Pub. 9 2018 Issue 1

www.wvbankers.org 32 West Virginia Banker Abigail Urtz manages municipal credit strategies for FTN Financial Capital Markets. She follows general credit trends and sector-specific developments to help customers identify and manage credit risk. Abigail uses her extensive database of municipal credit information to identify relative value opportunities through research publications and tailored investment strategies. She developed our proprietary Municipal Credit Review Report, helping customers manage credit exposure in their municipal portfolios. She also pioneered a portfolio screening system to help customers respond to changing credit conditions. Ms. Urtz can be contacted at 901-435-7954 or via email Abigail.urtz@ftnfinancial.com Although most governments have used the recent media scru- tiny as an opportunity to make needed changes to benefits and payment schedules, there are some outliers with liabilities so large that accommodating them in the budget or reform- ing them away could be challenging. An analysis of adjusted net pension liabilities, which use a standard discount rate vs. the range of assumptions permitted by GASB 67/68, shows an asymmetrical distribution of risk. This suggests there are only a small subset of governments that have mismanaged pension plans and deserve more immediate attention. Although even the most underfunded plans may still have years until insolvency, current market distractions related to tax reform and Fed rate hikes may provide an opportune time to reevaluate municipal portfolios to rebalance these exposures. With Illinois and other governments sure to see a renewed wave of attention as risks continue to grow, the time to act is now. Disclaimer This material was produced by an FTN Financial Strategist and is not considered research and is not a product of any research department. Strategists may provide information to investors as well as to FTN Financial’s trading desk. The trad- ing desk may trade as principal in the products discussed in this material. Strategists may have consulted with the trading desk while preparing this material and the trading desk may have accumulated positions in the securities or related deriva- tives products that are the subject of this material. Strategists receive compensation which may be based in part on the quality of their analysis, FTN Financial revenues, trading reve- nues, and competitive factors. 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FTN Financial Group, through FTB or its affiliates, offers in- vestment products and services. Investment Products are not FDIC insured, have no bank guarantee and may lose value.  Source: FTN Financial Although even the most underfunded plans may still have years until insolvency, current market distractions related to tax reform and Fed rate hikes may provide an opportune time to reevaluate municipal portfolios to rebalance these exposures. With Illinois and other governments sure to see a renewed wave of attention as risks continue to grow, the time to act is now. 0% 5% 10% 15% 20% 25% 30% <50% 50-100% 100-200% 200-300% 300-400% 400-500% >500% Distribution of Adjusted Net Pension Liability (ANPL) % Revenues Frequency ANPL % Revenues Source: FTN Financial  Public Pensions Continued from Page 31 Source: Center for Retirement Research at Boston College States That Have Enacted 401(k)-Style Plans Source: Center for Retirement Research at Boston College Although most governments have used the recent media scrutiny as an opportunity to make needed changes to benefits and payment schedules, there are some outliers with liabilities so large that accommodating them in the budget or reforming them away could be challenging. An analysis of adjusted net pension liabilities, which use a standard discount rate vs. the range of assumptions permitted by GASB 67/68, shows an asymmetrical distribution of risk. This suggests there are only a small subset of governments that have mismanaged pension plans and deserve more immediate attention. AZ UT CA NV WA OR ID KS OK MO AR LA KY OH WV MI NH TN TX NE IA MN WI IL MS AL GA FL SC NC PA NY ND SD N CO MT WY RI CT DE NJ VT AK HI MA MD VA Enacted 401(k)-style plan Did not enact 401(k)-style plan ME IN