Many Pennsylvania municipalities in recent years have struggled to rein in their Other Post Employment Benefits (OPEB) liabilities. OPEB benefits are retirement benefits a public employer has promised to provide its retired employees, other than pension payments. Benefits might include life insurance premiums, post-retirement healthcare, dental and vision benefits and other types of benefits.

OPEB benefits are typically funded using one of two methods: (i) the pay-as-you-go method, which is generally paid each year from the municipality’s general fund; or (2) or an OPEB trust. A trust is typically established through an initial and then subsequent transfers of funds.   The trust funds are invested and the principal and interest are used to pay for the promised OPEB benefits.

In addition, in 2004, the Governmental Accounting Standards Board (GASB) issued Statement No. 45 (later replaced by Statement No. 75 for fiscal years after June 15, 2017).  This required, for the first time, public employers to measure and recognize their OPEB obligations as liabilities.  For many pay as you go employers, this was new ground, and the calculations were pretty scary.  Still, many employers have not taken the initiative to focus on long-term funding for OPEB benefits.  They certainly should.

Any municipality with an OPEB liability should strongly consider establishing an OPEB Trust to help pay for legacy healthcare and other retirement benefits (separate from pension benefits).  Of course, the upfront costs can be significant, but the benefits can also impact future generations.  An OPEB trust can help a municipality protect assets to ensure that it has money set aside to pay the obligations it has to its employees many years into the future.  A trust can also generate investment returns that can help reduce the unfunded OPEB liability.

For a municipality considering selling public assets, such an asset sale offers a unique opportunity to establish a OPEB Trust Fund and secure funds for future payment obligations. The attorneys at McNees are available to assist municipalities in the establishment and administration of an OPEB Trust.