Authorizes certain local governments to establish other post employment benefits (OPEB) trusts

Such trusts would be irrevocable before all liabilities for other post employment benefits have been satisfied and would be dedicated solely to, and used solely for, providing such benefits and paying appropriate and reasonable administrative expenses. No trust assets would be subject to any claim of creditors of the local government. The bill prescribes the type of investments that could be made by the local government trustee with trust assets, and would authorize, as an option, investment of all or part of trust assets in any fund of the State established to receive monies from any other post employment benefit trust created pursuant to the new General Municipal Law section 6-t. The trustee would be required to develop a written investment policy, meeting minimum standards set forth in bill section one.

The trustee would be required to prepare or cause to be prepared an annual financial report of assets, liabilities, revenues and expenses of the trust, and cause the activities of the trust to be audited, either separately or as part of the overall audit of the reporting entity. Finally, local government trustees would be authorized to agree to cooperatively invest trust assets with other local government trustees. The bill would set forth the requirements for such cooperative investment agreements, which would be analogous to the current requirements for municipal cooperative investments set forth in Article 3-A of the General Municipal Law. The State Comptroller, in his or her discretion, would be given express authority to promulgate regulations for the proper operation and management of trusts established pursuant to new General Municipal Law § 64.

Finally, the bill would expressly make clear that it is intended only to provide a mechanism to accumulate assets should a local government choose to fund its liability for other post employment benefits. It would state that nothing in new section 6-t shall be construed or interpreted to (1) create any obligation in, impose any obligation on, or alter any obligation of any local government to provide other post employment benefits, (2) limit or restrict the authority of a local government to modify or eliminate other post employment benefits, (3) assure or deny other post employment benefits, or (4) require any local government to fund its liability for other post employment benefits.

Section two of this bill amends Subdivision 9 of Section 6-p of the General Municipal Law to allow school districts to transfer excess reserve balances back to the general fund, or to an "other post-employment benefits" (OPEB) trust once it is established.

Section three of the bill would ensure the validity of the establishment and implementation of the New York City Retiree Health Benefit Trust, established June 12, 2006 by the City of New York as Grantor, and make clear that neither the operation nor any amendment of such trust would be subject to General Municipal Law § 6-t. It would further expressly ratify the establishment of such New York City's trust and its operation in accordance with its terms.

Section four of the bill would make the bill effective immediately.

Justification

In June 2004, the Governmental Accounting Standards Board, a national body that sets the standards for governmental accounting and reporting, issued a statement known as GASB 45, establishing accounting and reporting standards for "other post-employment benefits" (OPEB) offered by local governments. OPEB are employee benefits except pensions or other benefits funded through a public retirement system that are received after service has ended. Generally, GASB 45 applies to all public entities (including state governments; county, city, town and village governments; and school districts) that follow GAAP (Generally Accepted Accounting Principles) in filing their annual financial statements and offer other post-employment benefits. In New York State, it is estimated that about one-quarter of local governments and most school districts will be required to comply. GASB 45 will require covered state and local governments nationwide to report liabilities for OPEB similarly to the way they report pension liabilities. While GASB 45 does not require governments to fund these benefits, they must begin to report them in their financial statements.

More than one million New Yorkers rely on post employment benefits for their health care. The prudent approach is to start preparing for the future in order to protect these health care benefits for New Yorkers. Governments should develop plans to address these costs, and a government which puts aside funds in a trust established for this purpose can substantially cut its long-term OPEB costs.

This legislative proposal would provide express statutory authority for the creation of OPEB trusts for New York's local governments to provide a mechanism to accumulate funds for OPEB costs, should the local government decide to fund these liabilities.

Local government trustees would have the option to invest OPEB assets individually or to participate in either a State-administered investment fund or to pool assets with other local government trustees for investment purposes, in a manner similar to that currently provided for local government monies under Article 3-A of the General Municipal Law. The bill makes clear that it establishes no requirement to fund OPEB liabilities. It merely creates the framework for the creation, operation and management of OPEB trust for those governments choosing to do so. Likewise, the bill makes clear that these new provisions would not create, modify, limit or restrict any obligation to provide OPEB.

Although GASB does not require the funding of OPEB liabilities, GASB has indicated that, in order to be considered funded in accordance with GASB, the employer must transfer assets to a "qualifying trust or equivalent arrangement" in which OPEB assets are held in trust for the exclusive benefit of plan members and their beneficiaries in accordance with the terms of the OPEB plan. These OPEB plan assets must be legally protected from creditors of the employer. The construct of the trusts authorized by this bill is intended to be consistent with the "staff guidance" provided by GASB in this regard.

The local governing board (or by delegation its chief fiscal officer) would be the trustee of any locally-established OPEB trust.

Contributions into OPEB trusts would be made at the option of local employers and would be irrevocable before all OPEB liabilities have been satisfied; assets of such trusts could be used only for OPEB liabilities and proper expenses of the trust, and would be protected from the creditors of the sponsoring governments. The trust may be terminated only when all OPEB liabilities have been satisfied and there is no present or future obligation, contingent or otherwise, to provide OPEB.

If local governments decide to invest their OPEB assets individually or to pool them with the OPEB assets of other local governments for investment purposes, local governments would be authorized to make investments which would be consistent with current statutorily authorized investments for local governments as well as investments currently authorized as eligible collateral for public bank deposits. New York City has already begun funding its OPEB liabilities and the bill "grandfathers in" the New York City Retiree Health Benefit Trust, established June 12, 2006. The City and the State would be granted broader investment authority consistent with their management of their respective pension funds.

The Comptroller urges passage of this legislation.

Effective date

Immediately.