Do You Have An Appropriate OPEB Document?

by | Jan 20, 2022 | Governmental Benefits, Health Coverage, Plan Administration, Retiree Health

Due to the rising costs of health care and health insurance, pressure from union bargaining partners, and the application of the “equal contribution rule” for public agencies that provide health coverage through CalPERS, many California cities and special districts have adopted retiree health benefit arrangements, commonly referred to as Other Post-Employment Benefits (OPEB), in an effort to define and control retiree health care liabilities. This post discusses why agencies which provide OPEB need to have proper plan documentation.

Unlike 401(a) and 457(b) plans, OPEB is not subject to the same statutory requirements regarding what needs to be included in the plan document. In fact, an OPEB arrangement does not need to have a formal plan document in order to yield advantageous tax benefits. Furthermore, “public” sector OPEB is not subject to ERISA, which separately requires a written plan document for private sector OPEB sponsors. Oftentimes we see an agency’s “plan” consisting of a loose assortment of collected resolutions, MOUs, benefit summaries, and even emails among the past human resources team.

However, there are a lot of really good reasons why all public agency OPEB sponsors need to have a proper and appropriate plan document:

  • An inadequate understanding with unions could give rise to an unintended conferral of a “vested right” to certain retiree health benefits. See, International Brotherhood, etc., v. City of Redding, 210 Cal. App. 4th (2012). Generally speaking, there are now ways to negotiate and document OPEB so as to give the sponsoring agency the ability to amend or terminate certain OPEB obligations, if it becomes necessary.
  • Merely documenting the terms of OPEB in an MOU likely would not provide either the union (and the participants and beneficiaries) or the public agency sponsor (or the plan administrator) with enough detail to understand how the benefit is to be administered.
  • Without a proper plan document, it may be difficult or impossible for an actuary to accurately analyze and value the agency’s OPEB obligations. Remember, many cities and special districts have structured their OPEB obligations as defined benefits arrangements (e.g., the city will pay 90% of the retiree’s health insurance premium for the remainder of his or her life).
  • Of course, it would be much more difficult to adjudicate and resolve a claim or dispute over OPEB coverage or benefits if the terms of the plan are not spelled out – are merely anecdotal. This includes a claim and dispute resolution provision.
  • OPEB increasingly represents one of the major underfunded liabilities of government. In order for public agency management and decision-makers to more efficiently deal with the legal, financial, and political aspects of OPEB, it only makes sense to clarify and distill the agency’s obligations in a comprehensive and up-to-date plan document.

Proper employee benefit administration, and the related management of concomitant financial obligations, require a clear understanding of the benefits promised and the financial conditions and assumptions under which the benefits will be funded and paid for. If a public agency wants to improve the administration and financial management of its OPEB obligations, a good place to start would be a comprehensive review and update of its OPEB plan document(s).

Jeff Chang is a partner at Best Best & Krieger LLP. He has four decades of experience skillfully evaluating benefit and retirement plan compliance to achieve maximum outcomes for public agency clients throughout California. He can be reached at or (916) 329-3685.

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