The MACo OPEB Investment Trust – designed to help counties put current assets to work toward long-term health care liabilities – is performing well, delivering healthy returns, and serving member needs. It recently topped $100m in total assets — all “put to work” through active investment for a stronger long term return than would be allowable without the Trust infrastructure.
Read the basics, but want a copy of the reports? Contact MACo, we’ll set you up with either paper or e-copies. (Inquiries seeking a chess match should be sent under separate cover)
The Board of Trustees of the MACo OPEB Investment Trust recently convened a quarterly meeting to review its own investment performance and to offer guidance for its assets going forward. And in a recent update, the Trust’s assets topped the $100 million threshold – signifying that its members have relied on this vehicle to grow their investments toward future use for retiree health care.
Let’s lay out how we got here.
What is O-P-E-B? And Why Do We Care?
OPEB, pronounced by finance professionals as an acronym sounding like OH-peb, stand for “other post employment benefits.” The “other” is in reference to pensions – an are that has long been governed by many guiding rules for proper accounting of short term assets and long term liabilities on the balance sheets of companies and governments who sponsor old-school pension systems that guarantee a certain calculated benefit after employment.
In fairly recent years, the Governmental Accounting Standards Board (GASB) took up the issue of long-term liabilities for benefits other than pensions, which until the early 2000 were not subject to detailed reporting standards. Overwhelmingly, these are employee health care coverage that lasts beyond the term of employment, and “OPEB” and “retiree health care” are largely used interchangeably in this field.
That process of evaluating the fiscal management of these benefits eventually yielded the rule known as GASB 45, issued in 2004, and stating in part:
Employers that participate in single-employer or agent multiple-employer defined benefit OPEB plans (sole and agent employers) are required to measure and disclose an amount for annual OPEB cost on the accrual basis of accounting. Annual OPEB cost is equal to the employer’s annual required contribution to the plan (ARC), with certain adjustments if the employer has a net OPEB obligation for past under- or overcontributions.
The ARC is defined as the employer’s required contributions for the year, calculated in accordance with certain parameters, and includes (a) the normal cost for the year and (b) a component for amortization of the total unfunded actuarial accrued liabilities (or funding excess) of the plan over a period not to exceed thirty years.
Okay, public finance accountants may not be known for their flowery prose, but the bottom line is: if you’ve been paying for these benefits merely as a “pay as we go” cash item, there at least needs to be a documentation in your financial reporting that you likely have long term obligations that are not being offset by current investments.
New Standards, A New Wave of Action
Under the new transparency standards, many governments were newly revealing a long-term liability for these retiree health care costs. And with that, additional attention followed a change in stewardship of these finances.
Governments with “defined benefit” pension systems typically collect current-year contributions from employees and from the employer budget, and deposit those funds into an investment fund, managed to make ling term gains toward eventual payment of benefits. At any time, such a system may have an actuarial analysis conducted to assess its degree of funding adequacy — effectively a projection of whether the current assets and plan for future contributions will offset the expected benefit costs in future years.
OPEB liabilities have the same contours (spending expected in future years based on assumptions of employee decisions) and became a candidate for a similar approach. MACo, recognizing this as a likely trend, supported state-level legislation to specify that long term dedicated OPEB assets were not subject to the fairly rigid limitations placed on “public funds” under the state law — meaning they, like a pension account, could be invested in equities and fixed-income instruments that would not be appropriate for year-to-year government balances.
Many Maryland jurisdictions, especially those large enough to already be managing their own pension system, took advantage of this new law and created an investment fund for those assets. The process for a large county to do so (requiring the funds be placed in a Trust) was relatively simple — but the overhead costs of doing so proved to be an impediment for some MACo members.
We Create the MACo OPEB Investment Trust
Sensing that some county members faced difficulty, MACo reacted by developing a “plug and play” option to target the one element where every local government participant had the same need — a more sensible investment plan for today’s assets needed for tomorrow’s costs. Thus was born (of hard work by many county players) the MACo OPEB Investment Trust, an entity technically separate from MACo, but designed to satisfy all the appropriate overhead and governance requirements under Maryland law.
Since its 2015 inception, the Trust has now gathered a number of participating members across county governments:
County Governments: Allegany, Kent, Queen Anne’s, Talbot Counties
County-supported units: College of Southern Maryland, Harford County Libraries and Community College, Queen Anne’s County Library and Board of Education, St. Mary’s Metropolitan Commission, Southern Maryland Tri-County Council
Municipal members: City of Annapolis, Town of Hurlock, LaVale Sanitary Commission
On The Table For You Today as a Best Practice
Over its time, the Trust has been a great success for its member participants — who effectively own and oversee its efforts including its investment strategy. The Trust has returned millions in investment returns above what could have been attained under the old “public funds” limitations — and has saved each participant on overhead costs by sharing these functions.
Jason Bennet, Allegany County Administrator and OPEB Trustee, puts the pieces together here:
Joining the MACo OPEB Trust has made it easier, and cheaper, for our county to deliver these benefits for our future retirees. We get all the best resources, and at a bargain price.
The Trust serves county and municipal governments, but also county-supported entities like libraries and community colleges. If your county, or other local government entity, has a long-term liability for retiree health care (and most of us do), consider the Trust as an easy “plug and play” option to put current assets to work toward those long-term liability.
And if you already have a local Trust, you may still invest some of all your assets into the MACo OPEB Investment Trust to take advantage of attractive yields and low overhead costs.
Find out more on the Trust website, or request a copy of materials from recent meetings, by contacting Michael Sanderson, MACo Executive Director and ex-officio Trustee.
This article is part of MACo’s Policy Deep Dive series, where expert policy analysts explore and explain the top county policy issues of the day. A new article is added each week – read all of MACo’s Policy Deep Dives.
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