HomeMy WebLinkAbout12/1/2004 - STAFF REPORTS (19) DATE: December 1, 2004
MEMO TO: City Council
FROM: Director of Finance & Treasurer
RE: Establishment of a 401 Plan
RECOMMENDATION:
It is recommended that the City Council approve the establishment of a 401 Plan for the purpose of
creating a benefit to City employees at no cost to the City
SUMMARY:
A 401 Plan is a type of deferred compensation plan authorized by the Internal Revenue Code The
City's plan would allow, but not require, employees to deposit all or a portion of their final paycheck
into a 401 Retirement Account administered by ICMA Retirement Corp, up to a maximum of $41,000,
and delay Federal and State taxation on that amount. All City employees would be eligible for the
Plan.
BACKGROUND:
For more than 25 years, City employees have had the opportunity to invest a portion of their pay in a
Section 457 Deferred Compensation Plan. This is the public sector equivalent of the better known
401 K plans enjoyed by many private sector employees The contributions are deducted from the
employee's paycheck on a pre-tax basis. The contributions are made solely by the employee. No
portion of it comes from the City. The contributions, which are currently limited to $13,000 per year,
accumulate investment and/or interest income on a tax deferred basis. The funds can be withdrawn
by the employee only after separation from City service, and are taxable at whatever rates are in
effect at that time.
The new plan being proposed is different in two important respects: the contribution limit is much
higher than the Section 457 plan, and the contribution would be made only from an employee's final
paycheck, which typically includes accumulated vacation and/or compensatory time paid out at that
time.
The benefit to the employee is the deferral of Federal and State income taxes to some future year
when the employee's marginal tax rate is lower. Except for the minor administrative costs in setting
up the Plan, and wiring the deposits, there is no out-of-pocket cost to the City. In addition, the Plan
can be expanded in a variety of formats, giving the City something to offer in negotiations with the
bargaining units. If structured carefully, an expanded Plan could replace existing pay or fringe
benefits in a way that benefits the employees and saves the City money. Any expanded Plan would,
of course, be the result of future meet and confer sessions with the labor units.
The proposal from ICMA Retirement Corporation was reviewed by the Deferred Comp Advisory
Committee, a committee comprised of current and retired City employees, chaired by the Director of
Finance & Treasurer, that helps set policy on the City's deferred comp products. The City's 457 Plan
uses ICMA's model plan, and the DCAC felt that it was a natural progression to place the 401 Plan
with ICMA. This avoids the possibility of future disputes with the IRS.
Page 2
To summarize, the 401 Plan would add a valuable benefit to City employees, helping to attract and
retain employees. There are no additional payments required from the City. A framework for future
optional benefits is established.
The attached resolution establishes the 401 Plan, effective immediately.
Submitted by Approved
Thomas M. Kanarr David H. Ready
Director of Finance & Treasurer City Manager
\ N1_
v�
ICMA RETIREMENT CORPORATION
GOVERNMENTAL MONEY PURCHASE PLAN & TRUST
ADOPTION AGREEMENT
Account Number 10- 4'�z�' 7
The Employer hereby establishes a Money Purchase Plan and Trust to be known as (the"Plan") in the
form of the ICMA Retirement Corporation Governmental Money Purchase Plan and Trust.The Plan
shall be ki wn as: U
J cvf n4' S�/ iv�c� 5 �/0� /"�Oncr�r y f/C [906]
,r
This Plan is an amendment and restatement of an existing defined contribution money purchase plan.
❑ Yes �K— No
If yes,please specify the name of the defined contribution money purchase plan which this Plan
hereby amends and restates:
I. Employer Name: 5 ✓YLa-,S 4 19021
II. The Effective Date of the Plan shall be the first day of the P1anYear during which the
Employeradopts the Pl livinless an alternate Effective Date is hereby specified:
/c Z.sv y
III. P1anYear will mean:
-14 The twelve (12) consecutive month period which coincides with the limita-
tion year. (See Section 5.04(i) of the Plan.) [803]
❑ The twelve (12) consecutive month period commencing on
and each anniversary thereafter. [803]
IV. Normal Retirement Age (not to exceed age 65) shall be age Sy [288]
V. ELIGIBILITY REQUIREMENTS:
1. The following group(s) of Employees are eligible to participate in the Plan:
All Employees
All Full-Time Employees
Salaried Employees
Non-union Employees
Management Employees
Public Safety Employees
General Employees
✓ Other (specify below):
MPP Adoption Agreement 4/30/2000
The group specified must correspond to a group of the same designation that is defined
in the statutes, ordinances,rules, regulations,personnel manuals or other material in
effect in the state or locality of the Employer.
2. The Employer hereby waives or reduces the requirement of a twelve (12) month Period
of Service for participation. The required Period of Service shall be
write N/A if an Employee is eligible to participate upon employment). [344]
If this waiver or reduction is elected, it shall apply to all Employees within the Covered
Employment Classification.
3. A minimum age requirement is hereby specified for eligibility to participate. The
minimum age requirement is (not to exceed age 21). Write N/A if no mini- [341]
mum age is declared.
VI. CONTRIBUTION PROVISIONS
1. The Employer shall contribute as follows (choose one):
❑ Fixed Employer Contributions With Or Without Mandatory
Participant Contributions.
The Employer shall contribute on behalf of each Participant % of
earnings or $ for the Plan Year (subject to the limitations
ofArticleV of the Plan). Each Participant is required to contribute
% of earnings or $ for the P1anYear as a condition
of participation in the Plan. (Write"0"if no contribution is required.)
If Participant Contributions are required under this option, a Participant
shall not have the right to discontinue or vary the rate of such contribu-
tions after becoming a Plan Participant.
The Employer hereby elects to "pick up"the Mandatory/Required
Participant Contribution.
❑ Yes ❑ No [621]
The pick-up provision specifies that the contribution is treated,for
federal income tax purposes, as though it is made by the employer.The
pick-up provision allows the employee to defer taxes on the employee
mandatory contribution.The actual result is the same as if the contribu-
tion were a reduction u7 that employee's salary by the amount of the
contribution.Picked up contributions are NOT exempt from Social
Security tax
[Note to Employer: A determination letter issued to an adopting Em-
ployer is not a ruling by the Internal Revenue Service that Participant
contributions that are picked up by the Employer are not includable in
the Participant's gross income for federal income tax purposes. The
Employer may seek such a ruling.
2 �1 i�r pp s 11 �� ^r
= MPRAd6ptiiin\Agre=mc 4/30/2000
[Picked up contributions are excludable from the Participant's gross
income under section 414(h)(2) of the Internal Revenue Code of 1986
only if they meet the requirements of Rev.Rul. 81-35, 1981-1 C.B.255.
Those requirements are (1) that the Employer must specify that the
contributions,although designated as employee contributions,are being
paid by the Employer in lieu of contributions by the employee;and (2)
the employee must not have the option of receiving the contributed
amounts directly instead of having them paid by the Employer to the
plan.]
j❑n' Fixed Employer Match of Participant Contributions.
The Employer shall contribute on behalf of each Participant `% of
Earnings for the PlanYear (subject to the limitations ofArticleV of the
Plan) for each PlanYear that such Participant has contributed %
of Earnings or$ . Under this option,there is a single,fixed rate
of Employer contributions,but a Participant may decline to make the
required Participant contributions in any PlanYear,in which case no
Employer contribution will be made on the Participant's behalf in that
PlanYear.
❑ Variable Employer Match Of Participant Contributions.
The Employer shall contribute on behalf of each Participant an amount
determined as follows (subject to the limitations ofArticle V of the
Plan):
% of the contributions made by the Participant for the Plan
Year (not including Participant contributions exceeding % of
Earnings or $6 );
PLUS % of the contributions made by the Participant for the
PlanYear in excess of those included in the above paragraph (but not
including Participant contributions exceeding in the aggregate %
of Earnings or )•
Employer Contributions on behalf of a Participant for a PlanYear shall
not exceed $F or % of Earnings,whichever is
more or less.
2. Each Participant may make a voluntary (unmatched),after-tax contribution,subject to
the limitations of Section 4.05 and Article V of the Plan.
��� ❑ Yes ❑ No
MPPAdoptimi Agmement 4/30/2000 3
3. Employer contributions and Participant contributions shall be contributed to the Trust
in accordance with the following payinent schedule: (please circle one choice) [Gii]
0 Bi-Weekly 1 Weekly 2 Semi-Weekly
3 Bi-Monthly 4 Monthly 5 Semi-Monthly
6 Bi-Quarterly 7 Quarterly 8 Semi-Quarterly
9 Bi-Annually 10 Annually 11 Seri-Annually
VII. EARNINGS
Earnings,as defined under Section 2.09 of the Plan,shall include:
(a) Overtime ❑ Yes ❑ No
(b) Bonuses ❑ Yes ❑ No
VIII. LIMITATION ON ALLOCATIONS
If the Employer maintains or ever maintained another qualified plan in which any Participant in
this Plan is (or was) a participant or could possibly become a participant, the Employer hereby
agrees to limit contributions to all such plans as provided herein,if necessary in order to avoid
excess contributions (as described in Sections 5.02 and 5.03 of the Plan).
1. If the Participant is covered under another qualified defined contribution plan main-
tained by the Employer, the provisions of Section 5.02(a) through (f) of the Plan will
apply unless another method has been indicated below.
❑ Other Method. (Provide the method under which the plans will limit
total Annual Additions to the Maximurn Permissible Amount,and will
properly reduce any excess amounts, in a manner that precludes Em-
ployer discretion.)
2. If the Participant is or has ever been a participant in a defined benefit plan maintained
by the Employer,and if the limitation in Section 5,03 of the Plan would be exceeded,
then the Participant's Projected Annual Benefit under the defined benefit plan shall be
reduced in accordance with the terms thereof to the extent necessary to satisfy such
limitation. If such plan does not provide for such reduction,or if the limitation is still
exceeded after the reduction,annual additions shall be reduced to the extent necessary
in the manner described in Sections 5.02 and 5.02. The methods of avoiding the linuta-
tion described in this paragraph will not apply if the Employer indicates another method
below.
4 MPP Adopnon Agreemene 4/70/2000
❑ Other Method. (Note to Employer: Provide below language which
will satisfy the 1.0 limitation of section 415(e) of the Code. Such
language must preclude Employer discretion. See section 1.415-1 of
the Regulations for guidance.)
3. The limitation year is the following 12-consecutive month period:
IX. VESTING PROVISIONS
The Employer hereby specifies the following vesting schedule,subject to (1) the minimum
vesting requirements as noted and (2) the concurrence of the Plan Administrator.
Years of
Service Percent
Completed Vesting
Zero ��'� %
One %
Two %
Three %
Four %
Five %
Six %
Seven %
Eight %
Nine %
Ten %
X. Loans are permitted under the Plan,as provided in Article XIII:
❑ Yes No 1751]
XI. The Employer hereby attests that it is a unit of state or local government or an agency or
instrumentality of one or more units of state or local government.
X1I. The Plan Administrator hereby agrees to inform the Employer of any amendments to the
Plan made pursuant to Section 14.05 of the Plan or of the discontinuance or abandonment
of the Plan.
XIII. The Employer hereby appoints the ICMA Retirement Corporation as the Plan Administra-
tor pursuant to the terms and conditions of the ICMA RETIREMENT CORPORA-
TION' GOVERNMENTAL MONEY PURCHASE PLAN &TRUST.
G
The Employer hereby agrees to the provisions of the Plan and Trust. \
<.
MP Y Adoption Agreement 4/30/2000 v\� 5
XIV. The Employer hereby acknowledges it understands that failure to properly fill out this Adoption
Agreement may result in disqualification of the Plan.
XV. An adopting Employer may not rely on a determination letter issued by the National or District Office
of the Internal Revenue Service as evidence that the Plan is qualified under Section 401 of the Inter-
nal Revenue Code. In order to obtain reliance with respect to plan qualification,the Employer must
apply to the appropriate l-ey district office for a determination letter.
In Witness Whereof,the Employer hereby causes this Agreement to be executed on this day of
, 200
EMPLOYER
By:
Title:
Attest:
ACCEPTED: ICMA RETIREMENT CORPORATION
Title: Corporate Secretary
Attest:
MPPAdoption Agmemew 4/30/2000
ATTACHMENT TO THE
CITY OF PALM SPRINGS GOVERNMENTAL MONEY
PURCHASE PLAN AND TRUST AGREEMENT
Section VI.1. Fixed Employer Contributions With Or Without Mandatory
Participant Contributions,
A. The Employer shall contribute on behalf of each Participant % of
Earnings or$ for the Plan Year(subject to the limitations of Article V of
the Plan). Mandatory Participant Contributions
l ❑ are required
❑ are not required
to be eligible for this Employer Contribution.
B. Notwithstanding Section 4.03 of the Plan, each Employee eligible to
participate ill the Plan shall be given the opportunity to irrevocably elect to
participate in the Mandatory Participant Contribution portion of the Plan by
electing to contribute (insert range of percentages;
e.g., 3%, 6% or 2001o) of the Employee's Earnings to the Plan for each Plan Year
(subject to the limitations of Article V of the Plan). The Employer shall "pick-up"
this contribution in accordance with Code section 414(h)(2). These contributions
shall be accounted for in the Participant Contribution Account, and shall be
nonforfeitable by the Participant at all times.
Newly eligible employees shall be provided an election window of
days (no more than 60 calendar days) from the date of initial eligibility during
which they may make the election to participate in the Mandatory Participant
Contribution portion of the Plan. Participation in the Mandatory Participant
Contribution portion of the Plan shall begin the first of the month following the
end of the election window.
If the employee does not make an election in the initial year of eligibility, the
election to participate in the Mandatory Participant Contribution portion of the
Plan ❑ may
❑ may not
be made in a later year. If a later election is allowed, an annual election window
of days (no more than 60 calendar days) shall be provided during
which the election may be made. The election window shall run from
`,�A
to (insert annual time frame for the election window). Participation in
the Mandatory Participant Contribution portion of the Plan shall begin the first of
the year following the year of the election.
An Employee's election is irrevocable and shall remain in force until the
Employee terminates employment or ceases to be eligible to participate in the
Plan. In the event of re-employment to an eligible position, the Employee's
original election will resume. In no event does the Employee have the option of
receiving the pick-up contribution amount directly.
C. Accrued Leave
1. Notwithstanding Section 4.03 of the Plan, each Employee eligible to
participate in the Plan shall be given the opportunity to irrevocably elect to
contribute % (insert fixed percentage of final pay to be contributed)
or up to p�_% (insert maximum percentage offinal pay to be
contributed) of Final Pay to the Plan (subject to the limitations of Article
V of the Plan). Final Pay shall be defined as cc n u s e-a
� G G✓ �( .p� � %C� G emu-✓� cw�-ems( �r�r+-Y°Bn s<..�y y
(insert definition offinal pay, e.g. accrued vacation, accrued sick leave,
accrued compensatory time, etc.) that would otherwise be payable to the
Employee upon termination. The Employer shall "pick-up" this
contribution in accordance with Code section 414(h)(2). These
contributions shall be accounted for in the Participant Contribution
Account, and shall be nonforfeitable by the Participant at all times.
An annual election window of 4 days (no more than 60 calendar
days) shall be provided during which the election may be made. The
election window shall run from to (insert annual
time frame for the.election window). The election maybe made no later
than the election window in the year prior to the year of the Employee's
termination. The contributions shall be made upon the Employee's
termination from employment of the Employer.
Once elected, an Employee's election shall remain in force and may not be
revised or revoked. In the event of re-employment to an eligible position,
the Employee shall be entitled to make a new election tinder this section.
In no event does the Employee have the option of receiving the pick-up
contribution amount directly.
2. For each Plan Year, notwithstanding Section 4.03 of the Plan, each
/ Employee eligible to participate in the Plan shall be given the opportunity
i -
to irrevocably elect to contribute % (insert fixed percentage of
accrued leave to be contributed) or up to /R2 % (insert maximum
percentage of accrued leave to be contributed) of Accrued Leave ay to the
Plan (subject to the limitations of Article V of the Plan). Accrued Leave
shall be contributed to the Plan according to the following
schedule: ,ti,, „ 6 e�2
.� !!-L�A eik ss-ct /ge s
(insert time frame for remittance of contribution; e.g., January of the year
following the year for which the leave is being contributed).
Eligible Participant is defined as:
All Participants,
Participants within_(insert number) years of Normal
/Retirement Age, or
Other: 114/ e-w,O(00 io e- Ps (defln e�
class of Participants).
Accrued Leave shall be defined as:
51�1 reF+
c
(insert definition of accrued leave and, if applicable, how the cash
equivalency is determined(e.g., Participant's hourly earnings)).
The Employer shall "pick-up" this contribution in accordance with Code
section 414(h)(2). These contributions shall be accounted for in the
Participant Contribution Account, and shall be nonforfeitable by the
Participant at all times.
Newly eligible employees shall be provided an election window of
1,o0 days (no more than 60 calendar days) from the date of initial
eligibility during which they may make the election to participate in the
Accrued Leave Mandatory Participant Contribution portion of the Plan.
Participation in the Accrued Leave Mandatory Participant Contribution
portion of the Plan shall begin no earlier than the first of the month
following the end of the election window.
If the employee does not make an election in the initial year of eligibility,
the election to participate in the Mandatory Participant Contribution
portion of the Plan ❑ may
c �
❑ may not
be made in a later year. If a later election is allowed, an aimual election
window of days (no more than 60 calendar days) shall be
provided during which the election may be made. The election window
shall run from to (insert annual time frame for
the election window). Participation in the Accrued Leave Mandatory
Participant Contribution portion of the Plan shall begin in the year
following the year of the election.
An Employee's election is irrevocable and shall remain in force until the
Employee terminates employment or ceases to be eligible to participate in
the Plan. In the event of re-employment to an eligible position, the
Employee's original election will resume. In no event does the Employee
have the option of receiving the pick-up contribution amount directly.
[Note to Employer: Neither an IRS advisory letter nor a determination letter
issued to an adopting Employer is a ruling by the Internal Revenue Service that
Participant contributions that are picked up by the Employer are not includable in
the Participant's gross income for federal income tax purposes. The Employer
may seek such a ruling.
Picked up contributions are excludable from the Participant's gross income under
section 414(h)(2) of the Internal Revenue Code of 1986 only if they meet the
requirements of Rev. Ruls. 81-35 and 81-36, 1981-1 C.B. 255, and 87-10, 1987-1
C.B. 136. Those requirements are(1) that the Employer must specify that the
contributions, although designated as employee contributions, are being paid by
the Employer in lieu of contributions by the employee; (2) the employee must not
have the option of receiving the contributed amounts directly instead of having
them paid by the Employer to the plan; and(3) the required specification of
designated employee contributions must be completed before the period to which
such contributions relate.]
Section VI.2. Each Participant may make a voluntary(unmatched), after-tax contri-
bution, subject to the limitations of Section 4.05 and Article V of the Plan.
Yes ),�C No
Section VI.3 . Employer contributions and Participant contributions shall be contributed
to the Trust in accordance with the following payment schedule:
iv mac, l 30
er�
v
4�
Section VIA. Employer Final Pay Contribution.
The Employer shall contribute on behalf of each Participant % of
Final Pay to the Plan (subject to the limitations of Article V of the Plan) for the
year of termination.
k Final Pay shall be defined as:
,1 '1
4V (insert definition offtnal pay, e.g. accrued vacation, accrued sick leave, accrued
compensatory time, etc.) that would otherwise be payable to the Employee upon
tenmination.
These contributions shall be accounted for in the Employer Contribution Account
and shall be subject to vesting as required in Section X of the Adoption
Agreement.
Section VI.5. Employer Accrued Leave Contribution.
The Employer shall contribute as follows (choose one of the following options):
O For each Plan Year,the Employer shall contribute on behalf of each
Eligible Participant the unused Accrued Leave in excess of (insert
w\ number of hours/days/weeks)to the Plan (subject to the limitations of Article V of
the Plan).
O For each Plan Year, the Employer shall contribute on behalf of each
Eligible Participant % of unused Accrued Leave to the Plan (subject
to the limitations of Article V of the Plan).
Eligible Participant is defined as:
All Participants,
Participants within_(insert number) years of Normal Retirement
Age, or
Other: (define class of
Participants).
Accrued Leave shall be defined as:
(insert definition of accrued leave and, if applicable, how the cash equivalency is
determined(e.g., Participant's hourly earnings)).
These contributions shall be accounted for in the Employer Contribution Account
and shall be subject to vesting as required in Section X of the Adoption
Agreement.
RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS,
CALIFORNIA, APPROVING THE ESTABLISHMENT OF A 401 MONEY
PURCHASE PLAN TO BE ADMINISTERED BY ICMA RETIREMENT
CORPORATION.
WHEREAS, the Employer has employees rendering valuable services, and
WHEREAS, the establishment of a money purchase retirement plan benefits employees
by providing funds for retirement and funds for their beneficiaries in the event of death;
and
WHEREAS, the Employer desires that its money purchase retirement plan be
administered by the ICMA Retirement Corporation and that the funds held under such
plan be invested in the ICMA Retirement Trust, a trust established by public employers
for the collective investment of funds held under their retirement and deferred
compensation plans.
NOW THEREFORE BE IT RESOLVED that the Employer hereby establishes or has
established a money purchase retirement plan (the "Plan") in the form of the ICMA
Retirement Corporation Governmental Money Purchase Plan & Trust, pursuant to the
specific provisions of the Adoption Agreement (executed copy attached hereto)
The Plan shall be maintained for the exclusive benefit of eligible employees and their
beneficiaries; and
BE IT FURTHER RESOLVED that the Employer hereby executes the Declaration of
Trust of the ICMA Retirement Trust, attached hereto, intending this execution to be
operative with respect to any retirement or deferred compensation plan subsequently
established by the Employer, if the assets of the plan are to be invested in the ICMA
Retirement Trust.
BE IT FURTHER RESOLVED that the Employer hereby agrees to serve as trustee
under the Plan and to invest funds held under the Plan in the ICMA Retirement Trust,
and
BE IT FURTHER RESOLVED that the Director of Finance & Treasurer shall be the
coordinator for the Plan; shall receive reports, notices, etc , from the ICMA Retirement
Corporation or the ICMA Retirement Trust; shall cast, on behalf of the Employer, any
required votes under the ICMA Retirement Trust; may delegate any administrative duties
relating to the Plan to appropriate departments; and is authorized to execute all
necessary agreements with the ICMA Retirement Corporation incidental to the
administration of the Plan.
ADOPTED this day of 2001
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED &APPROVED as to form