Public pension funds are important sources of retirement income for many former state and local government employees. The primary purpose of public pension funds is to secure adequate retirement benefits for participating public employees. Public pension funds are typically pre-funded, meaning employers and current employees make contributions to the plan while they are working to be paid out during employees’ future retirement. Contributions made on behalf of employees are pooled among all employees and invested in the capital markets, typically by a professional fund manager or investment advisor.
Concerns have been raised regarding the underfunding of certain public pensions funds, which could have significant implications for not only retired employees who look to such funds for security in retirement, but also for state or local governments that may be faced with large payments in the future to return the pension funds to their proper funding levels.
Application of MSRB Rules
As of October 1, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) broadened the mission of the Municipal Securities Rulemaking Board (MSRB) to include the protection of state and local issuers, public pension funds and obligated persons, in addition to protecting investors.
The Dodd-Frank Act also granted the MSRB regulatory authority over municipal advisors, which include firms and individuals that solicit business on behalf of broker-dealers, banks, other municipal advisors or investment advisers to secure public pension plan advisory business. These municipal advisors are sometimes referred to as consultants, third-party marketers, placement agents, solicitors or finders.
The MSRB has launched rulemaking initiatives to protect public pension funds by establishing fair and uniform standards of conduct as well as professional qualifications for municipal advisors that conduct business with public pension funds. MSRB rules will seek to prohibit both real and perceived conflicts of interest that may compromise a municipal advisor’s services to a public pension plan.
The MSRB’s Electronic Municipal Market Access (EMMA) website is a centralized online database that provides all municipal market participants free public access to official disclosure documents associated with municipal bonds issued in the U.S. EMMA also provides real-time trade data for approximately 1.5 million outstanding bonds.
Read updates about municipal advisor rulemaking.