HomeMy WebLinkAbout05 - Pre-tax Payroll Deduction Plan for Service Credit Purchases - PERSCITY OF NEWPORT BEACH
CITY COUNCIL STAFF REPORT
Agenda Item No. 5
September 9, 2008
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 Pre -Tax Payroll Deduction Plan
for Service Credit Purchases to The Board of Administration, California
Public Employees' Retirement System (PERS).
RECOMMENDATION:
Adopt Resolution 2008-_ for the City of Newport Beach to allow employees to make Public
Employees' Retirement System (PERS) service credit purchases on a pre -tax basis.
DISCUSSION:
Employees are entitled to purchase various types of PERS service credit at their own expense
including but not limited to prior service credit, military service credit, and other additional
service credit. Section 414(h)(2) of the Internal Revenue Code (IRC), allows employers to
"pickup" 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 section 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 either
through retirement allowances or a lump sum payment.
On February 24, 2004, Council adopted Resolution 2004 -15 implementing the provisions of
Section 414(h)(2) for employees in specific PERS coverage groups. Recently PERS informed
us that changes in the miscellaneous retirement formula created a new coverage group which
requires the City to adopt a new resolution to provide the tax benefit to miscellaneous
employees who are members of PERS. To alleviate the necessity to adopt future resolutions
when a coverage group changes, this resolution encompasses All Miscellaneous and All Safety
coverage groups.
The attached Resolution would comply with the provisions of Section 414(h)(2) of the IRC,
reporting employee paid member contributions to PERS on a pre -tax basis for City of Newport
Beach employees who are PERS members.
Fundinq Availability
There is no cost to the City in adopting this resolution.
..
-4n anager Barbara
Attachment: Resolution
RESOLUTION NO. 2008-
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF NEWPORT BEACH
AUTHORIZING EMPLOYER PICKUP 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 (IRC) 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):
All Miscellaneous and All Safety Groups
NOW, THEREFORE, BE IT RESOLVED:
That the City of Newport Beach 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 CaIPERS 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.
II. 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.
III. 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.
IV. 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.
V. That the effective date for commencement of the pre -tax payroll deduction plan
cannot be any earlier than the date the completed resolution is received and
approved by CaIPERS.
VI. 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 CalPERS for those employees of the
above stated Coverage Group(s) who have elected to participate in this plan.
Adopted this ninth day of September, 2008
M
Mayor
ATTEST:
City Clerk
RETURN ADDRESS:
City of Newport Beach
3300 Newport Boulevard
Newport Beach, CA 92663 -2884
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FOR CALPERS USE ONLY
Pre -tax payroll deduction plan effective date:
Approved By:
Title:
MEMBER SERVICES DIVISION, Service credit section -Unit 830