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HomeMy WebLinkAbout04 - PERS - Tax Deferred Member Paid ContributionsCITY OF NEWPORT BEACH CITY COUNCIL STAFF REPORT Agenda Item No. 4 October 9, 2007 TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL FROM: Human Resources Department Barbara Ramsey, Human Resources Director 949 -644 -3303, bramsey @city.newport- beach.ca.us SUBJECT: A Resolution to Implement the reporting of Tax Deferred Member Paid Contributions to The Board of Administration, California Public Employees' Retirement System (PERS). RECOMMENDATION- Adopt Resolution 2007-. for the City of Newport Beach reporting of tax deferred member paid contributions to the Board of Administration, California Public Employees' Retirement System (PERS). DISCUSSION: Section 414(h)(2) of the Internal Revenue Code (IRC) allows employees to defer state and federal income taxes on their member retirement contributions. This is called Employer Pick -up. The program provides employees' contribution to be treated as employer contributions for federal and state tax purposes. The amount reported to the IRS is base salary less the member contribution. Federal and state taxes on the amount of contributions are postponed until distribution either through a retirement allowances or a lump sum payment. The Board of Administration, California Public Employees' Retirement System (PERS) adopted a resolution regarding Section 414(h)(2) of the IRC on September 18, 1985. Since that time, the City of Newport Beach had the authority to provide this benefit to its employees who are members of the Public Employees' Retirement System. To implement the provision of Section 414(h)(2) of the IRC, each PERS agency was to adopt a Resolution stating they are providing the benefit to its employees. In recent discussions with PERS, staff discovered that the City had not adopted a resolution to provide the tax benefit to its employees who are members of PERS, although the City is currently reporting the contributions to PERS on a pre -tax basis. The attached Resolution would comply with the provisions of Section 414(h)(2) of the IRC, reporting employer paid member contributions to PERS on a tax deferred basis for City of Newport Beach employees who are members PERS. IRE-J .. ffift. .►��„ �.. �!_ -. � � ► �1� Ramsey, HR Direclor 11 60 HR u#411 r Attachment: Resolution RESOLUTION NO. 2007- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH TO TAX DEFER MEMBER PAID CONTRIBUTIONS REPORTED TO THE BOARD OF ADMINISTRATION, CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEM (PERS). WHEREAS, the City of Newport Beach has the authority to implement the provisions of section 414(h)(2) of the Internal Revenue Code (IRC); and WHEREAS, the Board of Administration of the Public Employees' Retirement System adopted its resolution regarding section 414(h)(2) IRC on September 18,1985; and WHEREAS, the Internal Revenue Service has stated in December 1985, that the implementation of the provisions of section 414(h)(2) IRC pursuant to the Resolution of the Board of Administration would satisfy the legal requirements of section 414(h)(2) IRC; and WHEREAS, the City of Newport Beach has determined that even though the implementation of the provisions of section 414(h)(2) IRC is not required by law, the tax benefit offered by section 414(h)(2) IRC should be provided to its employees who are members of the Public Employees' Retirement System: NOW, THEREFORE, BE IT RESOLVED: I. That the City of Newport Beach will implement the provisions of section 414(h)(2) Intemal Revenue Code by making employee contributions pursuant to Califomia Govemment .Code section 20691 to the Public Employees' Retirement System on behalf of its employees who are members of the Public Employees Retirement System. "Employee contributions" shall mean those contributions to the Public Employees' Retirement System which are deducted from the salary of employees and are credited to individual employee's accounts pursuant to California Government Code section 20691. II. That the contributions made by the City of Newport Beach to the Public Employees' Retirement System, although designated as employee contributions, are being paid by the City of Newport Beach in the lieu of contributions by the employees who are members of the Public Employees' Retirement System. III. That 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 the Public Employees' Retirement System. IV. That the City of Newport Beach shall pay to the Public Employees' Retirement System the contributions designated as employee contributions from the same source of funds as used in paying salary. V. That the amount of the contributions designated as employee contributions and paid by the City of Newport Beach to the Public Employees' Retirement System on behalf of an employee shall be the entire contribution required of the employee by the Public Employees' Retirement Law (Califomia Government Code sections 20000, et seg. . VI. That the contributions designated as employee contributions made by City of Newport Beach to the Public Employees' Retirement System shall be treated for all purposes, other than taxation, in the same way that member contributions are treated by the Public Employees' Retirement System. Adopted on this 9th day of October, 2007. Mayor ATTEST: City Clerk