AFP Blogs

The Securities and Exchange Commision (SEC) voted to approve rule changes that improve the qualifty and timeliness of municipal securities disclosure. Municipal securities, such as municipal bonds, are exempt from the disclosure requirements of the federal securities laws. However, the SEC adopted Rule 15c2-12 in 1989, which was designed to foster greater transparency in the municipal securities market, by regulating those who underwrite, or sell, municipal securities. Today the SEC passed an amendment to Rule 15c-12.  The amended rule:

1. is expanded to apply to new issuances of VRDO securities.VRDOs bear interest at a rate that is reset periodically and investors are able to sell them back to the issuer at certain times for their full value.
2. improves disclosure of tax risk. The amended rule will specifically include disclosure of events that may adversely affect a bond’s tax exemption, including issuance by the IRS of proposed and final decisions about whether the bond can be taxed.
3. strengthens and expands disclosure of important events. The amended rule increases the number of events deemed important that should be disclosed to include: (1) tender offers; (2) bankruptcy, insolvency, receivership or similar proceeding; (3) mergers, consolidations, acquisitions, the sale of all or substantially all of the assets of the obligated person or their termination, if material; and (4) appointment of a successor or additional trustee or the change of the name of a trustee, if material. Under the existing rule, an underwriter must have a reasonable belief that the state or local government that issued municipal bonds has agreed to provide ongoing, continuing disclosure of certain important events.
4. establishes a more specific filing deadline. The amended rule will provide that notices of the events listed in the rule be disclosed in a timely manner not more than 10 business days after the event. Currently, the rule simply provides for disclosure ‘in a timely manner.’
5. provides additional guidance. The amended release reaffirms that, to have a reasonable basis to recommend a security, a municipal underwriter must carefully evaluate the likelihood that a municipality will make the ongoing disclosure called for by the amended rule. The adopting release further states that it is doubtful that an underwriter could form a reasonable basis to recommend a security if the municipality had a history of persistent and material non-disclosure.

The International Accounting Standards Board (IASB) published for public comment an exposure draft of proposed amendments to IAS 19 Employee Benefits. The proposals would amend the accounting for defined benefit plans through which some employers provide long-term employee benefits, such as pensions and post-employment medical care. In defined benefit plans, employers bear the risk of increases in costs and of possible poor investment performance.

The amendments would address deficiencies in IAS 19 by requiring entities:

• - to account immediately for all estimated changes in the cost of providing these benefits and all changes in the value of plan assets (often referred to as removal of the ‘corridor’ method);
• - to use a new presentation approach that would clearly distinguish between different components of the cost of these benefits; and
•  -to disclose clearer information about the risks arising from defined benefit plans. (more…)

On February 25th, the Department of Labor’s Employee Benefits Security Administration released a final rule establishing a civil penalty of up to $1,100 per day against multiemployer plans in endangered or critical funding status that fail to establish mandatory funding improvement and rehabilitation plans.

“The regulation makes clear that the $1,100/day penalty can be reduced or waived based on mitigating circumstances, in particular the severity or willfulness of the violation,” Judith F. Mazo, senior vice president and director of research for the Segal Co., told BNA Feb. 25.

The rule is effective March 29 for plan years beginning on or after Jan. 1, 2008 and is expected to be published in the Feb. 26 Federal Register.