AGO 2003-03.

• Case Date: May 27, 2003
• Court: Indiana

Indiana Attorney General Opinions 2003. AGO 2003-03. May 27, 2003OPINION NO. 2003-3Department of Local Government FinanceBeth Henkel, Commissioner Indiana Government Center North 100 North Senate Avenue 1058(B) Indianapolis, IN 46204RE: School corporations unfunded retirement or severance liabilityDear Commissioner Henkel: This advisory letter responds to your request for an opinion regarding the proper interpretation and construction of recent statutory amendments embodied in P.L. 253-2001 relating to the funding of school corporation retirement or severance plans. The following is our legal analysis of the statutory codification of this public law. ANALYSIS P.L. 253-2001 was adopted in response to concerns that many local school corporations are contractually obligated to pay severance and retirement benefits to their employees, and that such obligations are presently unfunded liabilities of the individual school corporations. The new law requires certain retirement or severance plans to be funded on an "actuarially sound basis". In addition, P.L. 253-2001 (as amended by H.E.A. 1088, 113th Gen. Assem., 1st Reg. Sess., 2003) authorizes a school corporation with unfunded liability to issue bonds for the purpose of reducing the unfunded liabilities, on a one-time basis, on or before December 31, 2004. The requirement that funding be done on an "actuarially sound basis" is codified at Ind. Code § 20-5-64-1 and 20-5-64-2, which provide: Sec. 1. This chapter applies to a school corporation that: (1) after June 30, 2001, establishes a retirement or severance plan that will require the school corporation to pay post-retirement or severance benefits to employees of the school corporation; or (2) includes in a collective bargaining agreement or other contract entered into after June 30, 2001, any provisions to increase: (A) the benefit; or (B) the unfunded liability; under any retirement or severance provisions that will require the school corporation to pay post-retirement or severance benefits to employees of the school corporation. Ind. Code § 20-5-64-1. Sec. 2. (a) A school corporation must fund on an actuarially sound basis the post-retirement or severance benefits that will be paid to employees under a plan, an agreement, or a contract described in section 1(1) of this chapter or an increase described in section 1(2) of this chapter. (b) A school corporation must place the assets used to fund on an actuarially sound basis the post-retirement or severance benefits in a separate fund or account, and the school corporation may not commingle the assets in the separate fund or account with any other assets of the school corporation. Ind. Code § 20-5-64 -2. The authorization for a school corporation to issue bonds to reduce its existing unfunded contractual liability for retirement or severance payments has been codified at Ind. Code § 20-5-4-1.7, which defines "retirement or severance liability" for which bonds may be issued: (a) For purposes of this section, "retirement or severance liability" means the payments anticipated to be required to be made to employees of a school corporation upon or after the termination of their employment by the school corporation under an existing or previous...