Date: August 4, 2006
To: School District Administrators
CESA Administrators
CCDEB Administrators
From: David Carlson, Director
School Financial Services Team
Re: Fund 73 Employee Benefit Trust
Please share the information in this letter with business staff involved in the process of establishing an “Employee Benefit Fund (Fund 73) and with members of the school board.
The Wisconsin Department of Public Instruction provides requirements concerning establishment of an “Employee Benefit Fund (Fund 73). These requirements apply to a Wisconsin School District when providing for postemployment benefits by contributions to a legally established irrevocable trust. This document is available on the school financial services website at: http://dpi.wi.gov/sfs/emp_benefit_trust_fund.html
The establishment of a fund 73 cannot be entered into without answering many questions most often addressed by experts in the areas of actuarial evaluation, law, trust documents, IRS regulations or financial investments. Many of the decisions made are based on information obtained from these experts. The following is a list of concerns or questions that your district may want to consider when choosing to fund postemployment benefits with a trust. These are not recommendations or requirements of DPI but rather issues that may arise during the process of setting up a trust:
- When setting up a trust and obtaining a legal opinion, are you working with an expert in what is an appropriate trust document to meet DPI requirements, district needs and state and federal regulations? Are you consulting with an expert knowledgeable of IRS regulations and filing requirements for the trust selected?
- What consideration has been given to the number and selection of trustees? Has your district considered whether one trustee is sufficient or perhaps several trustees representing various aspects (i.e. school board, administration, an employee) may be more desirable? Has the use of a corporate trustee been considered an option?
- Do the trustees understand the purpose of their role as a trustee and their responsibility in that role? One of the DPI requirements is that trustees understand their responsibility. Does the trustee see themselves as the one who manages assets owned by the trust under the terms of the trust document? Do they realize the purpose of the trustee is to safeguard the trust and distribute trust income as directed by the trust document? Is the trustee acting in the interest of plan participants and beneficiaries for the exclusive purpose of providing benefits? This requires they act with care, skill, and caution when investing and managing the trust assets.
- Are trustees aware of consequences if they do not act in accordance with the governing plan documents? A district and/or trustee may want to consult the appropriate professionals regarding the potential for personal liability of losses if they breach their fiduciary duty and of ways to reduce a potential liability.
- How well do you know your actuary? When hiring professionals to perform the actuary study, do you know what their experience or expertise is with the operations of governments and more specifically with the operations and aid formula for a Wisconsin School District? Most OPEB benefits are healthcare related so you may want to know what expertise your actuary has in this area.
- Is your District making a contribution to the trust and withdrawing the contribution immediately (within days) for current retiree benefits? DPI requirements include a provision that the trust fund may not be merely an accounting shell consisting of a fund on the district’s accounting records. When a school district makes a contribution to the trust which is immediately paid to the current retirees for current fiscal year expenditures, this may be construed to mean the trust is not being used for the intent of funding future employee benefits but rather used as an accounting shell with the intent only to receive additional aid.
- How much risk is involved with your District investments? With the enactment of Assembly Bill 167, investments by school districts of funds held in trust to provide postemployment benefits may be invested in the same manner as is authorized for investments under s. 881.01, “Uniform prudent investor act”. When the trustee is making investment decisions, their duty is to safeguard the trust and they should be acting in the interest of plan participants and beneficiaries by minimizing the risk of large losses.
- When selecting a financial advisor, is the individual knowledgeable of the Wisconsin investment statute applicable to the trust?
The School Financial Services team often receives questions or concerns like the above list. These decisions are the sole responsibility of the school district. DPI will not make a determination or recommendation regarding experts to hire, investment opportunities or types of trust agreements. It is the sole responsibility of the school district to set up an appropriate trust document to meet DPI and state and federal requirements, properly fund the trust and select a trustee to act in the interest of the plan participants and beneficiaries. We do recommend that you consult an expert in these areas.
For questions about this information, contact dpifin@dpi.wi.gov (608) 267-9114
Last updated on 2/25/2008 12:03:45 PM
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