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Home My WebLink About04 - CalPers Service Credit Purchases. CITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 4 February 24, 2004 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Administrative Services Department Dennis C. Danner, Administrative Services Director, (949) 644 -3123, ddanner @city.newport- beach.ca.us SUBJECT: PRE -TAX PAYROLL DEDUCTION PLAN FOR CALPERS SERVICE CREDIT PURCHASES RECOMMENDATION: It is recommended that the City Council authorize the attached resolution that will allow • employees to make PERS redeposits and service credit purchases on a pre tax basis. DISCUSSION: Background: Employees are entitled to purchase various types of CaIPERS service credit at their own expense including but not limited to prior service credit, military service credit, other additional service credit, and redeposits of previously withdrawn member contributions. Section 414(h)(2) of the Internal Revenue Code allow employers to "pick -up" member pension contributions and consider them employer contributions for tax reporting purposes even though the contribution is funded by a deduction from the employee's salary. This code section therefore, allows the employee to defer the income tax liability on the portion of salary utilized for pension contributions until the pension benefit is distributed to the employee during retirement. By filing the attached resolution with CalPERS, the City is allowed to extend IRC § 414(h)(2) to employee service credit purchases too. This resolution would then allow employees the option of purchasing member service credits on a tax deferred basis. Costs: Service credit purchases are an elective benefit that is wholly paid for at the employee's • own expense. There are no out -of- pocket City contributions associated with the Pre -tax Payroll Deduction Plan for CalPERS Service Credit Purchases February 24, 2004 Page 2 • purchase of service credit nor are there any costs associated with the tax deferral benefit afforded by this resolution. Alternative: The City takes no action and therefore, elects not to participate in the Pre -Tax Payroll Deduction Plan for CalPERS Service Credit Purchases. Employees could only make such purchases on a post tax basis. Prepared by: Submitted by: Matusiewicz Dennis Danner Finance Officer Administrative Services Director Attachments: Resolution 0 0 RESOLUTION NO. 2004- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AUTHORIZING EMPLOYER PICKUP RESOLUTION PRE -TAX PAYROLL DEDUCTION PLAN FOR SERVICE CREDIT PURCHASES (CONTRIBUTION CODE 14) WHEREAS, the Board of Administration of the California Public Employees' Retirement System (CaIPERS) at the April 1996 meeting approved a pre -tax payroll deduction plan for service credit purchases under Internal Revenue Code ( section 414(h)(2); and WHEREAS, the City of Newport Beach has the authority to implement the provisions of IRC section 414(h)(2) and has determined that even though implementation is not required by law, the tax benefit offered by this section should be provided to those employees . who are members of CaIPERS; and WHEREAS, the City of Newport Beach elects to participate in the pre -tax payroll deduction plan for all employees in the following CaIPERS coverage group(s): NOW, THEREFORE, BE IT RESOLVED: SECTION 1. That the City of Newport Beach, California, will implement the provisions of IRC section 414(h)(2) by making employee contributions for service credit purchases pursuant to the California State Government Code on behalf of its employees who are members of CaIPERS and who have made a binding irrevocable election to participate in the pre- tax payroll deduction plan. "Employee contributions" shall mean those contributions reported to . Ca1PERS which are deducted from the salary of employees and are credited to individual employee accounts for service credit purchases, thereby resulting in tax deferral of employee contributions. SECTION 2. That the contributions made by the City of Newport Beach to CaIPERS, although designated as employee contributions, are being paid by the City of Newport Beach in lieu of contributions by the employees who are members of CaIPERS. SECTION 3. That the employees shall not have the option of choosing to receive the contributed amounts directly instead of having them paid by the City of Newport Beach to CaIPERS. SECTION 4. That the City of Newport Beach shall pay to CaIPERS the contributions designated as employee contributions from the same source of funds as used in paying salary, thereby resulting in tax deferral of employee contributions. SECTION 5. That the effective date for commencement of the pre -tax payroll deduction plan cannot be any earlier than July 1, 1996, or the date the completed resolution is received and approved in CaIPERS, whichever is later. SECTION 6. That the governing body of the City of Newport Beach shall participate in and adhere to requirements and restrictions of the pre -tax payroll deduction plan by reporting pre -tax payroll deductions when authorized by CaIPERS for those employees of the above stated Coverage Group(s) who have elected to participate in this plan. PASSED AND ADOPTED by the governing body of the City of Newport Beach this day of 2004. • 0 Mayor ATTEST: City Clerk RETURN ADDRESS: City of Newport Beach 3300 Newport Boulevard PO Box 1768 NeNvport Beach, CA 92658 -8915 L� FOR CALPERS USE ONLY Pre -tax Payroll Deduction Plan Effective Date: Approved By: Title: MEMBER SERVICES DIVISION, Service Credit Section — Unit 830 E y RESOLUTION NO. 2004- 15 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH, CALIFORNIA, AUTHORIZING EMPLOYER PICKUP RESOLUTION PRE -TAX PAYROLL DEDUCTION PLAN FOR SERVICE CREDIT PURCHASES (CONTRIBUTION CODE 14) WHEREAS, the Board of Administration of the California Public Employees' Retirement System (CaIPERS) at the April 1996 meeting approved a pre -tax payroll deduction plan for service credit purchases under Internal Revenue Code ( section 414(h)(2); and WHEREAS, the City of Newport Beach has the authority to implement the provisions of IRC section 414(h)(2) and has determined that even though implementation is not required by law, the tax benefit offered by this section should be provided to those employees who are members of CAPERS; and WHEREAS, the City of Newport Beach elects to participate in the pre -tax payroll deduction plan for all employees in the following CAPERS coverage group(s): NOW, THEREFORE, BE IT RESOLVED: SECTION 1. That the City of Newport Beach, California, will implement the provisions of IRC section 414(h)(2) by making employee contributions for service credit purchases pursuant to the California State Government Code on behalf of its employees who are members of CAPERS and who have made a binding irrevocable election to participate in the pre- tax payroll deduction plan. "Employee contributions' shall mean those contributions reported to Ca1PERS which are deducted from the salary of employees and are credited to individual employee accounts for service credit purchases, thereby resulting in tax deferral of employee contributions. SECTION 2. That the contributions made by the City of Newport Beach to CaIPERS, although designated as employee contributions, are being paid by the City of Newport Beach in lieu of contributions by the employees who are members of CaIPERS. SECTION 3. That the employees shall not have the option of choosing to receive the contributed amounts directly instead of having them paid by the City of Newport Beach to CaIPERS. SECTION 4. That the City of Newport Beach shall pay to CaIPERS the contributions designated as employee contributions from the same source of funds as used in paying salary, thereby resulting in tax deferral of employee contributions. SECTION 5. That the effective date for commencement of the pre -tax payroll deduction plan cannot be any earlier than July 1, 1996, or the date the completed resolution is received and approved in CalPERS, whichever is later. SECTION 6. That the governing body of the City of Newport Beach shall participate in and adhere to requirements and restrictions of the pre -tax payroll deduction plan by reporting pre -tax payroll deductions when authorized by CaIPERS for those employees of the above stated Coverage Group(s) who have elected to participate in this plan. PASSED A'ND ADOPTED by the governing body of the City of Newport Beach this 24"' day of February, 2004. MAYOR ATTEST: RETURN ADDRESS: City Clerk City of Newport Beach 3300 Newport Boulevard PO Boa 1768 Newport Beach, CA 92658 -8915 FOR CALPERS USE ONLY Pre -tax Payroll Deduction Plan Effective Date: Approved By: Title: MEMBER SERVICES DIVISION, Service Credit Section — Unit 830 STATE OF CALIFORNIA COUNTY OF ORANGE CITY OF NEWPORT BEACH I, LaVonne M. Harkless, City Clerk of the City of Newport. Beach. California, do hereby certify that the whole number of members of the City Council is seven: that the foregoing resolution, being Resolution No. 2004 -15 was duly and regularly introduced before and adopted by the City- Council of said City at a regular meeting of said Council, duly and regularly held on the 24th day of February, 2004, and that the same was so passed and adopted by the following vote, to wit: Ayes: Heffernan, Rosansky, Bromberg, Webb, Nichols, Mayor Ridgeway '_does: None Absent: Adams Abstain: None IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the official seal of said City this 25th day of February. 2004. (Seal) City Clerk Newport Beach, California