SNOW HILL – A new investment policy meant to fund the Other Post Employment Benefits (OPEB) retirement trust should be able to achieve the 7.5 percent return necessary over the long-term, Worcester County staff reported this week.
The county is setting up the trust to continue adding to the OPEB funds, as required by law, without tapping into the annual county revenue.
Massive annual OPEB payments in the millions triggered criticism during the recently concluded fiscal year 2010 budget process, particularly from the Board of Education and school supporters. Those groups said repeatedly that the county government was overfunding OPEB and that the commissioners should pay less into OPEB in FY10 and redirect that funding to the county schools.
The county has made a practice of large OPEB contributions annually since the funding was mandated several years ago to get ahead of the required contribution schedule. That practice, according to county staff, saved money through funding early.
Faced with a $6 million deficit going into fiscal year 2010, beginning in July, county staff proposed creation of the OPEB trust to generate income to fund the retirement benefits at the mandated level.
The benefits trust was voted on in May, and staff is now working on implementing the trust.
“We have the trust in place. The next part is the investment committee and the investment policy,” said Worcester County Finance Officer Harold Higgins.
The committee, largely made up of staff members like the county administrator and budget officer, will choose an investment firm to handle the details of investing for the trust.
The trust will take a cautious approach to investing, according to Higgins.
“It’s a conservative process and we’re not going to take high risks,” said Higgins. “The policy itself says we’re risk averse.”
Investments will be allocated between the bond and equity markets.
“It’s going to be quite different than anything we’ve done in the past,” said Higgins.
The projected 7.5 percent return for the OPEB trust was not immediately trusted by some.
“I got a question here,” said Commissioner Virgil Shockley, who doubted that the trust would produce the necessary results.
The state of Maryland attempted the same approach, but ran into problems, Shockley said.
“You don’t even want to know how much money they lost,” Shockley said.
The county could be putting itself in the same position, Shockley worried.
“Are we going to learn from somebody else’s mistakes?” Shockley asked.
The Maryland retirement fund and similar organizations in other states bought high and are now at the point of selling short, said county administrator Gerry Mason.
Shockley also wondered whether how the 7.5 percent rate of return was estimated.
“I think everyone in the United States wants to know about it,” he said.
Commissioner Judy Boggs thought that project was excessive.
“I was thinking that too. Are we being too optimistic?” said Boggs.
A 7.5 percent return is achievable over a 15- to 20-year timeframe, Higgins said. While the market is at a low ebb now, it will get better over the long term.
“It’s to our benefit to go in now. Prices are still down,” said Higgins. “Those projected yields take that into account.”
In the end, Boggs said she trusted the advice of the county’s chief finance officer.
“I have confidence in your expertise and judgment,” said Boggs.