallurgy , geography
This study reviews the funding status of state‐administered pension plans and their impact on state credit quality. As the fund ratio (actuarial assets/actuarial accrued liability) of state‐administered pension plans decreases, states are more likely assigned a lower rating. Moreover, rating outlooks are sensitive to the fund ratio, especially for migration between stable and negative outlooks for states with lower fund ratios. These results are a timely pretest to the 2013/2014 implementation of GASB Statements No. 67 and 68, serving as a benchmark to assess whether new reporting requirements will yield information to alter the market's response to unfunded pension liabilities.