The California Employers’ Retiree Benefit Trust Continues to Grow
The California Employers’ Retiree Benefit Trust Continues to Grow
The California Employers’ Retiree Benefit Trust (CERBT) is a CalPERS trust fund program dedicated to prefunding retiree health benefits. All California public agencies and public school districts must measure and report their “other post-employment benefit” (OPEB) liabilities by law. These benefits are non-pension benefits paid to retirees – usually related to health insurance. The CERBT Program allows eligible public agencies and schools to participate in a Section 115 trust to prefund retiree health care in the same way that the agencies prefund retiree pension benefits.
Robust Future
The CERBT Program is growing quickly and by January 2008 had 25 participating agencies, including cities, counties, county education offices, and special districts. So far, these agencies have contributed (or will soon contribute) more than $141 million to the fund. Ten other agencies have already obtained the approval of their governing boards and are expected to join the program soon.
Since the trust was opened in March 2007, a couple of notable developments have occurred:
* AB 554 went into effect on January 1, 2008, allowing all public agencies eligible to participate in a Section 115 trust to join the CERBT, even if they have no previous affiliation with CalPERS.
* The Governor’s Public Employee Post-Employment Benefits Commission released its report in early January and provided a number of recommendations. Among the recommendations, the Commission urged public agencies to adopt prefunding OPEB as policy and to identify their OPEB liability.
These developments have caused renewed interest in the CalPERS CERBT Program. We’ve noted a significant increase in contacts with agencies in recent weeks. In addition to the agencies that have already joined the program, more than 100 other agencies are now working toward participating in the CERBT Program.
The benefits of participating in the CalPERS CERBT fund are as follows:
Simplicity – The process to join the CERBT is administratively simple— there’s no need to create and manage a trust.
History – The CalPERS investment office has an excellent track record of investment performance and oversight.
Experience – People trust CalPERS, as it has more than 75 years of experience managing public employee benefit trust funds.
Pricing Structure – Investment and administrative costs are charged to the trust participants. Costs are expected to total between 40 and 60 basis points.
Professionalism – CalPERS staffs an employer contact center, so it’s easy to reach the CERBT Program staff for answers to technical questions. Staff members are pro-active at helping agencies work through the application process.
The governing body of one agency recommended joining the CERBT for the following reasons:
* 60% less expensive than the [competition’s] option ($220K vs. $550K) in the first three years.
* Pre-packaged Board resolutions and related documentation eliminate negotiation of agreements.
* No additional administrative activity or cost as a result of the Board of Authority; CalPERS is the governing Board of the CERBT.
* 7.75% rate of return on trust assets. (This rate refers to the expected long-term investment return of the CERBT—there is no guaranteed rate of investment return.)
Dated: 04-30-2008
GASB 2008-05-09
