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Home My WebLink AboutItem 2c: Adopt Resolution No. 6850 for employee contribution to optional benefits.V y Incurnuru[eJ Aupuz[ 5. 190J Co��ryLnity of �o��h STAFF IZEPCaRT Administrative Services Department DATE: October 2, 2012 TO: Honorable Mayor and City Council FROM: Hue C. Quach, Administrative Services Director Michael Casalou, Human Resources Administrator's SUBJECT: RESOLUTION NO. 6850 APPROVING IMPLEMENTATION OF A PRE- TAX PAYROLL DEDUCTION FOR COST SHARING OF EMPLOYEE DEATH BENEFITS FOR UNREPRESENTED EMPLOYEES ELIGIBLE FOR CALPERS RETIREMENT BENEFITS Recommendation: Adopt SUMMARY The City Council recently agreed to amend the City's contract with the California Public Employees' Retirement System (CaIPERS) by adding an optional death benefit for City employees. Prior to amending the contract, the City reached agreements with all five employee associations that requires employees to pay half the cost of this benefit. In addition to the cost sharing agreement, the City agreed to allow employee contributions on a pre -tax basis. Adoption of Resolution No. 6850 will provide the same benefit to unrepresented employees eligible for retirement benefits. DISCUSSION The City of Arcadia has the authority to implement Government Code section 20516(f), which authorizes, under certain specified conditions, the City and its employees to share the costs of optional benefits of the CaIPERS retirement benefit plan. Additionally, sections 3121(a)(5)(A) and 3401(a)(12)(A) of the Internal Revenue Code, excludes employer contributions from an employee's wages until such time these contributions are distributed to the employee. On September 4, 2012, the City Council adopted Ordinance No. 2301, which amended the City's contract with CaIPERS by providing employees with the Pre - Retirement Option 2W Death Benefit. The City Council, and all five represented employee associations, agreed to split the cost of this optional death benefit, and allow for employee contributions on a pre -tax basis. Adoption of Resolution No. 6850 is Resolution No. 6850 October 2, 2012 Page 2of2 necessary to comply with the aforementioned provisions of law, in order to provide unrepresented employees eligible for retirement benefits with the same cost sharing agreement and pre -tax payroll deductions as was provided to the represented employees. FISCAL IMPACT There is no fiscal impact to the City to implement the cost sharing provisions on a pre- tax basis. RECOMMENDATION It is recommended that the City Council adopt Resolution No. 6850, which approves the implementation of cost sharing and authorizes pre -tax payroll deductions for unrepresented employees eligible for CalPERS retirement benefits. Approved: Dominic Lazza 'o City Manager Attachment: Resolution No. 6850 RESOLUTION NO. 6850 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, FOR EMPLOYEE CONTRIBUTION TO OPTIONAL BENEFITS WHEREAS, the City of Arcadia has the authority to implement Government Code section 20516(f), which authorizes, under certain specified conditions, the City and its employees to share the costs of optional benefits of the CalPERS retirement benefit plan ( "Plan "); and WHEREAS, the City has adopted optional benefits to be provided to its employees pursuant to the Plan; and WHEREAS, pursuant to section 20516(f), the City's unrepresented miscellaneous and unrepresented safety employees will contribute an agreed percentage of their base salary ( "Contributions ") towards the City's cost of the CalPERS retirement benefits, including one -half of the City's cost for the Pre - retirement Option 2W Death Benefit, provided for such employees; and WHEREAS, section 20516(f) authorizes the City of Arcadia to implement cost- sharing arrangements without amending its existing pension contract with CaIPERS; and WHEREAS, pursuant to the terms of the Plan, the Contributions shall continue to be designated as an employer contribution; and WHEREAS, sections 3121(a)(5)(A) and 3401(a)(12)(A) of the Internal Revenue Code ( "Code "), exclude employer contributions from an employee's wages until such time as such contributions are distributed to the employee; and . 1 WHEREAS, as a result of the preceding, the Contributions will be taken on a pre- tax basis since the Contributions are considered by the Plan to be employer contributions; and WHEREAS, if the IRS takes a contrary position, concluding that the Contributions should be characterized as employee contributions rather than employer contributions, the City wishes to ensure that the Contributions are not treated as currently taxable to the employee; and WHEREAS, notwithstanding its position that the Contributions are deemed to be employer contributions by the Plan and, therefore, excludable from an employee's income until distributed, the City wishes to implement the provisions of section 414(h)(2) of the Code; and WHEREAS, pursuant to section 414(h)(2), employee contributions to a public employer pension plan may be picked up on a pre -tax basis by the public employer and excluded from an employee's gross income if the employer specifies that the contributions, although designated as employee contributions to the plan, are being paid by the employer in lieu of contributions by the employee, and the employee cannot choose to receive the amounts directly instead of having them paid by the employer; and WHEREAS, the City has determined that, even though the implementation of the provisions of section 414(h)(2) is not required by law, the tax benefits of section 414(h)(2) in reducing taxable employee gross income should be provided to its employees who are members of the Public Employees' Retirement System; and 2 WHEREAS, Internal Revenue Service Revenue Ruling 2006 -43 requires that the City take contemporaneous action evidencing an intent to establish a proper pick -up under section 414(h)(2). NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF ARCADIA, CALIFORNIA, DOES HEREBY FIND, DETERMINE AND RESOLVE AS FOLLOWS: SECTION 1. Effective October 7, 2012, the City's unrepresented miscellaneous and unrepresented safety employees will contribute one -half of the City's cost of providing to such employees the Pre - retirement Option 2W Death Benefit, currently estimated to be .138 percent for miscellaneous employees and .110% for safety employees. This contribution, in addition to previously agreed to contributions, shall be allocated toward the City's cost for retirement benefits provided to said employees under CalPERS. SECTION 2. Unrepresented miscellaneous and unrepresented safety employees ( "Employees ") shall be permitted to make an irrevocable and binding election not to receive said Contributions in cash in lieu thereof and to have the City of Arcadia pick up and contribute such Contributions to the Plan towards the City's cost of the CalPERS retirement benefits provided for such Employees. "Contributions" shall mean those contributions to the Public Employees' Retirement System which are deducted from the salary of employees and are credited to the employer account pursuant to California Government Code section 20516(f). SECTION 3. The City of Arcadia will implement the provisions of section 414(h)(2) of the Internal Revenue Code ( "Code ") with respect to the Contributions. 3 SECTION 4. An Employee must elect, by executing a one -time, binding and irrevocable agreement with the City of Arcadia, prior to October 15, 2012, to have the Contribution contributed to the Plan as a pick -up under section 414(h)(2) of the Code. SECTION 5. The Contributions, which may be designated as employee contributions by the Internal Revenue Service, will be picked up on a pre -tax basis by the City in lieu of employee contributions so that such Contributions are treated as employer contributions. SECTION 6. After executing the irrevocable election with respect to the Contributions, an Employee may not elect to receive such Contributions directly instead of having them paid by the City to the Plan. SECTION 7. Amounts picked up by the City shall be paid from the same sources of funds as used in paying salary. SECTION 8. The effective date of the pick up by the City shall be the later of the effective date of this Resolution or the employee's execution of the irrevocable election, and the pick -up applies only to contributions made after this effective date. SECTION 9. The City Clerk shall certify to the adoption of this Resolution. [SIGNATURES ON THE NEXT PAGE] Passed, approved and adopted this day of , 2012. ATTEST: City Clerk APPROVED AS TO FORM: Stephen P. Deitsch City Attorney 5 Mayor of the City of Arcadia