SOME POTENTIAL BENEFITS OF ISSUING PENSION OBLIGATION BONDS

- Immediately increase the funded ratio of the pension fund as opposed to gradually increasing it
over time

- Increased funding may allow for a different investment strategy

- Eliminate the continuing discussion among all stakeholders retirees, employees, elected officials,
?nance and budget staffs, rating agencies, investors and the press about plan underfunding and
how it is going to be addressed

- Reduce the risk that future budget negotiations will reduce payments on the existing UAAL, by
either underfunding the ARC or changing the amortization schedules, by replacing ?discretionary?
(really postpone-able) payments on the UAAL with debt service that must be paid

- The sponsoring government determines the desired payment schedule including the length of time
until the obligation is repaid and the payment pattern, which can take into account other debt
obligations as opposed to relying on the calculations of the funds? actuaries

- Reduce projected payments by borrowing at interest rates that are lower than the assumed
earnings rate used to calculate the UAAL. Reduce the real payments on the remaining UAAL if the
actual fund earnings rate exceeds the interest rates on P085

I Under GASB rules to be fully implemented in FY15, bonding for the unfunded liability will materially
reduce the reported liability on the sponsoring government?s balance sheet since a well?funded plan
uses the assumed investment earnings rate to discount all future bene?ts

RAYMOND