Managing Pension Costs in Arizona with a Section 115 Prefunding Trust, POBs or COPsCategories: National Developments,PARS News,Pension Rate Stabilization
Whether issuing Pension Obligation Bonds (POBs) or Certificates of Participation (COPs), an IRS Section 115 PARS Pension Prefunding Trust, in partnership with Vanguard and U.S. Bank, is a great new option in Arizona to address PSPRS, ASRS or any retirement system costs over the long term.
Section 115 Pension Prefunding Trust – On Its Own
Arizona local governments can now prefund pension costs from existing resources in a dedicated IRS approved trust that can:
- Be diversely invested for a greater rate of return than setting aside in a general account
- Provide full control over the agency’s assets and investment choices
- Pay directly to PSPRS, ASRS or another retirement system OR reimburse the agency for its pension costs
Section 115 Trust – In Conjunction with POBs or COPs
Some AZ public entities are considering setting aside a portion of their bond proceeds into the Pension Prefunding Trust:
- Funds will still be designated for pension obligations but provides the agency control of investment choices
- Assets will then be transferred over a period of years into PSPRS or other systems so that funding and investments are locally controlled
- Section 115 trust funds can help to manage market timing by providing a safe repository for subsequent and periodic tranches of payments to the retirement system(s)
Public Agency Retirement Services (PARS), in partnership with U.S. Bank and Vanguard, offers the only such trust program currently available in Arizona. We pioneered the concept with an IRS Private Letter Ruling in 2015 and now have over 230 cities, counties, fire districts, special districts, schools and colleges using the program.