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Rating Downgrades and Retiree Benefits  

Author:  Natalie R. Cohen.

Source: Volume 38, Number 01, Spring 2017 , pp.73-77(5)

Municipal Finance Journal

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Since the recession, there have been several years when many public pension funds suffered significant asset declines. In addition, liabilities have grown as people live longer and legacy benefit enrichments take their toll on funding. As a result, rating agencies have increasingly taken these factors into account with a number of high profile downgrades. While state rating downgrades are most prominent, other entities that are tied to a state’s rating have also suffered. Public higher education institutions and school districts, which receive substantial state revenues, have also been downgraded. Related securities such as state leases and state enhancement programs may also suffer. Recent implementation of pension accounting changes has made pension underfunding more visible on state and local balance sheets.

Keywords: Public pensions, pension funding, rating agencies, rating downgrades, municipal bonds

Affiliations:  1: Wells Fargo Securities.

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