Regional School District Introduction to PARS OPEB Trust Program - - PowerPoint PPT Presentation

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Regional School District Introduction to PARS OPEB Trust Program - - PowerPoint PPT Presentation

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Nashoba Regional School District Introduction to PARS OPEB Trust Program October 16, 2017 THE PARS OPEB TRUST PROGRAM One of the fastest growing OPEB trust programs in New England and the nation Over $1.5 billion in assets and over 260

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Nashoba Regional School District

Introduction to PARS OPEB Trust Program October 16, 2017

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Nashoba Regional School District ▎ 2

  • One of the fastest growing OPEB trust programs in New England and the

nation

  • Over $1.5 billion in assets and over 260 clients
  • IRC Section 115 multiple employer, irrevocable trust program
  • GASB 45/75 and M.G.L. 32B:20 compliant irrevocable trust structure
  • Developed in response to GASB 45 in 2006 – Trust received IRS Private Letter

Ruling in 2007

  • Only full-service approach in Massachusetts that includes trust

administration, trustee and investment management services

THE PARS OPEB TRUST PROGRAM

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Nashoba Regional School District ▎ 3

  • 30 years experience specializing exclusively in governmental retirement plan

consulting and administration

  • Focus and experience with all types of local governments: school districts,

towns, cities, counties, colleges, and special districts

  • Developed first multiple employer Section 115 OPEB trust program for

use in multiple states

  • Administers 6 post-retirement health care trust programs
  • Administered over 1,400 retirement plans across 9 different states
  • Provided services to more than 850 client agencies and over

375,000 plan participants

About PARS

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Nashoba Regional School District ▎ 4

1

Investing assets can result in a greater rate of return which then leads to lower liabilities

WHY SHOULD YOU PREFUND WITH PARS?

2

Contributions into the trust are “assets” that address liabilities on financial statements

3

Credit rating companies look more favorably on agencies who adopt an irrevocable trust and prefund

4

GASB 75 now requires liabilities to be calculated into financial statements (much like GASB 68 with pensions)

5

Prefunding now means future taxpayers and employees will not bear a disproportionate burden of the costs

6

Assets can be used as a budget stabilization tool so that in future years, rising OPEB costs will not impact key public services

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Nashoba Regional School District ▎ 5

Rule of thumb: For every one percent increase in the discount rate, the unfunded liability is lowered by 10-12%.

OPEB Actuarial Results

Valuation Date: December 31, 2015 Pay-as-you-Go Discount Rate: 4.50% Percent Change Prefunding Discount Rate: 7.00% Actuarial Accrued Liability (AAL) $38,627,189 37.53%▼ $24,132,110 Actuarial Value of Assets $0

  • $0

Unfunded Actuarial Accrued Liability (UAAL) $38,627,189 37.53%▼ $24,132,110 Annual Required Contribution (ARC) for FY 2015-16 $3,193,431 32.14%▼ $2,167,178 Annual Benefit Payments (Pay-as-you-Go) for FY 2015-16 $947,785

  • $947,785
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Nashoba Regional School District ▎ 6

Pars Trust Team

Local Office

Boston, MA Boston, MA Valley Forge, PA

Trust Administrator Trustee/Custodian Investment manager

  • Recordkeeping/sub-trust accounting
  • Actuarial coordination
  • Monitor contributions/process

disbursements

  • Monitor plan compliance
  • Ongoing client liaison
  • Safeguard plan assets
  • Oversight protection
  • Plan fiduciary
  • Custodian of assets
  • Independent low-cost

Investment advisor

  • Portfolio analysis and management
  • Investment strategy and asset

allocation development

Experience

Administrator of one of the largest private OPEB trust programs in the nation One of the largest trustees

  • f OPEB assets and

5th largest bank in the nation One of the world’s largest investment management firms, with $3 trillion+ in client assets

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Nashoba Regional School District ▎ 7

PARS New England Clients

U p d a t e d : O c t o b e r 2 0 1 7

  • City of Attleboro
  • City of East Providence
  • City of Central Falls
  • City of Pawtucket
  • Massachusetts Bay

Transportation Authority

  • Town of Barrington
  • Town of Berkeley
  • Town of Carver
  • Town of Charlestown
  • Town of East Greenwich
  • Town of Eastham
  • Town of Glocester
  • Town of Hanson
  • Town of Johnston
  • Town of Jamestown
  • Town of Lakeville
  • Town of Lincoln
  • Town of Middleborough
  • Town of North Kingstown
  • Town of North Smithfield
  • Town of Plainville
  • Town of Plympton
  • Town of Scituate
  • Town of Seymour
  • Town of Smithfield
  • Town of South Kingstown
  • Town of Swansea
  • Town of Tiverton
  • Town of Wareham
  • Town of Warren
  • Town of West Warwick
  • Town of Weymouth
  • Town of Whitman
  • Plymouth County
  • So Worcester RTVSD
  • Berlin Bolyston RSD
  • Cape Cod Regional THSD
  • Central Berkshire RSD
  • Cranston Schools
  • Dighton Rehoboth RSD
  • Dennis-Yarmouth RSD
  • East Providence Schools
  • Greater New Bedford RVTHSD
  • LABBB Collaborative
  • Narragansett School System
  • New Shoreham SD
  • Monomoy RSD
  • Quincy College
  • Southeastern RVTSD
  • SEEM Collaborative RSD
  • Tantasqua RSD
  • Tiverton School District
  • Valley Collaborative
  • Upper Cape Cod RTVSD
  • Whitman Hanson RSD
  • Cotuit Fire District
  • Kent County Water District
  • Wareham Fire District
  • West Barnstable Fire District
  • Woonsocket Education

Department

PARS provides OPEB trust services to 260+ clients across the U.S. In New England, our clients include:

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Nashoba Regional School District ▎ 8

Comprehensive Program

The PARS OPEB Trust offers a variety of services: Trustee Services Distribution Processing Investment Management Ongoing Compliance Monitoring Investment Fiduciary Document Preparation Actuarial Coordination Consulting Funding & Contribution Processing Custodian Services

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Nashoba Regional School District ▎ 9

COMPLIANT TRUST STRUCTURE

GASB 45

  • In accordance with GASB 45, the trust is:

IRS REGULATIONS

  • PARS has obtained a favorable Private Letter Ruling on the trust from the IRS. This

means participating members can be assured the income earned on the trust is exempt from federal income taxes.

STATE LAW

  • The trust satisfies the requirements of M.G.L. Section 32B 20 and has been vetted by

Massachusetts attorney’s Murphy, Hesse, Toomey & Lehane.

DOCUMENTS

  • Signature-ready program documents were completed over a 2 year period and allow the

program to be easily implemented. They have been reviewed by numerous attorneys nationwide.

  • Irrevocable
  • For retiree healthcare benefits only
  • Not accessible by creditors
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Nashoba Regional School District ▎ 10

Key Features of the PARS OPEB Trust Program include:

  • “Turn-key” comprehensive approach
  • Efficient model with economies of scale
  • Flexible investment options with fiduciary protections
  • Personalized service provided to individual member
  • Fast, simple implementation process with signature ready documents
  • No start-up fees, minimum fees or contribution requirements
  • No IRS application process and legal fees
  • Local control
  • Ongoing compliance costs reduced
  • Fees that decrease as assets grow
  • Low investment management expenses

Program Advantages

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Nashoba Regional School District ▎ 11

Program Advantages

PARS Others

Combined trust administration, trustee and investment management services Investment management services only IRS-approved trust that provides immediate tax- exempt status to the Agency No IRS approvals No start up costs, minimum fees

  • r required contributions

Start up-costs, minimum fees and required contributions Economies of scale due to large sized trust No economies of scale Variety of low-cost diversified investment approaches One investment management option Local control for your Agency to determine its own assumptions, methods, and valuation timing Restrictions and state mandates Streamlined implementation that can be completed at any time Implementation permitted only at certain times of the year Fully flexible contribution and disbursement options Contribution and disbursement restrictions Ongoing compliance monitoring provided by PARS No compliance assistance provided

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Investments

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Nashoba Regional School District ▎ 13

  • The District can invest its assets in one of four investment pools which have

been designed specifically by Vanguard for the PARS OPEB Trust Program. These portfolios include:

Investment Option A

Vanguard Directed Approach

Cash 1% Equity 77% Bonds 22% Cash 1% Equity 61% Bonds 38% Cash 2% Equity 43% Bonds 55% Cash

7%

Bonds

92%

  • Portfolios are comprised of institutional class, index-based, mutual funds

selected for their low-weighted expense ratios

  • Assets are pooled for economies of scale but there is no cross sharing of

earnings or liabilities FIXED INCOME CONSERVATIVE BALANCED GROWTH

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Nashoba Regional School District ▎ 14

Option A: Program Fees

Ongoing Fees: 0.05% for assets $0-25 million 0.04% for assets $25-50 million 0.03% for assets over $50 million Plan Set-Up Fee: Ongoing Fees: None 0.25% for assets $0-10 million 0.20% for assets $10-15 million 0.15% for assets $15-50 million 0.10% for assets over $50 million

Directed Trustee Fees**

  • Investment Portfolios use Vanguard’s institutional class, index-based mutual funds and have very low weighted expense ratios

– 0.09% for the Conservative and Balanced portfolios, and 0.08% for the Growth portfolio

  • Trustee and Investment Management Fees are based on combined assets of all participants within selected investment portfolio

and therefore expected to decrease over time with asset growth in such portfolios

Trust Administration/Consulting Fees*

Ongoing Fees: 0.07% for assets $0-50 million 0.04% for assets $50-150 million 0.03% for assets $150-250 million 0.01% for assets $250-500 million 0.005% for assets over $500 million

Investment management Fees**

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Nashoba Regional School District ▎ 15

  • The following shows the monthly program fees based on an initial $500,000
  • contribution. Please note that this calculation is based on a flat dollar amount

and does not take into account investment returns.

PROGRAM COST - HYPOTHETICAL

PARS/TRUST ADMINISTRATION FEES

($500,000 x 0.25%) ÷ 12 months = $104.17

U.S. BANK TRUSTEE FEES

($500,000 x 0.05%) ÷ 12 months = $20.84

VANGUARD INVESTMENT MANAGEMENT FEES

($500,000 x 0.07%) ÷ 12 months = $29.17

TOTAL = $157.18

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Nashoba Regional School District ▎ 16

Investment Option B

US Bank Discretionary Approach

  • Offer four asset allocation portfolios that were developed specifically for the

PARS OPEB Trust Program which can be either actively or passively managed

  • Dedicated Senior Portfolio Manager assigned prior to plan inception
  • Ongoing fiduciary protections
  • Investment Policy Statement (IPS) development
  • Assistance with investment portfolio selection based on risk tolerance and

desired discount rate

  • Ongoing account monitoring and investment policy assistance
  • Ongoing asset rebalancing
  • Periodic investment reviews
  • Open architecture investment program
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Nashoba Regional School District ▎ 17

Balanced Growth Short-Term Fixed Income Conservative Income Income

Using asset allocation, we will build diversified portfolios that include a variety of investment types and styles. The asset allocation that is best for your Agency will depend on your tolerance for risk, time horizon and investment objectives. These asset allocation strategies will be updated periodically based upon market and economic analyses.

Investment Option B: U.S. Bank

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Nashoba Regional School District ▎ 18

Plan Set-Up Fee: Ongoing Fees:

None 0.25% for assets $0-10 million 0.20% for assets $10-15 million 0.15% for assets $15-50 million 0.10% for assets over $50 million

Plan Set-Up Fee: Ongoing Fees:

None 0.35% for assets under $5 million 0.25% for assets $5-10 million 0.20% for assets $10-15 million 0.15% for assets $15-50 million 0.10% for assets over $50 million

Trust Administration/Consulting Fees Discretionary Trustee/Investment Management Fees

* PARS does not receive any compensation from the investments or any commissions, back-end loads, or any other forms of compensation.

Option B: Program Fees

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Nashoba Regional School District ▎ 19

  • The following shows the monthly program fees based on an initial $500,000
  • contribution. Please note that this calculation is based on a flat dollar amount

and does not take into account investment returns.

PROGRAM COST - HYPOTHETICAL

PARS/TRUST ADMINISTRATION FEES

($500,000 x 0.25%) ÷ 12 months = $104.17

U.S. BANK TRUSTEE/INVESTMENT MANAGEMENT FEES

($500,000 x 0.35%) ÷ 12 months = $145.83

TOTAL = $250.00

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Nashoba Regional School District ▎ 20

Steps to Implementation

1

Trust documents are provided to your District for review

2

Your governing board formally approves joining the Trust

3

Signature-ready documents are sent by PARS to the District

4

Plan Administrator appointed by your governing board signs the required documents

5

The District’s account is set up within a week. Once ready, the District can begin funding into the Trust

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Nashoba Regional School District ▎ 21

Once plan documents have been signed, the District’s main responsibilities are to:

District's ROLE

1

Contribute funds into the trust

2

Submit disbursement requests

3

Monitor reports on account and investment activity

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Nashoba Regional School District ▎ 22

Contacts

Kathryn Cannie

Senior Consultant kcannie@pars.org 617.549.6555

Maureen Toal

Senior Vice President mtoal@pars.org 844.540.6732