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Goodyear establishes irrevocable OPEB trust, earmarks $3.4 million annually to prefund retiree health
Summary
The City of Goodyear voted 7-0 to create an irrevocable other post-employment benefits (OPEB) trust, adopt funding and investment policies, appoint the finance director as trust administrator and begin funding in June. Staff said the trust lowers actuarial liabilities and allows a more diversified investment strategy.
The Goodyear City Council on May 19 adopted a resolution to establish an irrevocable other post-employment benefits trust to prefund retiree health care benefits and appointed the finance director as the trust administrator.
Jared Askelson, finance director for the City of Goodyear, told council the city has set aside $3.4 million in the budget for the next five years to prefund retiree health benefits and that the trust will allow a higher assumed investment return on plan assets. "There are currently 22 retirees on this plan," Askelson said during the presentation.
Askelson said using a higher assumed investment return (6.5%) with a trust rather than the lower unaided rate (3.96%) would reduce the city's actuarial liability on the financial statements from about $33 million to under $25 million in illustrative examples presented to council. The staff-recommended investment policy starts with a conservative allocation of about 40% fixed income and 60% equity/alternatives, with the option to revisit the mix later.
Council discussed vendor selection and fees. Askelson said staff used a request for information focusing on OPEB expertise and recommended national firms; the staff identified Hilltop (based in California) and another firm with custodial relationships to larger firms. The finance director said management fees will be included in the contract and that staff will provide fee details in upcoming memos.
The council approved the resolution 7-0. The resolution authorizes the trust, adopts the funding and withdrawal policy and the investment policy, appoints Jared Askelson as the OPEB trust city administrator, and authorizes the administrator to execute documents to form the trust. Staff said they expect to execute necessary documents by the end of the week and begin funding in June so the trust is reflected in the fiscal-year close.
