Municipalities that consider prefunding their OPEB liabilities face many challenges. There are numerous complexities to creating a trust to prefund for OPEB, and the IRS and State of Texas both have regulatory requirements related to prefunding. To address these issues, several Texas public entities joined forces with FirstSouthwest to launch a new public entity, PEB Trust of Texas. PEB Trust is a multi-employer trust created to assist local governments and public entities with prefunding OPEB liabilities and complying with GASB, IRS and State of Texas regulations.
The City of Huntsville, Texas, unanimously approved PEB Trust at their July 20 city council meeting, making Huntsville the first member of the new trust.
“When compared to other options, we feel PEB Trust has a better design concept with greater accountability, flexibility and compliance, especially with regard to specific Texas codes,” said Winston Duke, Finance Director for the City of Huntsville. “Our Council, staff and employees are happy and relieved that we have taken definitive steps to ensure the future viability of our retiree medical through a sound funding plan.”
PEB Trust is a turn-key solution for investing funds today to help manage the long term cost and budget volatility of OPEB expenses. Governments can establish a PEB Trust account in a few days after approval, versus the six to 18 months typically needed to create a standalone trust. As PEB Trust participants, governments have flexibility similar to having their own trust, but with lower costs and little administrative burden.
“When funds are invested through PEB Trust, employers retain oversight of their OPEB funds while significantly reducing their responsibility for administering an individual trust,” said John Muschalek, Managing Director at FirstSouthwest. “We have put together a program to assist participants with day-to-day administration so they don’t have to confront the complexities of OPEB on their own. This will make it easier to comply with regulations in a cost-effective way.”
PEB Trust features an open platform that allows local government employers to select from several investment counselors or choose their own outside investment counsel. Employers also have the flexibility to change investment counsel, policy, or asset allocations as their needs evolve over time. In contrast, many other multi-employer trusts limit choices and strategies.
PEB Trust will be overseen by governmental employers, investment professionals, auditors, and outside legal counsel. It is governed by an independent board of trustees that includes three representatives from public entities and two financial industry veterans.
FirstSouthwest will provide clearing and custody services for PEB Trust, and a FirstSouthwest affiliate will serve as PEB Trust program administrator. It will also provide access and integration of third-party institutional class managers, performance reporting, customer service and administration.