Effective pension plan management is critical for securing retiree benefits, but for many local government agencies, pension costs place a significant strain on the budget.
At PARS, we understand that while it’s difficult to control the investment volatility and rising costs associated with pension plan(s), agencies can take steps to protect themselves from financial fallout with an IRC Section 115 Trust. Here’s how:
- Mitigate Volatility and Hedge Rising Costs:
When pension plan investment returns fall short of their discount rate benchmark due to underperformance, and oftentimes high-risk investments, contribution rates can skyrocket. A Section 115 Trust provides the option to smooth out these spikes by setting aside funds that can be used to stabilize pension costs over time. - Diversified Investment Options:
While general fund investments are often limited to low-risk, low-return options, a Section 115 Trust allows agencies to pursue a broader, diversified investment strategy which can help offset contribution rate increases. - Create a Financial Buffer:
Section 115 Trust’s can serve as a rainy-day fund, providing a safety net for pension plans during times of economic stress or when costs increase due to missed investment targets or changing demographics/assumptions. - Maintain Control and Flexibility:
Assets in a Section 115 Trust remain directly under each individual agency’s local control, providing flexibility to manage reserve funds according to the local government’s specific financial needs and risk tolerance. - Credit Rating Boost:
Taking proactive steps to manage pension liabilities doesn’t just stabilize an agency’s finances – it can also improve its agency’s credit rating. Numerous PARS clients have received higher credit ratings since adopting a PARS Section 115 Trust and higher credit ratings typically lead to lower borrowing costs.
More than 500 local governments nationwide have already turned to PARS’ innovative Section 115 Trust to regain control over their pension costs and liabilities. Is your agency next? Contact Our Team today.