PARS OPEB Trust Expanding to More States!

Categories: OPEB/GASB 45/75,PARS In the News
Print Friendly


In 2006, Government Accounting Standards Board Statement 45 (GASB 45) was a watershed moment for public agencies. It shed light on a public liability that had in the past been overlooked: other (than pensions) post-employment benefits. Studies show that unfunded retiree health care liabilities exceed unfunded pension liabilities in the largest cities and that the vast majority of cities are using a “pay-as-you-go” approach. But, this approach will only cause unfunded OPEB liabilities to grow.

So what is the best solution for this increasing problem? The GASB board, the GFOA, and actuaries agree: pre-funding into a Section 115 Trust.

PARS has an IRS-approved multiple-employer Section 115 OPEB Trust ready for your agency to utilize.


What is the PARS OPEB Trust Solution?

  • A multiple-employer Internal Revenue Code Section 115 Trust
  • Sole purpose is to fund retiree health care benefits or other (than pension) post-employment benefits (OPEB)
  • Complies with Government Accounting Standards Board Statement No. 45 (GASB 45)
  • Has an IRS Private Letter Ruling (PLR) that covers all public agencies funding into the trust
  • Comprised of cities, towns, counties and special districts in multiple states
  • Each participating member of the trust retains local control and autonomy


Who administers the trust?

  • PARS, is trust administrator – provides recordkeeping, reporting, compliance, and acts as  liaison between the participating member and trustee
  • U.S. Bank is trustee – safeguards your assets and can serve as investment advisor/manager in “discretionary trustee” role


Why pre-fund our OPEB liability rather than keep “pay-as-you-go” funding?

The Government Financial Officers Association (GFOA) views OPEB pre-funding as a best practice, stating “the financing of post-employment benefits as they are earned (i.e., pre-funding v. pay-as-you-go funding) offers significant advantages…”  Some of the advantages include:

  • Contributions into the trust are “assets” which offset liabilities on financial statements.
  • Invested assets produce a greater rate of return – lower liabilities allow for higher discount rate on your actuarial valuation. (Rule of Thumb: For every 1% increase in discount rate achieved, liability costs are lowered about 10-12%.)
  • Those with lower liabilities have a better chance to retain retiree health care benefits in the future.
  • Credit rating companies look more favorably on those who adopt a trust and pre-fund.
  • GASB 68 will require agencies to report pension liabilities on their balance sheets in 2015 with OPEB likely following in the near future.


We already have funds set aside in our general fund or reserves for OPEB costs, isn’t that sufficient?

While good in terms of planning ahead, for funds to be considered assets on actuarial valuations and financial statements, GASB 45 requires:

  1. The contributions be made into an irrevocable trust
  2. The trust be dedicated for retiree health care benefit
  3. The trust not accessible by creditors


Why use a multiple-employer trust?

  • PARS designed the multiple-employer trust to bring economies of scale and administrative efficiencies to public agencies.
  • The trust is formulated as an aggregation of individual employer plans with centralized administration and pooled investments.
  • Fees have already decreased twice due to asset accumulation.
  • There are no start up costs; no legal costs for obtaining IRS approval as with a single trust.
  • Separate accounts are maintained for each employer and assets are segregated for each individual agency. There is no sharing of liabilities, investment earnings or losses.


What does “irrevocable” trust mean?

OPEB assets may be accessed at ANY TIME for OPEB expenses:

  • Retiree health care provider can be paid directly
  • Agency can be reimbursed for benefit payments
  • Payments can be sent directly to retirees (if OPEB policy allows)

If  OPEB benefits are eliminated and no beneficiaries or liabilities remain, the trust account can be terminated and assets are transferred back to the agency.


Are there any restrictions on contributions?

There is no minimum contribution and there are no restrictions on the amount and/or frequency of contributions.


What is involved in joining the trust?

Implementation of our existing ‘ready-to-go’ trust is simple and can be completed in less than 30 days from first contact:

  • The governing board must adopt a resolution to join the trust
  • A Plan Administrator is designated by the council/board
  • Plan Administrator signs plan/trust documents and investment forms
  • U.S. Bank sets up an individual trust account


How much work is required of us?

Administration of the program is intended to be very simple. After adoption of the plan, an employer’s only major responsibilities are to contribute funds to the Trust whenever it would like, send in distribution requests, and monitor reports on its trust account and investment activity.


What states can the trust be used in?

It is already the largest private OPEB trust in two of the largest states in the country: California and Texas. The trust is now available to other states across the nation. However, state and local laws vary and PARS has enlisted attorneys in certain states to clear legal authority for the trust. Consult with your legal counsel and contact us to determine whether it is possible to use the trust in your state.


How are assets invested?

This depends on restrictions and authority in your state.  However, the investment program is designed to allow for diversification of investments, including fixed income and equity investing.  Agencies can select from various investment strategies (portfolios), based on risk tolerance levels and actuarial valuation discount rates.


  • +2016 (19)
  • +2015 (60)
  • +2014 (41)
  • +2013 (28)
  • +2012 (56)
  • +2011 (43)
  • +2009 (1)
  • +2004 (2)