IRS gives GASB 45 Solutions clients important tax break
Published: June 1, 2006
With important new accounting requirements looming on the horizon, the California School Boards Association has obtained an unusual and groundbreaking ruling from the Internal Revenue Service that provides important tax benefits to school districts and other public agencies that participate in the association’s new GASB 45 Solutions Program Trust.
The IRS Private Letter Ruling is believed to be the first of its kind for a multiple-employer trust program established for school districts and other public agencies exclusively to fund and pay post-retirement health care obligations.
The Private Letter Ruling, or PLR, protects school district participants, retirees and beneficiaries of the trust from paying taxes on the health care benefit at retirement.
“We’ve worked for more than a year with our trust administrator, PARS, on the design and legal development of this unique trust,” said Scott P. Plotkin, CSBA Executive Director. “Receiving this ruling was a critical aspect of our new trust program, particularly since, historically, funding post-retirement health care obligations had been uncharted territory for most school districts.”
CSBA’s new GASB 45 Solutions Program aims to help school districts and other public sector employers begin putting aside money now for the future costs of health care and other non-pension benefits for employees now on the payroll. New accounting rules require that public agency employers begin calculating these costs and, to the extent they are unfunded, listing them on financial reports as current debt.
GASB 45 Solutions helps districts commission actuarial studies to calculate future costs and establishes a trust that will pool contributions from multiple employers, increasing their interest earnings and significantly cutting administrative costs.
Obtaining a ruling is a long, involved and costly process. School districts that join the CSBA trust can benefit from the legal and tax protections afforded by the special letter ruling.