State, county and municipal plan sponsors parlay their own creditworthiness when they issue Pension Obligation Bonds (“POBs”). If they can issue bonds with an interest (“coupon”) rate that is lower than their respective retirement system’s assumed rate of investment return, they can immediately lower their expected retirement costs by transferring POB proceeds into the retirement system and paying down their unfunded liabilities. And, if the retirement system’s investments return more than the coupon rate, the plan sponsor will have lowered its actual retirement costs with arbitrage profits. The risk of issuing POBs is that the retirement system’s investment returns may underperform the coupon rate, which will lead to an increase in the plan sponsor’s retirement costs. For the bond issuer, a lower coupon rate both decreases risk and increases the potential reward.