Prepare for Tomorrow’s Uncertainties with Proactive Prefunding Approach
By Eric O’Leary, Executive Vice President, PARS, a CSBA partner program
School districts will be facing fiscal challenges in the coming years. Pending reserve caps, rising CalSTRS/CalPERS contribution rates, the approaching “fiscal cliff,” salary inflation, and/or declining enrollment are all factors that will put strain on district budgets.

In an effort to prepare, districts have successfully begun prefunding their Other Post-Employment Benefits (“OPEB” or retiree health benefits) and/or their pension costs through an irrevocable trust. These trusts allow a district to set aside funds for these critical obligations while potentially providing relief to the General Fund during difficult times.

In the Fiscal Year 2022–2023 Budget, the State of California is providing a discretionary funding source known as the “Arts, Music, and Instructional Materials Block Grant.” Although the name doesn’t indicate it, this grant can be used for “operational purposes” including “retirement and healthcare cost increases.” Many districts are considering using these one-time funds to begin or continue to fund their OPEB and/or pension trusts. Funds must be committed by the 2025-2026 school year, and an OPEB/pension trust is a valuable tool to consider.

With one-time funds potentially available for proactively addressing growing liabilities, why is an OPEB/pension trust a good option for districts? Here are five important reasons:

Stabilize Costs — Access funds at any time to reimburse for OPEB/pension costs to help offset rising costs and reduce possible strain on the General Fund.

Diversified Investing — Since assets are held in an exclusive benefit trust, they can be invested more broadly in a diversified array of investments that may achieve a greater return than your General Fund or treasury pool.

Local Control — Your district maintains autonomy over assets, timing of contributions and disbursements, and investment risk tolerance.

Rainy Day Fund — The trust fund can serve as an emergency source of funds when district revenues are stretched in difficult budget or economic times since you can access the funds at any time to cover OPEB/pension costs.

Partnership with CSBA — PARS and CSBA are proud partners on the OPEB Solution Program, which has been thoughtfully designed to provide districts with a flexible solution that will fit the unique needs of each district.

glasses and books at the classroom table while teacher writing on a blackboard
PARS is a pioneer in the concept of OPEB/pension prefunding and is the largest private provider of this service in the nation. With nearly 500 prefunding clients and over $4.8 billion in assets in our OPEB/pension prefunding trusts, you will be able to count on the superior consulting and administrative services from our California-based team, which our clients have experienced since our founding, nearly 40 years ago, and will not place an undue administrative burden on your district or staff.

During times of economic uncertainty and challenges, districts have also turned to PARS as the go-to expert on early retirement incentives. The PARS Supplementary Retirement Plan (SRP), can be used by districts to cut costs, reduce the need for lay-offs, and achieve other workforce management goals. PARS has helped over 370 school districts achieve their fiscal objectives through the creative design and implementation of a SRP. The first step in consideration of a PARS SRP is a complimentary fiscal analysis. Our commitment to our clients is to be forthright and fair in our analysis. If the numbers don’t work, we’ll work with you to explore options, but if no viable solutions are found, we’ll advise against it.

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OPEB Solutions Program
It’s never too early to plan ahead for economic challenges! Contact us today and we will review these creative options with you. PARS can be reached at (800) 540-6369, ext. 127