Pre-funding OPEB liabilities

There’s a great article on funding OPEB liabilities by the MN State Auditor’s office.  It’s written for counties, but it applies as well to cities, school districts and other government employers in Minnesota.

Whether or not to pre-fund OPEB liabilities isn’t a no-brainer.  It’s standard practice for public pensions, and it’s required for private pensions.  For OPEB, it’s less common.

Fortunately, the 2008 MN law on this makes the decision less risky:  you can set up a revocable trust.  The main attraction for a revocable trust is that the money isn’t locked up forever.  And even though it doesn’t count as assets for GASB 45 accounting, it gets out from under the §118A investment restrictions and allows for a broader list of investments.  With less restricted investments, you can assume a higher investment return – which generates lower OPEB liabilities.

OPEB pre-funding is also authorized in California and other states.   We’ve been compiling a state-by-state list of mandated implicit rate subsidies, and we’ll follow that with a list of pre-funding rules.

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