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Lindsay council creates IRS Section 115 trust to prefund retiree health and stabilize pension costs
Summary
Council approved establishing an IRS Section 115 trust administered by PARS to prefund OPEB and pension liabilities; staff said establishing the trust has no setup cost, fees apply only after funding, and withdrawals for eligible obligations carry no penalties.
The Lindsay City Council unanimously approved forming an IRS Section 115 trust on June 24 to begin prefunding post-employment benefits and to smooth future pension contributions.
Matt Spooner, a representative of Public Agency Retirement Services (PARS), presented the 115 trust and called it “a savings account on steroids,” explaining the vehicle can hold assets for OPEB (post-employment health care) and for pension pre-funding. Spooner said the trust can be established at no cost and that fees apply only after the trust is funded. He summarized the fee scale described in the presentation and noted a sliding fee range based on assets under management.
Spooner presented figures from the city’s actuarial materials: the city’s OPEB liability was shown as just under $1,400,000 with no fiduciary net position, and CalPERS figures indicated the city’s pension fund ratio is just under 70 percent. Spooner and staff described the program as a tool to smooth pension contributions and reduce future budget volatility.
Council members asked how the trust would be funded. Kyler Tucker, city staff, explained funding would occur through the normal budget process and that the city was “not planning on funding it at this point in time,” noting there is no obligation to make immediate contributions. Tucker and Spooner also clarified that withdrawals from the trust to pay allowable OPEB or pension expenses do not carry a penalty; disbursements may be used to reimburse the agency or to pay the retirement or health care provider directly.
Council moved, seconded and approved the resolution to create the 115 trust on a 5-0 vote. Staff said the trust will sit available for future budget cycles and that modest, one-time or ongoing contributions could be made when council directs.
