School committee mulls investment options for OPEB Trust – Rhinelander Daily News

The School District of Rhinelander operations and strategic planning committee heard an update last week on how the district’s investments in its Other Post Employment Benefits (OPEB) Trust have performed in the last year as well as options for the future.

The OPEB Trust is the money the district has set aside to cover retirement benefits owed to long-time employees. Presently the district has just over $5.2 million in the trust with a projected liability of $16 million.

Ken Zastrow of MidAmerica Administrative and Retirement Solutions gave a presentation Oct. 9 on the status of the account, which was created when the district voted to take its fund out of an arrangement with BMO Harris and go with his firm.

Zastrow’s report showed that the district invested $5,222,866.96 into a fixed interest account with American United Life Insurance Company (AUL), which is a mixture of 24 corporate bonds, mortgage and asset backed securities, direct commercial mortgages and other investment options. Because the district currently has its investment in a fixed interest option, AUL guarantees the principal and a lifetime minimum interest rate of return, according to the report provided to the committee. It is billed as risk-free because the investment is backed up by the general account assets of the company.

“It is our most popular account throughout the state of Wisconsin,” Zastrow said. “It’s as risk-free as you can get with this kind of investment. Needless to say, it is very popular with school districts when you are talking about monies that need to be used to pay for retirements benefits, taxpayer dollars, etc.”

According to the report, the account has earned $5,395.65 for the district as of Oct. 2.

Zastrow said the district has the ability to move money into and out of individual investments and to further diversify those investments into accounts that carry more risk but also offer more of a return.

“In the variable (account) does your company make the allocations among those 24 funds or is it up to us as a board to chose which of those funds to use or how they allocate that money,” asked board member David Holperin.

“Typically the school district themselves, the board, makes that decision on how they want to allocate that money,” Zastrow replied. “You can work through me to have discussions and make recommendations, as I’ve done on the last page here that you’ll see.”

“Or we can choose to use all or some of those 24 funds?”

“Correct,” Zastrow said. “We don’t actively manage money so we’re not taking it and moving it in and out of there on a daily basis.”

The report included a pair of options for the board to consider that would leave either 70 or 80 percent of the money in the fixed interest account with the rest being allocated to variable rate stock market-based investments. Unlike the fixed interest investments, the market investments carry some risk, however.

Zastrow said the recommendations were made following discussions with director of business services Marta Kwiatkowski and after looking at the district’s past investment strategy.

“With BMO Harris, you were about an 80/20 split; 80 percent fixed, 20 percent was in the market diversified between 21 funds,” Zastrow said.

Zastrow said that Kwiatkowski told him the board was leery of risk on the investments, and the 80/20 split he is recommending is pretty conservative.

“We’re talking about $5 million of taxpayer money that needs to be used to pay for post employment benefits,” Zastrow said, adding that the 70/30 split was designed if the board decides it wants to become more aggressive, diversify its investment and accept a little more risk.

“I couldn’t go much further than that on a recommendation, based on taxpayer dollars, low risk tolerance,” he said.

The last of the three options he presented was to leave the entire investment in the AUL fixed interest account.

“I will tell you, we work with over 100 school districts on OPEB trusts like this, we only have one employer here in Wisconsin that diversifies amongst the variable, everyone else has this money in fixed,” Zastrow said. “I’m not saying that is right or wrong, but I put that out there. When I hear ‘low risk tolerance, don’t want to lose this money,’ that’s the guaranteed interest account. And it is actually paying 1.6 percent right now, completely fixed and not subject to market risk.”

He said the portfolio the district had with BMO Harris was earning about .65 percent on the fixed rate while the variable rate investments were earning about 1.1 percent.

“So the AUL fixed interest account is actually going to outperform the BMO allocation as it is currently sitting when we took it over,” Zastrow said.

Kwiatkowski said the trust fund is to cover the retirement benefits of district employees who have the most seniority.

“This is for groups one and two, groups three and four are not eligible for this money. So looking down the road, (it has to last) another 25 years,” she said.

As more and more employees start earning benefits, the trust will shrink if it is not replenished, she added.

“We’re definitely not fully funded,” Kwiatkowski said, adding that the fund isn’t currently being used to pay benefits. That money is coming out of the general fund. The trust is designed as a safeguard, with the end goal of having it built to the point that it can take over the payment of benefits.

Zastrow said the district has done a great job getting $5 million into their trust.

“(There are) not a lot of school districts that have money in there,” he said. “A lot of times it is an in and out transaction or putting in an extra 5 percent, or the 5 percent isn’t building into a $5 million number. So, in their eyes, it’s a fixed transaction and they keep it in the fixed interest account.”

Holperin said he would be the first to say that past earnings on the investments are going to solve the long-term OPEB problem.

“We’re in a very unique time, a kind of oddball time, economically,” Holperin said. “I don’t think we can look in the rearview mirror, I think we have to look in the front windshield on this one.”

Kwiatkowski said she and Zastrow are looking for direction as to the comfort level in regard to risk for drawing up an investment policy the full board will vote on at the November meeting.

“Right now, your money is in the fixed interest, and that is where it will stay until the investment policy is approved and going forward, what do you want to do with that money,” she said. “After the meeting in November, if you wanted to, you could move it to 80/20 or 70/30.”

“I would like to go on record as saying I’m comfortable taking a risk at the right opportunity and in the right environment,” Holperin said.

“What defines that?” asked committee chair Mike Roberts.

“I am willing to go to the variable investments and the ability to do that. I don’t want to lock ourselves out of the opportunity to have that available to us,” Holperin replied.

Zastrow said if the money is kept in the fixed interest accounts, the board still has the option to move some of it into the variable interest funds.

“You can move in and out of those,” he said.

Roberts then asked if this would become an annual or semi-annual discussion and decision the board will have to make.

“That’s a good question, Holperin said. “Are we able to make a change at any time?”

He repeated that he would like to see the investment policy give the board the option to take on some risk in the investments if the market conditions were to change.

Zastrow said he could have a conversation with AUL about other options that might be open to the district. Typically, the company restricts investment to the 24 funds AUL has available for school investments.

Holperin said he would be in favor of staying in the fixed interest account until the investment policy is drafted, and the committee voted to go along with that.

Holperin then clarified what he meant by different market conditions.

“I’m saying, as a district, and as a board, I would like to be able to go into a variable account under different market conditions,” he said. “For example, if the S&P 500 were to decline by 50 percent over the next two years, I would like to maybe start investing in stocks in a moderate way. If it got to a 60 percent correction, I’d like to go deeper. And if we got to 80 percent which is always possible, I would probably like a nice 50/50.”

Jamie Taylor may be reached via email at

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