ADVISORIES: In-Kind Asset Transfer to Defined Benefit Pension Plans Flashcards
GFOA does not recommend transferring ownership of government-owned infrastructure to a defined benefit plan.
What is GFOA’s position on transferring government-owned infrastructure to defined benefit pension plans?
GFOA does not recommend transferring ownership of government-owned infrastructure to a defined benefit plan for various reasons, including potential tangible and intangible losses to the government and liquidity issues for the pension plan.
What are potential consequences for the general government from transferring infrastructure assets to its pension plan?
Potential loss of asset value or revenue, opportunity costs, and loss of intangible community benefits previously provided by the government.
Why might transferring an asset to a pension plan be problematic from the plan’s perspective?
Retirement plans prefer liquid assets to pay benefits, and physical assets like buildings or land can be difficult to convert to cash, potentially hindering the plan’s mission.
What challenges do pension plans face when accepting physical assets?
The need for active management to realize value or generate revenue, which may incur excessive costs or complexity beyond the plan’s primary role of paying benefits.
What complicates the valuation of a public asset for transfer to a pension plan?
The absence of comparable valuations or appraisals, especially if the asset’s use or management is changing, making it difficult to assess future revenue potential accurately.
What legal and due diligence considerations are involved in in-kind asset transfers?
Reviews of liens, bond covenants, restrictions, claims, insurance requirements, compliance with statutory laws prohibiting transfers or sales, and potential liability or maintenance issues.
Why should asset transfers to pension plans be irrevocable, according to GFOA?
To prevent recourse issues for both the transferring government if the asset appreciates and the pension plan if the asset depreciates significantly in the future.
