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NEW YORK STATE ASSEMBLY
MEMORANDUM IN SUPPORT OF LEGISLATION
submitted in accordance with Assembly Rule III, Sec 1(f)
BILL NUMBER: A5525 SPONSOR: Abbate
TITLE OF BILL: An act to amend the state finance law, the civil service law and the general municipal law, in relation to authorizing the state and certain local governments to establish other post employ- ment benefits (OPEB) trusts and establishing the other post employment benefits (OPEB) investment fund   PURPOSE: This legislative proposal would provide express statutory authority for the creation of OPEB trusts for New York State and its local governments to provide a mechanism to accumulate funds for OPEB costs, should the State or local government decide to fund these liabilities.   SUMMARY OF PROVISIONS: Section one of the bill amends the State Finance Law by adding a new section 97-1111 to establish an OPEB investment fund in the sole custody of the State Comptroller for the investment of OPEB assets of the State and participating eligible local governments. Section two of the bill amends the Civil Service Law by adding a new section 169 to authorize the establishment of a State OPEB trust in the custody of the president of the Civil Service Commission. "Other post employment benefits" would be defined to mean benefits, except pensions or other benefits funded through a public retirement system. provided or to be provided by the State to its officers, employees, or their families or beneficiaries, after service to the government ends, includ- ing health care benefits. The President of the Civil Service Commission would be declared to be the trustee. Section three of the bill amends the General Municipal Law by adding a new section 6-t authorizing governing boards of local governments, by resolution. to establish trusts for the purpose of accumulating assets to fund "other post-employment benefit. The governing board would be declared to be the trustee, but would be authorized by resolution, to designate the chief fiscal officer of the local government, with his or her consent as trustee. The trusts would be irrevocable before all liabilities for other post employment benefits have been satisfied and would be dedicated solely to, and used solely for, providing such benefits and paying appropriate and reasonable administrative expenses. To the extent allowed by law, trust assets would not be subject to any claim of creditors of the local government Bill section three authorizes investment of trust assets in the "Other Post-Employment Benefits Investment Fund" in the custody of the State Comptroller, which would be established in section one of the bill. The trustee would be required to prepare or cause to be prepared an annual financial report of assets, liabilities, revenues and expenses of the trust, and cause the activities of the trust to be audited, either separately or as part of the overall audit of the reporting entity. The State Comptroller, in his or her discretion, would be given express authority to promulgate regulations for the proper operation and manage- ment of trusts established pursuant to new General Municipal Law § 6-t. Finally, the bill would expressly make clear that it is intended only to provide a mechanism to accumulate assets should a local government choose to fund its liability for other post employment benefits. It would state that nothing in new section 6-t shall be construed or inter- preted to (1) create any obligation in, impose any obligation on, or alter any obligation of any local government to provide other post employment benefits, (2) limit or restrict the authority of a local government to modify or eliminate other post employment benefits, (3) assure or deny other post employment benefits, or (4) require any local government to fund its liability for other post employment benefits. Section four of this bill amends Subdivision 9 of Section 6-p of the General Municipal Law to allow school districts to transfer excess reserve balances to an "other post-employment benefits" (OPEB) trust once it is established. Section five of the bill would ensure the validity of the establishment and implementation of the New York City Retiree Health Benefit Trust, established June 12, 2006 by the City of New York as Grantor, and make clear that neither the operation nor any amendment of such trust would be subject to General Municipal Law § 6-t. It would further expressly ratify the establishment of such New York City's trust and its operation in accordance with its terms. Section six of the bill provides for an immediate effective date.   PRIOR LEGISLATIVE HISTORY: S. 7534 (Passed Senate) and A. 11038 of 2009-2010 S.4279 and A.3636 of 2013-2014   JUSTIFICATION: In June 2004, the Governmental Accounting Standards Board, a national body that sets the standards for governmental accounting and reporting, issued a statement known as GASB 45, which established accounting and reporting standards for "other post-employment benefits" (OPEB) offered by state and local governments. OPEB are employee benefits except pensions or other benefits funded through a public retirement system that are received after service has ended. Generally, GASB 45 applies to all public entities (including state governments; county, city, town and village governments; and school districts) that follow GAAP (Generally Accepted Accounting Principles) in filing their annual financial state- ments and offer other post-employment benefits. In New York State, about one-quarter of local governments and most school districts are required to comply. GASB 45 requires covered state and local governments nation- wide to report liabilities for OPEB similarly to the way they report pension liabilities. While GASB 45 does not require governments to fund these benefits, they must begin to report them in their financial state- ments. GASB is in the process of finalizing additional accounting and financial reporting requirements for OPEB as well as criteria for OPEB trusts that are scheduled to take effect at the end of 2015. This proposal will help public employers comply with GASB' s new rules. More than one million New Yorkers rely on post employment benefits for their health care. Over time, the "pay-as-you-go" method currently followed by most public entities will become increasingly expensive. The State Comptroller, as the chief fiscal officer for the State. has determined that the fiscally responsible and prudent approach is to start preparing for the future in order to protect these health care benefits for New Yorkers. Governments should develop plans to address these costs, and a government which puts aside funds in a trust estab- lished for this purpose can substantially cut its long-term OPEB liabil- ities. Pursuant to the provisions of the proposal, local government trustees are authorized to invest OPEB assets in the State-administered invest- ment fund. The bill makes clear that it establishes no requirement to fund OPEB liabilities. It merely creates the framework for the creation, operation and management of OPEB trusts for those governments choosing to do so. Likewise, the bill makes clear that these new provisions would not create, modify, limit or restrict any obligation to provide OPEB. Although GASB does not require the funding of OPEB liabilities, GASB has indicated that, in order to be considered funded in accordance with GASB, the employer must transfer assets to a "qualifying trust or equiv- alent arrangement" in which OPEB assets are held in trust for the exclu- sive benefit of plan members and their beneficiaries in accordance with the terms of the OPEB plan. To the extent allowed by law, OPEB plan assets must be legally protected from creditors of the employer. The construct of the trusts authorized by this bill is intended to be consistent with the "staff guidance" provided by GASB in this regard. The local governing board (or by delegation its chief fiscal officer) would be the trustee of any locally-established OPEB trust. The Commis- sioner of Civil Service would be the sole trustee of the State's OPEB trust. who would be authorized to manage the trust and invest assets in the OPEB investment fund. The State Comptroller would be the sole custo- dian of the OPEB investment fund and would manage the assets of the fund; OSC would be authorized to contract for administrative services of the fund. Contributions into OPEB trusts would be made at the option of the State and local employers and would be irrevocable before all OPEB liabilities have been satisfied; assets of such trusts could be used only for OPEB liabilities and proper expenses of the trust. and, to the extent allowed by law, would be protected from the creditors of the sponsoring govern- ments. The trusts may be terminated only when all OPEB liabilities have been satisfied and there is no present or future obligation, contingent or otherwise, to provide OPEB. The State-administered OPEB investment fund would be separate and distinct from the Common Retirement Fund. Assets of the fund would be invested pursuant to prudent person investment guidelines, and investors would be provided with several investment options. Separate accounts would be established for the State and any participating local govern- ments, but amounts would be commingled for investment purposes. Actuari- al assumptions and amounts of contributions would be determined by indi- vidual participating local governments, and withdrawals would be scheduled,by participating local governments. Administrative costs of the investment fund We charged against the fund and supported by an administrative fee charged to participants. New York City, has already begun funding its OPEB liabilities and the bill "grandfathers in" the New York City Retiree Health Benefit Trust, established June 12, 2006. The City and the State would be granted broader investment authority consistent with their management of their respective pension funds. The Comptroller urges passage of this legislation.   BUDGET IMPLICATIONS: This bill has no significant fiscal impact.   EFFECTIVE DATE: This bill would take effect immediately.