WASHINGTON — The Securities and Exchange Commission is probing a number of governmental entities about the adequacy of their public pension disclosures, chairwoman Mary Schapiro told lawmakers Thursday.
Schapiro’s remarks came during a hearing by the Senate Banking Committee devoted to the one-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Other witnesses included Ben Bernanke, the Federal Reserve chairman, Gary Gensler, chairman of the Commodity Futures Trading Commission, and Rep. Barney Frank, D-Mass., one of the architects of the sweeping financial reform law that bears his name.
During a question and answer period, Sen. Mark Kirk, R-Ill., asked Schapiro if the SEC would recommend that muni issuers conform to the pension-disclosure standards proposed earlier this month by the Governmental Accounting Standards Board.
Under GASB’s guidance, which is still preliminary, state and local governments would be required to report unfunded pension liabilities in their financial statements, rather than in the footnotes, where such information has historically appeared.
In response, Schapiro cited the SEC’s settlement with New Jersey last year of securities fraud charges stemming from the state’s failure to disclose to investors that it was underfunding its two largest defined-benefit pension plans.
The commission has “a number of others under investigations” with respect to the adequacy of disclosures, she said.
Schapiro also said discussions are underway with members of Congress about potentially enlarging the commission’s disclosure authority over municipal issuers.
Under the Tower Amendment in the Securities Exchange Act of 1934, the SEC and the Municipal Securities Rulemaking Board cannot require muni issuers to file pre-offering disclosure documents.
As for the proposed pension-accounting standards, she said: “I think GASB took a very important step.”
Still, Kirk said he worries about the power of governmental entities to fend off regulatory scrutiny.
“We won’t hold back,” Schapiro declared.
Later, spokeswoman Kate Dickens said Kirk is concerned about unfunded state pension liabilities in Illinois and believes investors lending money to states deserve “full transparency” of such liabilities, which “may affect the risk in lending states more money.”
Earlier, Frank, in a 14-minute cameo peppered with references ranging from Humphrey Bogart to Flip Wilson, chastised Republicans for seeking to derail financial reform by slowing down rulemaking, repealing key Dodd-Frank provisions, and paring regulators’ budgets.
“I understand people who think we have too much regulation,” Frank said. “But we can’t find $150 million for the CFTC?”
Frank also said the worst of all worlds is to have a regulatory scheme hampered by regulators who lack the budget to implement and enforce their mandates.
“So this nickel and diming of the SEC and CFTC does grave harm,” he said.
Throughout the two-hour hearing, committee members advanced competing views about Dodd-Frank, with Democrats quizzing regulators about whether they lacked the resources to fulfill their statutory mandates and Republicans focused on the costs of the reforms to industry participants and taxpayers.
During one exchange, Sen. Richard Shelby, R-Ala., said Dodd-Frank had created more than 4,000 new government jobs, and that some SEC employees can earn more than $230,000 per year.
Addressing Bernanke, Shelby said: “Mr. Chairman, do we now have enough government bureaucrats to protect the financial system?”
Bernanke, in turn, cited an inadequate regulatory structure before the 2008 financial crisis. “This is not just, you know, a pointless response,” he said. “There are a lot of things that need fixing.”
