Top 10 Reasons to Prefund Your Other Post- Employment Benefits

Categories: California Developments,National Developments,New England Developments,OPEB/GASB 45/75
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With the introduction of GASB 75 which created increased retiree healthcare liabilities for many agencies throughout Connecticut, now is the time for your municipality or district to start addressing its long-term OPEB obligations.

Listed below are 10 key advantages of prefunding into a GASB and IRS-compliant OPEB trust, such as the PARS OPEB Trust Program:

  1. Contributions are considered assets on financial statements
  2. Assets in the trust can be invested and diversified for a potentially greater rate of return
  3. In tough budget years, assets can be used as a “rainy day fund” to cover any OPEB related expenses
  4. Actuaries can use a higher discount rate for prefunded assets when calculating an agency’s OPEB liability
  5. Actively addressing future obligations can favorably impact your agency’s credit rating
  6. Prefunding can help hedge against health care inflation, longer life expectancies for retirees and the “baby boom” retirement surge
  7. Prefunding now means that future taxpayers/employees will not bear a disproportionate burden of the costs
  8. Funds put into an OPEB Trust are dedicated for future OPEB costs and protected from diversion for other uses
  9. Prefunding helps to offset the financial impact of GASB 75, which requires OPEB liabilities to be placed on the balance sheet and the discount rate for Pay-as-you-go funds to be tied to the municipal bond rate
  10. Prefunding is a fiscally prudent measure that is considered a “best practice” by GFOA