Pre-funding post-retirement healthcare funding obligations is a relatively new concept to public agency management - as well as governing boards and employees. As healthcare costs continue to rise, with no relief on the horizon, the best time to fund your post-employment retirement health care obligations is now.

By funding now, the funds earn interest that can be used to offset future healthcare costs. A PARS GASB 45 Plan is a cost-effective means of measuring, managing and funding a benefit that will continue to grow in demand and importance well into the retirement of the baby boom generation.

A Predictable and Manageable Expense

A PARS GASB 45 plan pre-funds future obligations and resulting earnings can reduce future retiree healthcare costs. Pre-funding these obligations will stabilize the cost of retiree health plans. Like pension obligations, retiree healthcare, when pre-funded with care and responsible fiscal planning, can become a predictable and manageable expense – and an expense that does not become a burden to the next generation.

A Program to Adopt with Confidence

Few public agencies have taken this kind of proactive approach to manage these important employee benefits. Since there is no well-marked path to follow, agencies need to turn to the best experts and resources available.

For this reason PARS set out in 2005 to carefully develop a program to support public agencies as they confront their “OPEB” responsibilities under GASB 45. PARS anticipated a need for one-stop services and a multiple-employer collective approach that brings economies of scale to public agencies, large and small.

There are only a few comprehensive programs available and, given the novelty of irrevocable trusts in post-retirement funding, an agency needs to evaluate the alternatives carefully. You can adopt the PARS GASB 45 Program with a high level of confidence for the following reasons:

• Validity of the Trust – The PARS GASB 45 Trust (“Trust”) is a multiple employer Internal Revenue Code Section 115 (“Section 115”) irrevocable trust designed for public agencies. PARS has determined, with its legal experts and program partners, that the best OPEB funding vehicle is a trust formed on the basis of Section 115.

• Trustee and Asset Management – PARS plans employ a corporate trustee who assumes fiduciary responsibility for oversight of the plan. Unless an agency elects to assume control over plan investments, the trustee also assumes responsibility for investments. Risk-conscious public agencies embrace this approach because it transfers liability for investment decisions from the agency’s governing board and plan administrator to professionals who are trained, licensed and regulated in these activity.

PARS initiated a formal RFP process to obtain trustees for the program, having the top trust companies and banks in the country compete against each other to provide trustee services to public agencies. Union Bank of California, with one of the largest and most respected trust divisions in the country, was selected based on presentation and interviews with the selection committee as they demonstrated:

• a commitment to serving public agencies

• financial strength, resources and capabilities to provide first-rate trustee services

• a comprehensive understanding of the requirements of a GASB 45-compliant trust

• lowest cost and fees

Agencies can feel confident that their assets will be safeguarded with the highest standards and that funds will be invested by one of the best-performing asset management companies in the country.

In addition to its role as investment manager, the trustee also provides benefit security to retirees since GASB 45 assets are placed in a trust for the exclusive benefit of plan participants and may not be used for other purposes. PARS GASB 45 assets are specifically exempt from the debts of the sponsoring agency, even in the event of bankruptcy.

• Trust Administration – Since 1983, PARS has administered large multiple-employer retirement programs and trusts in California, Texas and other states that provide benefits to 270,000 public employees for more than 400 public agencies. PARS provides expertise to the program in public sector retirement plan consulting, design, administration, and legal compliance.

• Investment Oversight and Protections – The Trustees are able to act as a discretionary trustee for agencies, thus allowing the agency to delegate fiduciary responsibilities and risk to the trustee, providing another level of oversight for the program and security for agency management.

• Individualized Support – PARS provides hands-on consulting and support to each agency by conducting funding analyses, coordinating additional actuarial work and access to health care consultants and other experts available to the program to comprehensively help the agency address its other post-employment benefit liabilities.

Limiting Your Agency’s Workload

The PARS GASB 45 Program is streamlined and administratively efficient to minimize an agency’s workload. The program is designed to be “turn-key” every step of the way, to simplify the life of your public agency’s staff.

• Implementation: PARS provides signature-ready documents that have been carefully reviewed by the law firm of O’Melveny & Myers. These legal documents are the result of a two-year process of developing legal documents that will satisfy the scrutiny of your agency’s legal counsel, as well as the IRS. All signature-ready documents include a governing board resolution and sample staff report.

• Ongoing Administration: Administration of the program for the agency is simple and straightforward. PARS works with each agency through the entire process. Upon receiving your board’s approval, your agency’s primary responsibility will be to contribute funds to the Trust, send in requests for distributions, and monitor reports on account and investment activity. PARS will provide ongoing services to review funding and investment strategies, update actuarial studies, address compliance changes, and evaluate whether the program is successfully meeting your agency’s needs.

With our vast experience creating customized public agency financial solutions, PARS can design and administer a GASB 45 plan that will save you money and also reduce your administrative, compliance and fiduciary burden.