Why You Can’t Afford NOT to Prefund Your OPEB/GASB 45 ObligationsCategories: Hot Sheets,OPEB/GASB 45/75
As the prospect of additional education funding for 2014-2015 is looking more promising, school districts will be looking at their priority lists to determine which much-needed items need money first. Many important items were scaled back during the long-term budget crisis – employee salaries, class sizes, new employee recruitment and many other needs. One new requirement that hit during 2006-2008, right as the budget crisis was beginning, was GASB 45. Certainly, at the time, most districts chose to put off this new push to fund their Other Post-Employment Benefits (OPEB) but now, with the outlook improving, it is time to strongly consider setting aside dollars for this growing obligation.
Why Should the District Prefund?
There are many compelling reasons why school districts should consider prefunding their OPEB obligations into a GASB 45 Irrevocable Trust Fund:
- Investing assets results in a greater rate of return which in turn lowers your district’s liability.
- Rule of thumb: Every 1% increase in discount rate achieved, lowers liability costs about 10-12%.
- Contributions into the trust are true “assets” which offset liabilities on financial statements.
- Credit rating agencies look more favorably on districts who adopt an irrevocable trust and prefund.
- Districts with lower liabilities have a better chance to retain some level of retiree health care in the future.
- Districts can make contributions to the trust at any time and are not obligated to make regular contributions.
- Districts can access funds at any time to pay current retiree OPEB costs regardless of the funding status of the trust.
PARS and CSBA’s GASB 45 Solutions Program Offers a Simple Way to Get Started
The GASB 45 Solutions Program provides a one-stop answer to your district’s OPEB Trust needs. The program is overseen by a unique partnership of PARS and CSBA which combines the largest private full-service provider of OPEB Trust Programs with one of the strongest education associations whose mission is the maintenance of a high quality education for every student in California. Additionally, the program is specially designed to provide a variety of advantages:
- IRS-approved GASB 45-compliant Trust
- Multiple-employer program allows economies of scale
- Direct, clear fiduciary protection
- Diversified investment options
- No restrictions on leaving the Program
- Local control with no sharing of liabilities or risk
- U.S. Bank, the trustee, is one of the highest rated, financially secure banks in the country
- Administered by PARS with over 118 OPEB clients
- Oversight by CSBA – with school districts’ interests in mind
Getting started is easy – just contact PARS at 800-540-6369 x 127 and we will walk you through the simple steps for implementation.