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.
