Don't Make An Irrevocable Mistake!

The Board of Trustees of San Joaquin Delta College is rumored to be voting, in closed session this Tuesday (Sept. 9, 2008), to make an IRREVOCABLE TRUST for "OPEB" (Other Post-Employment Benefits).

No one seems to remember that it only costs the district about 10% per year of SJDC's budget to fund the retiree's benefits, and that there is no legal requirement to use an irrevocable trust (as clearly shown by the CTA seminar in fall 2007, that the Trustees and Pres. Rodriguez attended! The lack of a requirement to utilize an irrevocable trust is also documented in a report by GASB and a recent memo from the CCCCO (please see the "document" links, below)). Furthermore, retiree's benefit costs are likely to decrease over time, due to reductions in benefits negotiated in contracts between the District and Employees.

The amount to be placed in the irrevocable trust is rumored to be $5.7 million. The new finance VP, Jon Stephens, is said to be proposing the vote. These funds will come out of the reserve. Recently reserves were reported to be $9.9 million, but are likely higher now.

As stated by the Community College League, the Trust is NOT required!

According to the CCL (which is an organization of CCC administrators), the implementation process for GASB 45 includes four basic steps:
1. A community college districts hires an actuary to calculate its Annual Required Contribution.

2. OPEB expenses are recorded on the modified cash basis of accounting within the governmental funds (funds reported on the CCFS-311) and on the full accrual basis of accounting for propriety funds, fiduciary funds and in the government-wide financial statements prepared under the Business-Type Activity model.

3. The district then decides whether to contribute all, none or part of the ARC into an irrevocable trust (i.e. the Retiree Health Benefit Program trust).

4. Disclosure information is provided to the auditor according to GASB’s implementation schedule.

Over the long-term, retiree benefits will shrink. Under existing contracts, the principal benefit (Medicare supplemental premiums) will disappear as a benefit in the mid-term future. Placing such a large amount of money into an irrevocable trust would be a rash decision which will greatly limit the College's financial flexibility.

Documents:
The California Community College Chancellor's Office recent memo regarding GASB and OPEB clearly show that an irrevocable trust is not a requirement.

GASB's "Plain English" introduction to OPEB (other post-employment benefits). (GASB = Governmental Accounting Standards Board" www.gasb.org)