Plymouth County, MA Has Better Option for OPEB WorriesCategories: New England Developments,OPEB/GASB 45/75,PARS In the News
The following article discusses the Plymouth County (MA) OPEB Trust. For further information, please visit plymouthcounty-ma.gov/pcot
Wicked Local by Frank Mand, July 6, 2015
Plymouth County, MA wants to know the status of your town’s OPEB – its “Other Post-Employment Benefits.”
Plymouth County Treasurer Tom O’Brien recently introduced one of the newest services the county offers its 27 cities and towns, what he described as a “unique IRS compliant Section 115 multi-employer, irrevocable trust program” For obvious reasons, the county shortened that description and calls the program PCOT (the Plymouth County OPEB Trust).
O’Brien and other county officials are excited about PCOT, which they say offers a simple turnkey solution with clear, fixed, low fees that could save participating communities millions of dollars.
Before talking specifics, however, O’Brien explained OPEB: What is it? Why is it a problem? And what can be done to handle it?
When full-time municipal employees retire, O’Brien said, most of them receive a pension – plus. And the problem lies in that plus.
For years no one was really concerned about those “Other Post-Employment Benefits,” that OPEB. Federal law has long required that governments fully fund employee pensions. But those additional benefits – most importantly health care – were not given the same attention.
But as health care costs grew to become a larger portion of retirement benefits, governmental agencies began to take notice, and slowly but surely began to tighten up the rules.
In 2006, the Governmental Accounting Standards Board (GASB), as part of what is called GASB45, asked that municipalities quantify their OPEB liabilities.
O’Brien put GASB45 implications in layman’s terms.
“They asked governmental entities, including the county, to quantify what that liability is,” O’Brien said, “and while they hope you will come up with a plan for dealing with it, you are only required to identify it, not fund it.”
Under GASB45, he explained, that OPEB number, regardless of its size, does not impact a community’s financial reports.
But there were hints that this could change. And recent GASB commentaries suggest that in the next few years the federal government will require governments to include all unfunded liabilities in those financial reports.
“That’s important,” O’Brien said, “because that will impact net assets and, possibly, could also affect bond ratings.”
For the town of Plymouth, to cite one example, that would mean adding an estimated $350 million liability to the books.
That’s one reason why it’s important to pay attention to how a community deals (or doesn’t deal) with its OPEB. If a town’s bond rating drops, it pays more to borrow money, which can translate into higher tax rates.
But don’t panic, O’Brien said, quoting a famous foe of the New England Patriots.
“Five letters here, just for everybody out there in Packer-land,” Green Bay Packers quarterback Aaron Rogers said after his team got off to a slow start last season, “R-E-L-A-X.”
“Relax; we’ve been here before,” O’Brien said. Towns faced the same challenge when the federal government required that pensions be fully funded.
So the county has devised what it considers a third option for dealing with OPEB liabilities.But what are options one and two?
The first OPEB option, according to O’Brien, is for communities to set up their own OPEB trust.
“On the plus side, with that approach, is control and familiarity,” he added. “You have complete control of your own funds, how they are invested. And you are likely familiar with those who will handle those investments.”
That’s essentially what Plymouth has done. It was the second community in Massachusetts (after Wellesley) to set up its own OPEB system. Plymouth filed special legislation that gives it the ability get a good rate of return and yet retain a great deal of flexibility in the future.
On the downside, unless you’re a large community like Plymouth with sufficient staff and funds, the investments you can access probably don’t provide a high rate of return and setting up your system could be an administrative burden.
“Smaller communities may also not be sure that they are following the IRS guidelines,” O’Brien said.
A second option is to tie into the state’s Pension Reserve Investment Trust, or PRIT. That can give a community a better rate of return, if it can make a minimum annual contribution of $250,000 and at least a three-year commitment.
The county’s new third option, PCOT, allows communities to participate in what was once just a private sector fund – a multi-employer trust that utilizes a major OPEB trust administration (Public Agency Retirement Services) with assets pooled in the fifth largest American bank, US Bank.
O’Brien said he’s proud to report that this new county service is already exceeding expectations.
After just six months, more than $2 million in assets has been invested from nine communities. Compare that to Plymouth, which after three years has approximately $1.6 million in its irrevocable OPEB trust account.
The new program is available to communities in Plymouth, Barnstable, Bristol and Norfolk Counties, where there are more than 150 potential members.
Further information is available on the county’s website at plymouthcounty-ma.gov/pcot .