Regaining Control: Why Every Public Agency Should Consider an IRS Section115 Trust

Understanding the Value of a 115 Trust

Public agencies across California face mounting challenges: escalating pension and retiree health liabilities, volatile CalPERS rates, and the constant need to balance service delivery with financial sustainability.

An IRS Section 115 Trust is a powerful but underutilized fiscal tool that allows agencies to proactively set aside and invest funds in a legally segregated, locally controlled trust dedicated solely to pension and OPEB (Other Post-Employment Benefits) obligations. The result: stronger budgets, financial flexibility, improved fiscal health, and long-term savings.

What is a 115 Trust?

Authorized under Section 115 of the Internal Revenue Code, this type of trust allows public agencies to reserve funds for future pension and OPEB costs—while maintaining full local control over investment decisions and fund use.

Unlike mandatory contributions to CalPERS or OPEB systems—which are governed externally—monies held in a 115 Trust are fully controlled by the agency's governing body.

Agencies use these trusts to:

• Offset unfunded actuarial liabilities (UAL) for pensions or OPEB

• Mitigate against superfunding

• Smooth out rate volatility and budget shocks

• Pre-fund expected contribution increases

• Create a "rainy day" reserve for fiscal downturns

  
  

Funds can be invested in diversified portfolios that typically outperform the agency’s treasury or LAIF returns, helping assets grow over time.

Managing Pension UAL: Common Use Case

For many agencies, CalPERS UALs represent the single largest and most volatile long-term liability. This liability carries a 6.8% annual compounding interest rate—substantially higher than most other liabilities.

Agencies with discretionary reserves can take a more strategic approach by transferring funds into a 115 Trust specifically structured for pension management. These funds grow over time and can be deployed to mitigate future rate increases or budget shocks.

This gives agencies something CalPERS alone cannot: an effective tool to mitigate UAL costs while creating long-term flexibility and local control.

Why Not Just Prepay CalPERS?

Prepaying CalPERS makes sense—up to a point. For most agencies, it’s an effective strategy until a target funded ratio (we often recommend 85%) is achieved.

After that, prepaying becomes more and more likely to trigger superfunding, tying up assets unnecessarily. A 115 Trust becomes essential at this stage, offering a smarter way to manage excess funds and avoid overfunding your retirement obligations.

With a coordinated Pension Management Plan (PMP), agencies can time contributions and withdrawals for maximum benefit.

Dual-Purpose Trusts: OPEB and Pension in One

Agencies can structure a single 115 Trust with two subaccounts—one for pension liabilities and one for OPEB obligations. This structure is both efficient and legally compliant, and allows for flexible, needs-based allocation of trust resources as priorities evolve.

Policy Integration: The Key to Long-Term Success

At Weist Law, we strongly advise pairing a 115 Trust with a formal Pension Policy and PMP.

Together, these frameworks:

• Define target funded ratios and reserve levels

• Establish clear contribution/withdrawal protocols

• Align trust activity with broader fiscal goals and strategic plans

• Ensure continuity across leadership transitions

• Promote transparency, institutional memory and long-term planning

  
  

Agencies that implement these policies build year-over-year momentum, compounding into

significant savings and resilience.

Is a 115 Trust Right for Your Agency?

If your agency faces any of the following, it may be time to consider a 115 Trust:

• Unfunded pension or OPEB liabilities

• Exposure to rate volatility

• One-time surplus funds

• Long-term budget planning needs

Our clients include cities, counties, school districts, fire districts, transit agencies, water/wastewater districts, and other special districts. Trust funding sources vary—reserves, surpluses, ARPA funds, project close-outs, or CalPERS rate savings—but once deposited, funds become a strategic asset for your agency’s financial future.

How We Can Help

Weist Law provides end-to-end support for the creation, adoption, and administration of 115 Trusts. Our services include:

• Drafting trust governance and investment policies

• Developing Pension Management Plans and Policies

• Coordinating trust activity with CalPERS schedules

• Modeling long-term savings and fiscal scenarios

  
  

If you’re ready to explore whether a 115 Trust fits your agency’s financial goals, we invite you to click here to schedule a free consultation.

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Disclaimer: The foregoing has been prepared for the general information of clients and friends of the firm. It is not intended to provide legal or financial advice with respect to any specific matter and should not be acted upon without professional counsel. If you have questions or would like more information, please contact a designated Weist Law representative. This may be considered attorney advertising.