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HomeMy WebLinkAbout12/12/1994 Item #19City Council Agenda Item No. 19 • e_ CITY OF NEWPORT BEACH f OFFICE OF THE CITY MANAGER DECEMBER 12, 1994 DEC 1 2 i9 APP ED TO: MAYOR AND CITY COUNCIL ),*A FROM: CITY MANAGER SUBJECT: EMPLOYEE AGREEMENT C - 3, RECOMMENDATION: To approve an employee agreement at no cost to the City and General Services Director regarding deferred compensation. •HISTORY: The City provides a deferred compensation program for all City employees. This program is governed by Federal and State legislation and is referred to as a 457E plan. With this plan, an employee can defer $7,500 of his /her earned income annually to an investment program administered by Great -West Life Insurance Company. The Council approved a revised Deferred Compensation Plan Document for the 457E program on August 4, 1994. JOINT POWERS EMPLOYEE BENEFIT AUTHORITY: A second deferred compensation program, referred to as a 457F plan, is available to City employees through the Joint Powers Employee Benefit Authority. In November of 1987 the cities of Costa Mesa and Newport Beach established a Joint Powers Authority (JPA) for the purpose of establishing, operating and maintaining a comprehensive program of employee benefits. This functions in the interest of its members by pooling their purchasing power to acquire supplemental retirement and other employee benefits. Additionally, the JPA pools the costs of administration and other services to the benefit of its members. Under this plan, additional employee compensation may be deferred of current taxes •in addition to that deferred by the 457E program provided the rights to the compensation are conditioned on the future performance of substantial services to the employer and subject to forfeiture until that time. The time period must be fixed in the future and must be included in the agreement. 0 0 Page 2 At present, an agreement dated June 1, 1988, for deferring compensation under the • 457F plan is utilized. There are two problems with this agreement: one, an executed copy cannot be located by the City Clerk, and two, the existing agreement does not address the future performance of substantial services by the employer and a fixed time in the future when a substantial risk of forfeiture lapses. The specifics of the services rendered and the fixed period that these will be provided are best addressed in an employee agreement. ADDITIONAL BACKGROUND: Attached for information are documents which more fully describe the Section 457(F) Deferred Compensation Program. The first is a document from 1988 describing the program and the second is the existing Deferred Compensation Agreement which has been utilized, but no record of its actual adoption can be found. Other background information is attached which gives the City Council information on 457(F). DISCUSSION: The General Services Director has fully participated in the 457E program since 1987 and intends to continue through the course of his employment. On December 30, 1993, he enrolled in the 457F program and began deferring compensation on January 1, 1994. Prior to January 1, 1995, he must determine his • monthly contribution level to the 457F plan. Without an employee agreement that stipulates performance and duration of his services, he may be at financial risk should the IRS find the June 1, 1988 City agreement noted earlier as inadequate. The agreement between the City and the General Services Director is attached. It has been reviewed and approved by the City Attorney. It stipulates Mr. Niederhaus will perform all duties and requirements of his position as stipulated in the General Services Director job description for a period of 13 additional years. Should he be terminated for any reason other than retirement, death, or disability, he will forfeit his contributions to the 457F plan to the City. This agreement does not guarantee Mr. Niederhaus's future City employment nor result in any additional cost to the City. KJM:mb Attachments is CITY OF NEWPORT BEACH • DEFERRED COMPENSATION AGREEMENT This agreement is entered into the _ day of .1994 between the City of Newport Beach, a public agency organized and existing under the laws of the State of California, hereafter called the "City" and David E. Niederhaus, hereinafter referred to as the "Employee." Whereas the City desires to enter into this agreement with the Employee in consideration for his commitment to provide substantial, long term services, the City agrees to make certain payments if the Employee continues in the employ of the City. This Agreement is designed to comply with the requirements of Internal Revenue Code Section 457(f). The City makes no representation with respect to individual tax consequences of this agreement. .. The Employee agrees that his unearned and unpaid Compensation for the remaining • months of the current Employment Year and for each employment year thereafter shall be reduced by the deferral amount periodically as selected and designated on the attached Schedule. This deferral amount shall be credited to the Employee's account each period during the time this agreement remains in effect. Prior to the beginning of each new Employment Year, the Employee shall have the right to amend this election to increase or decrease the Deferral Amount for the next Employment year. No actual transfer of funds to such account shall be required. The Employee's other benefits which are provided by the City and which are based on the Employee's Compensation will continue to be provided to the Employee as if no amounts were deferred under this Agreement. 2. Risk of Forfeiture If the Employee's employment with the City is terminated for any reason other than retirement, death, or disability and the Employee has not within 180 days after the date of termination provided the City with evidence satisfactory to the City that the Employee has been employed by a Successor Employer (or subsequent Successor Employer in the event succeeding employment relationships are also terminated for any reason other than retirement, death or disability), the Employee's entire account balance •will be forfeited to the City and he will have no further right to the deferred compensation. 3. Lapse of Risk of Forfeiture If the Employee's employment with the City or a Successor Employer terminates because of retirement according to the provisions of the applicable pension plan, or because of Death or Disability, the risk of forfeiture described in Section 2 above shall 9 0 lapse and the Employee's account balance shall be fully vested with the Employee and distributed to him or his designated beneficiary within sixty (60) days of termination in the form designated in Section 15 of this agreement. Risk of Forfeiture shall also lapse after April 1, 2008. • 4. Employee Services The Employee promises to provide future performance of substantial services to the City through April 1, 2008 in accordance with the present and future job description of the General Services Director position. Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. Any funds which (at the election of the City) may actually be credited to the account of the Employee shall continue for all purposes to be part of the general funds of the City, and no person other than the City, by virtue of the provisions of this Agreement shall have any interest in such funds. To the extent that any person acquires a right to receive payments from the City under this Agreement, such rights shall be no greater than the right of any unsecured or general creditor of the City. 6. Administration The books and records to be maintained for the purpose of the Agreement shall be • maintained by the City. All the expenses of administering the Agreement shall be paid at the sole determination of the City. The Employee agrees to provide at such times and in such manner as my be requested by the City, such information as may be necessary for the City to prepare any reports required by the Internal Revenue Service, the Department of Labor, or any other governmental agency authorized to receive such information. To the extent permitted by law, the interest of the Employee in any deferred Compensation hereunder shall not be subject in any manner to attachment or other legal process for the debts of the employee, nor shall the Employee's interest be subject to anticipation, alienation, transfer, assignment or encumbrance. 8. Amendment of Agreement The Agreement may only be amended or revoked by written agreement of the City and the Employee. 9. No Employment Contract . This Agreement shall not be deemed to constitute a contract of employment between the City and the Employee, nor shall any provision hereof restrict the right of the City to discharge the Employee for just cause or of the Employee to voluntarily terminate his employment. 1 • • Distribution shall be made to Employee's surviving spouse, or if there is no surviving spouse, to his estate. No other beneficiary designation shall be valid unless it is in writing and signed by the Employee and his spouse (if married), dated and filed with the City. 11. Disability In the event the Employee, prior to retirement becomes disabled, then the Employee or his lawful guardian shall upon written request, be entitled to receive the account balance as provided in Section 15. _m I ma . ra .. This Agreement shall be construed, administered and enforced according to the laws of the State of California provided however, that it is intended that this Agreement create a deferred compensation arrangement which complies with the requirements of the 1986 Internal Revenue Code Section 457(f) and the Agreement shall be so construed and limited and the powers hereunder exercised so as to accomplish this purpose. • 13. Notices Any notice, accounting or other communication which the City may give the Employee shall be deemed given when mailed to the Employee at the latest address which has been furnished to the City. Any notice or other communication which the Employee may give to the City shall not become effective until actual receipt of said notice by the City. 14. Separability If any provision of the Agreement shall be for any reason invalid or unenforceable, the remaining provisions shall, nevertheless, continue in effect and shall not be invalidated thereby unless they are rendered unconscionable, inadequate or incapable of being interpreted as a result of the invalid or unenforceable provisions of the Agreement. The City at its sole determination shall pay the deferred compensation in one or more of the methods designated below: a. Lifetime Annuity or payments over assumed lifetime. b. Monthly Installments up to ten (10) years. c. Lump Sum. If the Employee, beneficiaries or lawful representative dispute benefit denial based upon completed performance of the agreement or meaning and effect of the terms and conditions thereof, then the claimants may submit the dispute to a Board of Arbitration. Said Board shall consist of one member selected by the Employee, his beneficiaries or lawful representative; another selected by the City; and a third member selected by the first two members. The Board shall operate under any general recognized set of arbitration rules. The parties hereto agree and acknowledge that they and their heirs, successors, and assignees shall be bound by the decisions of such Board with respect to any controversy properly submitted to it for determination. 17. Agreemen This Agreement represents the entire understanding of the parties and any modificaiton is effective only if it is in writing and signed by the party to be charged. Dated: Dated: ATTEST: CITY OF NEWPORT BEACH, A Municipal Corporation am David E. Niederhaus Wanda Raggio, City Clerk AS TO FORM: City Attorney • E JOINT POWERS EMPLOYEE BENEFIT AUTHORITY CITY OF NEWPORT BEACH • I.R.C. SECTION 457F DEFERRED COMPENSATION PLAN JOINDER AGREEMENT APPLICATION TO PARTICIPATE IN THE PLAN 19 Beginning 19_, I wish to participate in the Deferred Compensation Plan O I. Standard Option O II. Split Equity Option to the extent of $ per bi- weekly pay period. I wish to designate the following beneficiary (or beneficiaries) in accordance with Section 10 of the Plan: (Show name, relationship, and address) Spousal approval of Beneficiary • designation if other than spouse I acknowledge receipt of a copy of the Deferred Compensation Plan and confirm that I have reviewed and understand all of the terms and conditions thereof. • I ALSO UNDERSTAND AND ACKNOWLEDGE THAT IRRESPECTIVE OF SECTION 15, FORM OF PAYMENT, ALL AMOUNTS DEFERRED UNDER THIS PLAN ARE SUBJECT TO "LUMP SUM" TAXATION UPON LAPSE OF RISK OF FORFEITURE. Signed Administrative Approval 12 -20 -1 �fpcvs ON BENEFITS CORP V ANGELES OFFICE P.02 Number: 13 October, 1988 . . . . . . . . . . EXCESS DEFERRALS UNDER SECTION 457(f) Under Internal Revenue Code Section 457, the maximum annual employer and employee contribution to an employee's deferred compensation account is limited to the lesser of 25% of income or $7,500. There is, of course, an exception under the catch -up provision which allows the $7,500 cap to be replaced with $IS,000. For quite some time :here has been an interest in IRC Section 457(f), which provides* under certain circumstances, for employer and /or employee deferrals over the $7,500 annual limitation. It may be a tool which should be considered in situations where the employer desires to retain the services of an individual, and provide for payouts at a certain date in the future which is dependent upon their performance of certain specific duties. HOW IT WORKS In general terms, an IRC Section 457(f) plan works as follows: ( 1. The employer and employee enter into an agreement which provides for the employer and /or employee, to set aside funds which will be paid to the employee at some future specified date. 2. The future payment must depend upon the future performance of "substantial" services. L 3. in terms of judging whether or not the services to be performed are substantial, the Internal Revenue Service has said they will rely upon the "facts and circumstances test ". The service to be performed must be meaningful, and it should be easily defined and measurable. In addition, the risk of forfeiture must be real. If the employee does not meet the specific requirements upon wh ciTi payment of benefits are conditioned, then he or she must lose ail of the funds which have been set aside on his or her behalf, including those which he or she deferred out of their own pay. 4. The term over which services are to be provided should also be meaningful (i.e. 4 -5 years or more). 5. The risk of forfeiture must be substantial. For example, if the employee does not remain employed until the date specified in the contract, he or she would lose all of their benefits under the 457(f) plan. Of course, any benefits which would be paid from the basic 457 plan would be payable under tbp provisions of that particular plan. It • • • 12 -20 -1993 16:53 213 39912 BENEFITS COP.P IOANGELES OFFICE P.03 • 6. The employee may defer amounts into his or her account, so Ion as they are subject to the same risk of forfeiture as t e emp Oyer payment. 7. There must be a plan document or written agreement between the employer and the employee providing for the specific definition of "substantial services ", and the provision under which the future payment will be made. 8. In some situations the agreements may be renewed prior to being, satisfied. This would allow an extension of the agreement under certain circumstances. However, caution should be exercised in renewing agreements. 9. The employer has a tax reporting obligation when the agreement is fulfilled. and any payments to the employee are subject to normal withholding. POSSIBLE APPLICATIONS n order to attract and retain key management personnel, and to provide incentives for them to complete specific projects for the public employer, it has become common over the past several years for employers to enter into supplemental compensation agreements for certain key management employees. Section 457(f) is one possible alternative for the employer to consider which could provide for the deferral of compensation over and above amounts specified under IRC Section 457. AOOITIONAL INFORMATION You may contact us for further information should you believe that IRC Section 457(f) may have some application to your current deferred compensation plan. We also encourage you to seek the advice of your legal or tax counsels in regard to the applicability of IRC Section 457(f). This information is provided primarily for informational purposes, and is not intended as legal or tax advice. Again, should you have any additional questions on this topic, please do not hesitate to call. • Gregory E. Seller Vice President Public Market Programs (213) 387 -3071 4 �Cw rURT t; CITO OF NEWPORT BEACH U 2 r DEFERRED COMPENSATION AGREEMENT THIS AGREEMENT, is adopted effective June 1, 1988 by the City of Newport Beach, a public agency organized and existing under the laws of the State of California, hereinafter called the "AGENCY ". WHEREAS, the AGENCY desires to enter into this Agreement with certain employees of the AGENCY under which, in consideration of services rendered in the past and services to be rendered in the future, the AGENCY will agree to make certain payments if the Employee continues in the employ of the AGENCY. This deferred compensation agreement is designed to comply with the requirements of Internal Revenue Code Section 457(f). The AGENCY makes no representation with respect to individual tax consequences of this agreement. 1. Definitions a. "Agreement" means this deferred compensation agreement as it may be amended from time to time. b. "Compensation" means the amount of salary to be paid by the AGENCY during the Employment Year to the Employee for services to be rendered during the Employment Year and which is reportable as income to the Federal Government for Federal Income Tax purposes, or which would be so reportable if the Employee had not elected to defer a portion of his Compensation under Section 2 of the Agreement. -.r- _ is • 0 0 c. "Deferral Amount" means the amount the Employee has elected to defer periodically under this Agreement. Any payment • under this Agreement shall be independent of, and in addition to, those under any other plan, program, or agreement which may be in effect between the parties hereto, or any other compensation payable to the Employee or the beneficiary by the AGENCY. d. "Disability" means the Employee is unable to engage in any substantial gainful activity by reason of any medically deter- minable physical or mental impairment which can be expected to result in death or to be of long- continued and indefinite duration. e. "Employee" means persons employed in job classifica- tions under the Salary Resolution of AGENCY, who have been employed one • or more years. f. "AGENCY" means the City of Newport Beach. g. "Employment Year" or "Year" means the calendar year. h. "Successor Employer" means any California government agency eligible to adopt an IRC Section 457 -plan and covered by the Public Employees retirement System, State Teachers Retirement System, County Retirement Act of 1937, a reciprocal system, or any similar public Agency system. 2. Deferral Election The Employee agrees that his unearned and unpaid Compensation • for the remaining months of the current Employment Year and for each employment year thereafter shall be reduced by the deferral amount periodically as selected and designated on Schedule A attached. This deferral amount shall be credited to the Employee's account each period 0 0 during the time this agreement remains in effect. Prior to the beginning of each new Employment Year, the Employee shall have the right to amend this election to increase or decrease the Deferral • Amount for the next Employment Year. No actual transfer of funds to such account shall be required. The Employee's other benefits which are provided by the AGENCY and which are based on the Employee's Compensation will continue to be provided to the Employee as if no amounts were deferred under this Agreement. 3. Risk of Forfeiture If the Employee's employment with the AGENCY (i) is terminated for any reason other than retirement pursuant to the provisions of the applicable retirement plan as outlined, in 1(h) • above, or because of death or disability and (ii) the Employee has not within 180 days after the date of termination provided the AGENCY with evidence satisfactory to the AGENCY that the Employee has been employed by a Successor Employer (or subsequent Successor Employer in the event succeeding employment relationships are also terminated for any reason other than retirement, death or disability) , the Employee's entire account balance will be forfeited to the AGENCY and he will have no further right to the deferred compensation. 4. Lapse of Risk of Forfeiture If the Employee's employment with the AGENCY or a Successor is Employer terminates because of retirement according to the provisions of the applicable pension plan, or because of Death or Disability, the risk of forfeiture described in Section 3 above shall lapse and the • • C 0 0 Employee's account balance shall be fully vested with the Employee and distributed to him or his designated beneficiary within sixty (60) days of termination in the form designated in Section 16 of this agreement. 5. No Segregation of Deferred Compensation Nothing contained herein shall be deemed to create a trust of any kind or create any fiduciary relationship. Any funds which (at the election of the AGENCY) may actually be credited to the account of the Employee shall continue for all purposes to be part of the general funds of the AGENCY, and no person other than the AGENCY, by virtue of the provisions of this Agreement shall have any interest in such funds. To the extent that any person acquires a right to receive payments from the AGENCY under this Agreement, such rights shall be no greater than the right of any unsecured or general creditor of the AGENCY. 6. Administration The books and records to be maintained for the purpose of the Agreement shall be maintained by the AGENCY. All the expenses of administering the Agreement shall be paid at the sole determination of the AGENCY. The Employee agrees to provide at such times and in such manner as may be requested by,the AGENCY, such information as may be necessary for the AGENCY to prepare any reports required by the Internal Revenue Service, the Department of Labor, or any other governmental agency authorized to receive such information. 7. Interest Not Assignable To the extent permitted by law, the interest of the Employee in any deferred Compensation hereunder shall not be subject in any Ar- 0 0 manner to attachment or other legal process for the debts of the Employee, nor shall the Employee's interest be subject to anticipation, alienation, transfer, assignment or encumbrance. • B. Amendment of Agreement The Agreement may only be amended or revoked by written agreement of the AGENCY and the Employee. 9. No Employment Contract This Agreement shall not be deemed to constitute a contract of employment between the AGENCY and the Employee, nor shall any provision hereof restrict the right of the AGENCY to discharge the Employee for just cause or of the Employee to voluntarily terminate • his employment. 10. In Case of the Employee's Death Distribution shall be made to Employee's surviving spouse, or if there is no surviving spouse, to his estate. No other beneficiary designation shall be valid unless it is in writing and signed by the Employee and his spouse (if married), dated and filed with the AGENCY. 11. Disability 'In the event the Employee, prior to retirement becomes disabled, then the Employee or his lawful guardian shall upon written • request, be entitled to receive the account balance as provided in Section 16. • 12. Applicable Law This Agreement shall be construed, administered and • enforced according to the laws of the State of California provided however, that it is intended that this Agreement create a deferred compensation arrangement which complies with the requirements of the 1986 Internal Revenue Code Section 457(f) and this Agreement shall be so construed and limited and the powers hereunder exercised so as to accomplish this purpose. 13. 'Pronouns Whenever used in this Agreement, the masculine pronoun is to be deemed to include the feminine. The singular form, whenever • used herein, shall mean or include the plural form where applicable and vice versa. 14. Notices Any notice, accounting or other communication which the AGENCY may give the Employee shall be deemed given when mailed to the Employee at the latest address which has been furnished to the AGENCY. Any notice or other communication which the Employee may give to the AGENCY shall not become effective until actual receipt of said notice by the AGENCY. is15. Separability If any provision of this Agreement shall be for any reason invalid or unenforceable, the remaining provisions shall, nevertheless, continue in effect and shall not be invalidated thereby unless they are Ar�. • s rendered unconscionable, inadequate or incapable of being interpreted as a result of the invalid or unenforceable provisions of the Agreement. 16. Form of Payment The AGENCY at its sole determination shall pay the deferred compensation in one or more of the methods designated below: a. Lifetime Annuity or payments over assumed lifetime. b. Monthly Installments up to ten (10) years. c. Lump Sum. 17. Arbitration • If the Employee, beneficiaries or lawful representative • dispute benefit denial based upon completed performance of the agreement or meaning and effect of the terms and conditions thereof, then the claimants may submit the dispute to a Board of Arbitration. Said Board shall consist of one member selected by the'Employee, his beneficiaries or lawful representative; another selected by the AGENCY; and a third member selected by the first two members. The Board shall operate under any general recognized set of arbitration rules. The parties hereto agree and acknowledge that they and their heirs, successors. and assignees shall be bound by the decisions of such Board with respect to any controversy properly submitted to it for determination. Passed and Adopted this of , 1988. BY • • 0 CITY OF NEWPORT BEACH P.O. BOX 1768, NEWPORT BEACH, CA 92658 -8915 June 2, 1988 Ann McLaughlin Secretary of Labor U. S. Department of Labor Washington, D. C. 20210 RE: Alternative Dear Secretary McLaughlin: and Disclosure Statement for In compliance with the requirements of reporting and disclosure under Part 1 of Title I of Employee Retirement Income Security Act of 1974 for unfunded or insured pension plans for a select . group of management or highly compensated employees, specified in Department of Labor Regulations 29 C.F.R. &2520.104 -23, the following information is provided by the undersigned employer: • Name and Address of Employer: City of Newport Beach P. O. Box 1768 3300 Newport Blvd., Newport Beach, Cal. 92658 -8915 Employer Identification Number:95- 600751 • The City of Newport Beach maintains a plan primarily for the purp a of providing-de-ferred compensation for a select group of agement or_i.ghly co ensated employees. of Plans: 1 with 45 employees Ji1lV G1 , G orge Pia s, Finances Dir ct Plan Admi s 3300 Newport Boulevard, Newport Beach •�•..• yew s r May 7, 1987 TO: George Pappas, Finance Director FROM: Duane K. Munson Personnel Director SUBJ: SOUTHERN CALIFORNIA GROUP BENEFITS J.P.A. I am very interested in providing early support to the formulation of a Southern California Group Benefits J.P.A. Thus far, the project has been spearheaded by Bill 'Todd, Personnel Director for Costa Mesa. He has done considerable work in making preliminary deter- minations of what such a J.P.A. might be able to deliver. Because the designation "group benefits" is so broad, the J.P.A. will be able to examine and perhaps make available such things as: 1.) a more flexible Deferred amp Plan (457F) . 2.) a portable premium stabilization find for retirees 3.) better group L.T.D. rates 4.) possibly lower group life insurance rates 5.) entire health care packages and /or any element of a health care package, such as - dental, vision, or psychological. care. With your support, I would like Newport Beach to join with Costa Mesa and Anaheim as a charter member of this J.P.A. Bill Todd says it will require $2,000 from each of our three agencies to establish the legal framework: as other agencies join we can expect to recoup some of that money. I am confident that we could realize savings substantial enough to justify the investment even if the J.P.A. becomes no larger than Anaheim, Costa Mesa and Newport Beach. • Please let me know if you need any more information. •