Agenda

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Item # 4.

Council Meeting

Meeting Date:	09/27/2022
Department:	Finance
Pillars:	Gold Standard in Financial Health
Milestones:	Continuously improve processes and policies to include the voice of the customer and ensure the policies are easily accessible

AGENDA CAPTION:

Consider Action on a Resolution Approving the Creation of a Trust Under Internal Revenue Code Section 115 For the Purpose of Pre-Funding Other Post Employment Benefits (OPEB) Releated to the City’s Post Employment Health Plan For Retirees; Appointing The City Manager As Trustee; And Providing An Effective Date.

BACKGROUND:

The Town offers retirees health care benefits should they retire from the Town. These benefits include two subsidies from the Town, an explicit subsidy - direct payments from the Town to the retirees, and an implicit subsidy - the retirees premium is at the Town's blended insurance rates. The adopted fiscal year 2023 budget includes appropriations to pre-fund these benefits through an irrevocable section 115 trust (like pension benefits with TMRS) with an initial deposit of $500,000 and annual deposits of up to 0.25% of payroll payable from each fund that has salaries expenditures.

Pre-funding other post-employment benefit (OPEB) obligations is a Government Finance Officer's Association (GFOA) best practice and is viewed favorably by bond ratings agencies compared to the Town's current pay as you go arrangement. Creating a trust and a plan to pre-fund OPEB will immediately reduce the Town's OPEB liability by approximately $1 million due to the expected investment return of a trust arrangement of 5.25% compared to 2.0% in a pay as you go arrangement. The Town's current OPEB liability for retiree health care is $3.6 million, but anticipated to increase to over $10 million over the next thirty years under the pay as you go arrangement. This pre-funding plan would eliminate the entirety of that potential $10 million liability with contributions totaling approximately $2.5 million over the next thirty years creating a net savings of approximately $7.5 million.

There are three GFOA best practices associated with OPEB arrangements and this would help the Town achieve all three. They are: Establishing and Administering an OPEB Trust, Ensuring OPEB Sustainability, and Sustainable Funding Practices for OPEB.

RECOMMENDATION:

Administration recommends approval.

Attachments
Resolution - OPEB Trust