When It Comes to Funding Pension and/or OPEB Liabilities, Not All Section 115 Trusts are Created Equal

By Jeff Chang

Substantial confusion exists about whether the assets of an Internal Revenue Code section 115 trust created to fund pension or OPEB (retiree health) obligations may be used to offset the overall pension or OPEB liabilities that public employers are required to report under Government Accounting Standards Board Statements (Statement 68 for pension liabilities; Statement 75 for OPEB liabilities).

Statement 75 was issued in June 2015 as a replacement of GASB Statement 45 (issued in June 2004). GASB 45 became effective in phases between 2006 and 2008. GASB 45, and the guidance surrounding it, led many public agencies to believe that monies set aside in a 115 trust could be counted as an offset against OPEB liabilities on their financial statements. As a result, a number of these agencies established either a 115 trust or a section 501(c)(9) trust (a VEBA) for this purpose. Continue reading

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Sometimes, It’s Good to be a Little “Country” – The Benefits of Rural Cooperative Status

By Jeff Chang

Many state and local governments are aware that the Internal Revenue Code was changed in 1986 to prohibit most of them from maintaining a 401(k) plan. Instead, these entities can and — for the most part, do — maintain eligible deferred compensation plans, also referred to as 457(b) plans. Because the special rules for governmental 457(b) plans make them very similar to 401(k) plans, public agencies don’t seem to mind being excluded from the world of 401(k)s. But, what if your agency could have both a 457(b) plan and a 401(k) plan? Continue reading

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Required Minimum Distributions (RMDs) – The Out of Sight, Out of Mind Problem

By: Jeff Chang

We all sometimes lose track of things hidden away in the back of the closet or fail to stay in touch with friends we haven’t heard from or seen in a while. These common tendencies can cause inconvenience in our everyday lives — but may lead to catastrophic failures when it’s our pension requirements that are out of sight, out of mind. Susceptible to this phenomenon are many tax-qualified pension plans, particularly in the public sector, that must comply with the required minimum distribution, or RMD, rules. These are the tax rules that, among other things, generally require participants to commence or receive their benefits by no later than the April 1st following their attainment of age 70½, if they are no longer working. Continue reading

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Watch Out For What Your Plans Say – Or Don’t Say – About Transfers

By: Jeff Chang

Most of the special districts and municipalities we represent have numerous collective bargaining units, and many have multiple service locations and facilities. While advising these entities on their retirement and welfare benefits, we’ve come to realize that their retirement plans often do not address a lot of day-to-day operational issues, including the treatment of intra-agency ‘transfers’. Continue reading

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Retiree Health Reimbursement Arrangements are Receiving More Attention

By: Jeff Chang

Previously, we wrote about the uses of health reimbursement arrangements and the IRS rules that apply to them. As we explained, an HRA is basically an employer-funded account that may be used for paying specified medical and health costs (including health insurance premiums). Due to the enactment of the Affordable Care Act and its treatment of HRAs under the group health plan rules, HRAs covering active employees are now much harder to establish and maintain. These ACA rules, however, do not apply to retiree-only HRAs. Retiree-only HRAs can provide significant tax-free health benefits and, if structured properly, can help public employers address budgetary and compliance problems under Fair Labor Standards Act and Public Employees’ Medical & Hospital Care Act. As a result, many agencies are revisiting the utility of these arrangements as part of their collective bargaining and budgeting processes. Continue reading

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