GFOA Executive Board Approves New And Updated Best Practices

Wednesday, November 30, 2016

The GFOA Executive Board approved two new best practices in addition to updates to four other existing best practices at the September 2016 meeting. These documents provide recommendations to government finance officers in the areas of treasury and investment management, retirement administration and benefits administration.

Cash Flow Analysis: This new best practice recommends six essential elements of a cash flow analysis. Cash flow analysis is an essential tool that can be used to inform management decision making. GFOA recommends that state and local governments perform ongoing cash flow analysis to ensure sufficient cash liquidity to meet disbursement requirements while also limiting idle cash. 

Investment Policy: This new best practice recommends that the investment policy should be reviewed and updated, if necessary, on an annual basis and includes statements on eight key points. An investment policy enhances the quality of decision making and demonstrates a commitment to the fiduciary care of public funds.  As a result, a public funds investment policy is the most important element in a public funds investment program.  GFOA recommends that all public entities establish a comprehensive, written investment policy, adopted by the governing body.

Hybrid Retirement Plan Design: This best practice was revised in order to incorporate critical elements of hybrid plan designs that continue to evolve. GFOA recommends that certain design elements be followed before adopting hybrid plans or combining hybrid features with defined benefit or defined contribution plans.

Establishing and Administering an OPEB Trust: This best practice was revised to align with language related to the January 2016 Best Practice, Sustainable Funding Practices for Defined Benefit Pensions and Other Postemployment Benefits.  Specifically, a recommendation was added that governments adopt a funding policy committing themselves to fund benefits promises based on regular actuarial valuations, with a target funded ratio of 100 percent or more. GFOA recommends creating a qualified trust fund to prefund OPEB obligations.

OPEB Governance and Administration: This revision is intended to align this with the January 2016 Best Practice, Sustainable Funding Practices for Defined Benefit Pensions and Other Postemployment Benefits which includes language to conduct an audit of the actuarial valuations to review the appropriateness of the actuarial methods, assumptions, and their application. It adds updates language to address employers that issue periodic studies, experience studies, and periodic actuarial audits. GFOA recommends that sponsoring entities provide a clear, well-documented governance structure to guide governing bodies and plan administrators.

Educating Employees About the Adequacy of Retirement Benefits: As part of GFOA’s effort to consolidate and develop more comprehensive best practices, the Board identified language that includes elements of a sound educational program as well as guidance for employers and retirement systems that procure external providers of financial education and advice. GFOA recommends that public-sector employers and plan administrators inform and educate employees about future retirement income, and the variables that may affect future retirement income, depending on the income source.