NEW YORK —
The changes probably “would result in rating actions for those local governments where the adjusted liability is outsized for the rating category and without mitigating factors such as demonstrated flexibility to respond to higher fixed costs,” the company said.
The new criteria are not expected to result in rating changes for states. In January, the company downgraded Illinois to A2, its lowest grade for a state, in part because of its “severe pension underfunding.”
The company is seeking comment on the usefulness of the changes in increasing comparability between state and local pensions and in treating retirement liabilities similarly to debt. Moody’s will consider four main adjustments, according to its report:
■ Allocating multiple-employer cost-sharing plan liabilities to specific government employers based on the share of total plan contributions.
■ Adjusting accrued actuarial liabilities based on a high- grade long-term corporate bond index discount rate.
■ Replacing asset smoothing with reported market or fair value as of the actuarial reporting date.
■ Adjusting annual pension contributions to reflect the changes and a common amortization period.