MACo Developing OPEB Trust For Long-Term Investments

MACo’s Board of Directors launched an initiative in 2013 to build out an Investment Trust vehicle, to offer service to county governments who have resources committed to their long term liabilities for retiree health care and various “Other Post Employment Benefits” (or OPEB). Currently every Maryland county carries some liability in this regard, and rule changes by the Government Accounting Standards Board have obligated these long term liabilities to appear in a fashion similar to pension obligations.

What Are the Goals of the Trust?

Maryland law has a specific provision to help governments invest toward these costs. In general, “public funds” (including the operating account of county governments, and short term investments as well) are to be invested along very limiting guidelines adopted through state law. However, that law specifically recognizes that long term investments toward long term obligations, when placed in a formal trust, may be invested with a broader and more balanced approach to generate long term yields. This applies not only to pension systems, but also specifically to OPEB trusts.

Counties are in many different phases of addressing these costs and investments. Some counties have created a formal OPEB trust locally, with varying amounts of committed funds already invested. Others do not have any such vehicle in place, and are unable to make the investments beyond the limiting scope of the “public funds” state law. Others still have a vehicle in place for their county, but have units of government they support who do not have access to a similar vehicle.

MACo hopes that the OPEB Trust in development will provide a safe, simple, and effective vehicle for county governments to invest these long term assets toward their long term costs, while reducing administrative and legal costs. MACo has retained the services of financial management advisors and legal counsel to develop a draft Trust agreement, and is in the process of soliciting initial Trustees for the fledgling enterprise.

Who Would Benefit From the OPEB Trust?

  • County governments without their own trust would benefit by bypassing the cost and complexity of creating a local trust, and simply creating an account with the MACo OPEB Trust
  • County governments with their own trust in place would benefit by joining a larger scale trust, as investment advisory fees are generally “tiered” down based on the portfolio size
  • Counties with supported units (community colleges, libraries, or other similar entities) who don’t yet have an investment structure could also participate and reap similar benefits
  • Municipal governments have expressed interest in the investment vehicle, and under the draft trust agreement, would be able to reap the same benefits

MACo hopes to have an initial slate of Trustees in place and an RFP for investment advisors released in the coming months.

If you or your county have questions about the developing OPEB investment trust, please contact Michael Sanderson at the MACo offices for more details. MACo and the advisors helping to develop the Trust would be pleased to follow up either via email, phone, or in person to explain the benefits and the timing.

 

Michael Sanderson

Executive Director Maryland Association of Counties
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