SEC Approves Registration Rules for Municipal Advisors: Exempts Public Sector Employees and Retirement Board Members

State and local governments that issue municipal bonds often rely on advisors to help them decide how and when to issue securities and how to invest the proceeds from sales. Prior to the passage of the Dodd-Frank Act, these advisors were not required to register with the SEC. Due to requirements in the Dodd-Frank Act, the Securities and Exchange Commission (SEC) established a temporary registration program and then proposed permanent rules in December 2010 requiring municipal advisors to register with the SEC. Under the proposed rules, members of retirement plan boards would have been considered municipal advisors subject to registration. The SEC has now revised its position.

On September 18, 2013, the SEC voted to approve final permanent registration requirements for municipal advisors. The final rules made a number of welcome changes to reflect comments received with respect to the proposed rules, including the addition of a specific exemption from the registration requirements for all public officials and employees, including members of a retirement board, to the extent they are acting within the scope of their official capacity. The permanent rules also narrow the definition of "investment strategies" to the advice directly related to the investment of the proceeds of municipal securities.

Thus, as we understand the final rules, to the extent a pension or retiree health care plan contains the proceeds of municipal securities (e.g., a pension obligation bond), advisors as to the investment of that fund would be required to register unless specifically exempted. By contrast, actuarial studies that are used as the basis for a municipal entity to engage in financing are not considered advisory "if the actuarial study only uses client-provided investment return assumptions and does not make any recommendations about how such municipal entity might address an unfunded liability, including a discussion of the advisability of an issuance of municipal securities or a municipal financial product." As a result, your actuary will not be able to advise you either to issue or not to issue a pension obligation bond, or even how to analyze the impact of a pension obligation bond, unless they register with the SEC.

The permanent rules will be effective 60 days after publication in the Federal Register and provide for registration on a staggered basis starting on July 1, 2014.

The SEC's press release can be found here:

The permanent rules as approved can be found here:

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal services or tax advice.