Direction of the Investment of State and Local Government Post-Employment Benefit Trust Funds

The Government Finance Officers Association (GFOA) believes that the appropriate body to direct the
investment decisions of state and local government post-employment benefit trust funds (i.e., trust funds used to accumulate resources for pension benefits or other post-employment benefits OPEB) is the plans governing body, working within the legislative investment framework established by the sponsoring government. Because pension trusts and OPEB trusts are used to pre-fund liabilities with differing characteristics, the decisions their plans governing body make regarding asset allocations and investments may differ; however, the underlying governance structure and investment principles outlined in this policy apply equally to both. 1 The plans governing body members are either appointed or elected by the participants, retirees, or sponsoring governments.

The primary obligations of the plans governing body in investing assets are to do so for the exclusive benefit of the plan's beneficiaries. Within this exclusive-benefit framework and in accordance with investment policy objectives and constraints established by a plan's fiduciaries, government post-employment benefit trust funds invest their assets.2

GFOA Position
The GFOA supports investment strategies for which the paramount goal is the prudent investment of postemployment benefit trust assets and it opposes proposals that attempt, either implicitly or explicitly, to direct or influence state and local government post-employment benefit trust funds to make investments that circumvent the plans governing bodys fiduciary responsibility. Investment proposals that are likely to produce below market rates of return would violate fiduciary duties, compromise the plans' risk-return standards and produce less than competitive rates of return.

Recommended for approval by the GFOAs Executive Board, February 22, 2008.
Approved by GFOAs membership, June 17, 2008.

1 As OPEB trusts are relatively new, some are currently governed, at least for the time being, by a sole trustee (e.g., finance officer, treasurer) rather than by a board. Ultimately, however, the governance structure of an OPEB trust should evolve to resemble that of a pension trust. return

2 While this policy is intended for defined benefit plans, it is important to note that many aspects can apply to defined contribution plans, specifically GFOAs opposition to any proposals that would restrict state and local governments from offering their plan participants a diversified selection of investment options. return