States and Municipalities now Borrowing and Issuing Pension Obligation Bonds via Greyhorse Clearinghouse Terminal.

Pension obligation bonds (POBs) have become a popular way for governments to try to address their pension funding problems. These bonds are issued by a government entity to raise funds to pay for pension obligations. The idea is that by issuing bonds, the government can invest the proceeds at a higher rate of return than they are paying out in pension benefits.

While POBs can seem like an attractive option, they come with a number of risks. One of the biggest risks is that the investments made with the bond proceeds may not perform as expected. If this happens, the government may be left with a larger pension funding problem than they started with. Another risk is that the government may become too reliant on POBs to fund their pension obligations.

This can create a situation where the government is taking on too much debt, which can lead to credit rating downgrades and higher borrowing costs. Despite these risks, some governments continue to issue POBs. In many cases, they are seen as a way to address immediate pension funding shortfalls without having to make difficult budget cuts or tax increases. However, it is important for governments to carefully consider the risks and potential downsides before deciding to issue these bonds.

In conclusion, pension obligation bonds can be a useful tool for governments looking to address their pension funding problems. However, they come with significant risks and should be used with caution. It is important for governments to carefully consider the potential downsides before deciding to issue these bonds.