City of Coppell Joins The PARS OPEB Trust To Prefund Implicit Subsidy

Categories: Hot Sheets,OPEB/GASB 45/75,Texas Developments
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On the northeast edge of Dallas/Fort Worth Airport lies the City of Coppell, a family-oriented suburb of 40,000. Appearing on multiple “Best Places to Live” lists, Coppell boasts over 500 acres of park land and a K-12 school district that has been ranked as the number one music program in the nation. To develop and maintain such a thriving community, it takes effective leaders. It was Coppell’s current group of leaders that first heard about the PARS OPEB Trust Program in late 2013 and saw the potential it had to benefit their city.

At first glance, Coppell might not seem like a city that would benefit from an OPEB trust due to only having an Implicit Subsidy with the retirees paying for their own benefit. The City of Coppell saw it differently. Although retirees pay the full cost of the plan’s premiums for coverage, they generate claims costs which are higher than those of the average employee. As a result, the City incurs costs by allowing retirees to remain on the health plan. This hidden cost of providing retirees coverage is a tangible amount that increases over time and must be mentioned in financial reports. In Coppell’s view, even with a more modest OPEB, they would still benefit from prefunding into a trust.

Because the trust can reimburse the City for the difference between retiree claims and premiums paid by retirees. The City’s research supported their belief that a pay-as-you-go approach was not the best path moving forward. Coppell discovered that while pay-go is usually inexpensive in the initial years, costs increase rapidly as (a) participation increases, (b) health care costs rise, and (c) utilization of the health care services increase. When a plan is fully mature, costs can exceed amounts that cities are willing to make, which frequently results in caps, limits and even a reduction of benefits.

Coppell also noted that prefunding into an OPEB trust would demonstrate their commitment to the employee benefits already in place, and with full control over the amount funded and allocation strategy, it would be seen as a balance sheet strength by the credit rating agencies. The City of Coppell Council moved forward in August of 2014 to join the PARS OPEB Trust Program.

Whatever type of OPEB liability (Explicit or Implicit) your agency may have, reach out to PARS at info@pars.org or 800.540.6369 x116 to see how an OPEB trust can improve your financial statement and save you money.


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