SUB-SOVEREIGNISSUER IN-DEPTH 4 AUGUST 2015ANALYST CONTACTSRoxana Munoz 52-55-1253-5721 AVP-Analyst roxana.munoz@moodys.comRafael Rodriguez 5255-1253-5743 Associate Analyst rafael.rodriguez@moodys.comAlejandro Olivo 5255-1253-5742 Associate Managing Director alejandro.olivo@moodys.comCorregidoraCorregidora Takes First Step towards Addressing Pension Liabilities, a Credit Positive In May 2015, the municipality of Corregidora (Baa3 stable) approved the creation of a trust fund to cover future pension payments, a credit positive first step towards managing its fast-growing pension liabilities. The move demonstrates its strong governance and management practices, and its long-term approach to planning. Corregidora is the first municipality in the Mexican state of Queretaro (Baa1 stable) to put in place a plan for addressing its future pension obligations.¯ Corregidora lacks a pension system but has low unfunded pension liabilities. As per Queretaro's labour laws, public sector employees receive generous retirement benefits, and nearly half of Corregidora's population is older than 40. Nevertheless, unfunded pension liabilities are low and were equivalent to 3.8% of operating revenues in 2014.¯ New fund demonstrates Corregidora's strong governance and management.We believe the trust fund will help Corregidora avoid financial pressure from a potential future surge in pension payments, and demonstrates the municipalitys good management practices. Although there are no clear rules governing the size of futuretransfers to the trust, its creation is a first step in pension management.1Corregidora lacks a pension system but has low unfunded pension liabilitiesPension benefits and rules are defined under the Queretaro state law, but the state itself does not have a pension system and pays pensions directly out of its revenues. Corregidora's pension obligations have also expanded as a result of Queretaro's state labour laws, which provide comparatively generous retirement benefits to public sector employees. Under the law, public sector workers may retire at any age with a pension equivalent to 100% of their final salary once they have completed 30 years of service. This allows many public sector employees to retire on a full salary before the age of 60, increasing the financial burden of funding their pensions. Furthermore, the average age in Corregidora is 40, well above the Mexican national average of 27, and almost half its population is older than 40. The 36-40 age group takes up the largest share of the municipality's population (see Exhibit 1).MOODY'S INVESTORS SERVICE SUB-SOVEREIGNThis publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.2 4 AUGUST 2015 CORREGIDORA: CORREGIDORA TAKES FIRST STEP TOWARDS ADDRESSING PENSION LIABILITI...
