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CC - 2008-02 - Amending the ICMA -Rc Retirement Plan to Permit LoansAttachment A RESOLUTION: 2008-02 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROSEMEAD, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, IN THE MATTER OF AMENDING THE ICMA-RC RETIREMENT PLAN TO PERMIT LOANS. WHEREAS, the City of Rosemead has employees rendering valuable services; and WHEREAS, the City of Rosemead has established a retirement plan (the "Plan") for such employees which serves the interest of the City of Rosemead by enabling it to provide reasonable retirement system security for its employees, by providing increased flexibility in its personnel management system, and by assisting in the attraction and retention of competent personnel; and WHEREAS, the City of Rosemead has determined that permitting participants in the retirement plan to take loans from the Plan will serve these objectives; NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF ROSEMEAD HEREBY RESOLVES AS FOLLOWS: The City of Rosemead Section 457 Deferred Compensation Plan #300934 will permit loans. PASSED, APPROVED AND ADOPTED this 8th day of January 2008. ATTEST: Gloria Molleda City Clerk CITY ATTORNEY 1/1 • o Loan Guidelines Agreement Attachment B Name ofPlaxt (please state the Employer's complete name, includingstate): City of Rosemead, California Plan Type: ❑ 401(a) Money Purchase Plan ❑ 401 Profit-Sharing Plan M 457 Deferred Compensation Plan ICMA-RC Plan Number: 300934 Purpose The purpose of these guidelines is to establish the terms and conditions under which the Employer will grant loans to participants. This is the only official Loan Provision Document of the above named Plan. 11. Eligibility Loans are available to all active employees. Loans will not be granted to participants who have an existing loan in default. Loans will be pro-rated among all the funds in which the participant is invested at the time the loan is made. For 401 plans only: Loans are available from the following sources: [select one or both] ❑ Employer Contribution Account (vestcd balances only) ❑ Participant Contribution Accounts (pre- and post-tax, if applicable, including Employee Mandatory, Employee Voluntary, Employer Rollover, and Portable Benefits Accounts, but excluding the Deductible Employee Contribution/Qualified Volun- tary Employee Contribution Account) For all plan types: Loans are available for the following purposes: [select one] ® All purposes ❑ Loans shall only be granted in the event of a participant's hardship or for the purpose of enabling a participant to meet certain specified financial situations. The employer shall approve the participant's loan application after determining, based on all relevant facts and circumstances, that the amount of the loan is nor in excess of the amount required to relieve the fi- nancial need. For this purpose, financial need shall include, but not be limited to: unreimburscd medical expenses of the par- ticipant or members oFthe participant's immediate family, establishing or substantially rehabilitating the principal residence of the participant, or paying for a college education (including graduate studies) for the participant or his/her dependents. 111. Frequency of loans [select one] ® Participants may receive one loan per calendar year. Moreover, participants may have only one (1) outstanding loan at a time. ❑ Participants may receive one loan per calendar year. Moreover, no participant may have more than five (5) loans outstanding at one time. 1/7 • o ICMA - RC IV. Loan amount The minimum loan amount is $1,000. The maximum amount of all loans to the participant from the plan and all other plans sponsored by the Employer that are qualified employer plans under section 72(p)(4) of the Code is the lesser of (1) $50,000, reduced by the highest outstanding balance of all loans from any 401 or 457 plans for chat participant during the one-year period ending on the day before the dacq a loan is to be made, or (2) one half of the participant's vested account balance, reduced by the current outstanding balance of all 401 and 457 loans from all plans for that participant. If a participant has any loans outstanding at the time a new loan is requesced, the new loan will be limited to the maximum amount calcu- lated above reduced by the total of the outstanding loans. A loan cannot be issued for more than the above amount. The participants requested loan amount is subject to downward adjustmerit without notice due to market fluctuation between the time of application and the time the loan is made. V. Length of loan A loan must be repaid in substantially equal installments of principal and interest, at least monthly, over a period thac does not exceed five (5) years. Loans for a principal residence must be repaid in sub§1 nti ~ epfr l installments of principal and interest, at least monthly, over a period that does nor exceed f l ) [state number of years] years (maximum 30 years). VI. Loan repayment process Loan repayments for active employees must be through (choose one): ❑ Payroll deduction only. PL642(2) = 2 ❑ ACH debit only. PL642(2) = 0 XX Employee may choose either payroll deduction or ACH debit. PL642(2) = I If payroll deduction repayment is allowed, and the employee wishes to use this method, the employee must notify the Employer so that the Employer can ensure that repayment will begin as soon as practicable on a dace determined by the Employer's payroll cycle. Failure to begin payroll deduction in a timely way could lead to the employee's loan entering delinquency status. Payroll deduction should begin within two payroll cycles following the employee's receipt of the loan. Repaymencs through payroll deduction will be sent via check or wire by the Employer to ICMA-RC on the following cycle (choose one): ❑ Weekly (52 per year) IX Bi-weekly (26 per year) ❑ Semi-monthly (24 per year) ❑ Monthly (12 per year) If ACH debit repayment is allowed, debits from the employee's designated bank account will begin approximately one month fol- lowing the date the employee's signed ACH authorization form is received and processed by ICMA-RC, or, in the case of online loans, approximately one month following the date the loan check has been cleared for payment. Debits will normally be made on a monthly basis. 2/7 • o Loan Guidelines Agreement Loans outstanding for former employees or employees on a leave of absence must be repaid on the same schedule as if payroll deductions were still being made unless they reamortize their loans and establish a new repayment schedule that provides that sub- stantially equal payments are made at least monthly over the remaining period of the loan. Loan payments, including loan payments from former employees, are allocated to the participant's current election of investment options on file with ICMA-RC. The participant may pay off all or a portion of the principal and interest early without penalty or additional fee. Extra payments are applied forward to both principal and interest as specified in the original repayment schedule, unless the additional payment is for the balance due. VII- Loan interest rate The rate of interest for loans of five (5) years or less will be based on prime plus 0.5%. The rate of interest For loans for a principal residence will be based on the FHANA rate. Interest rates are determined on the last business day of the month preceding the month the loan is disbursed. The interest race is locked in at the time a loan is approved and remains constant throughout the life of the loan. The prime interest race is determined on the last business day of each month using www.nfsn.com as the source. The FHANA interest rate is also determined on the last business day of each month using www/bankofamerica.com as the source. Loan interest rates for new loans taken in different months may fluctuate upward or downward monthly, depending on the move- ment of the prime and FHA/VA interest rates. The employer may modify the manner in which loan interest rates will be determined, but only with respect to future loans. VIII. Loan application procedure Loans must be requested using the following method (check one): ❑ Online only: All loans must be requested online by employees through ICMA-RC's Account Access site at wvneicmarc.org, with Employer prc-authorization as outlined in italics below. If an employee is married at the time of application, and spousal consent is required by the Plan for the loan, the employ- ee's spouse must consent, in writing, to the loan and the consent must be witnessed by a plan representative or notary public. Such consent must be received in writing by ICMA-RC no more than ninety (90) days before the loan request is submitted through Account Access. The promissory note, truth-in-lending rescission notice and disclosure statement are presented to the employee online through Account Access at the time the employee submits the loan request. The employee confirms receipt and acceptance of these documents by clicking on the affirmative buttons on the Account Access program. The employer hereby authorizes all future loam requested through the online process via Account Access, as well as any requests that employees submit on paper forms, pending review of the application by ICMA-RC Notice ofloan issuance will be provided to the Employer via reports posted on the EZLink site. The loan amount will generally be redeemed from the employee's account on the same day as the employee's successful submission of the loan request through Account Access, if it is submitted prior to 4:00 p.m. ET on a business day. If not, the loan amount will be redeemed on the next business day following submission. The loan check is generally issued on the next business day following redemption, and will be mailed directly to the employee. The employee's presentment of the loan check for payment constitutes an acknowledgment that the employee has received and read the loan disclosure information provided by ICMA-RC and agrees to the terms therein. Loan repayment will begin as soon as practicable following the employee's presentment of the loan check for payment 3/7 • o I C M A- R C ® Online and through Direct Loan application: All loans must be requested either online by employees through ICMA-RC's Account Access site at www.icmarc.org, or through the Direct Loan application, both of which require pre- authorization by the Employer as outlined in italics below. If an employee is married at the time of application, and spousal consent is required by the Plan for the loan, the employ- ee's spouse must consent, in writing, to the loan and the consent must be witnessed by a plan representative or notary public. Such consent must be received in writing by ICMA-RC no more than ninety (90) days before the loan request is submitted through Account Access. In the case of the Direct Loan Application, spousal consent should be sent along with the application. The promissory note, truth-in-lending rescission notice and disclosure statement are mailed to the employee along with the issued loan check. The employee confirms receipt and acceptance of these documents and terms at the time the en- dorsed check is presented for payment. The Employer hereby authorizes all future loans requested through the online process via Account Access, as well as any requests that employees submit on paper forms, pending review of the application by ICMA-RC. Notice ofloan issuance will be provided to the Employer via reports posted on the EZLink site. The loan amount will generally be redeemed from the employees account on the same day as either ICMA-RC's receipt of a loan application (complete and in good order), or the employee's successful submission of the loan request through Account Access, if it is submitted prior to 4:00 p.m. ET on a business day. If not, the loan amount will be redeemed on the next business day following submission. The loan check is generally issued on the next business day following redemption, and will be mailed directly to the employee. The employee's presentment of the loan check for payment constitutes an ac- knowledgment that the employee has received and read the loan disclosure information provided by ICMA-RC and agrees to the terms therein. Loan repayment will begin as soon as practicable following the employee's presentment of the loan check for payment. ❑ Direct Loan application only: All loans must be requested through the Direct Loan application, which requires pre-au- thorization by the Employer as outlined in italics below. If an employee is married at the time of application, and spousal consent is required by the Plan for the loan, the employ- ee's spouse must consent, in writing, to the loan and the consent must be witnessed by a plan representative or notary public. Such consent must be received in writing by ICMA-RC along with the Direct Loan Application. The promissory note, truth-in-lending rescission notice and disclosure statement are mailed to the employee along with the issued loan check. The employee confirms receipt and acceptance of these documents at the time the endorsed check is presented for payment. The employer hereby authorizes all future loam requested on paper forms, pending review of the application by ICMA-RC Notice of loan issuance will be provided to the Employer via reports posted on the EZLink site. The loan amount will generally be redeemed from the employees account on the same day as ICMA-RC's receipt ofa loan application (complete and in good order). The loan check will generally be issued from the employee's account on the next business day following redemption. The loan check will be mailed directly to the employee. The employee's presentment of the loan check for payment constitutes an acknowledgment that the employee has received and read the loan disclosure information provided by ICMA-RC and agrees to the terms therein. Loan repayment will begin as soon as practicable following the employee's presentment of the loan check for payment. ❑ Loan application through the Employer: All loans must be requested in writing on an application approved by the plan administrator. The application must be signed by the participant. The Employer must review and approve each partici- pants application. 4/7 O O Loan Guidelines Agreement The participant will be required to sign a promissory note evidencing the loan and a disclosure statement that includes an amortization schedule prior to receiving a loan check. Loan checks will generally be issued on the next business day following ICMA-RC's receipt of a complete loan application. The loan check, promissory note, disclosure statement and truth-in-lending rescission notice will be sent to the employer, who will obtain the necessary signatures and deliver the check to the participant. All executed documents must be returned to ICMA-RC within 10 calendar days from the dare the check is issued. IX. Security/Collateral That portion of a participants account balance that is equal to the amount of the loan is used as collateral for the loan. The col- lateral amount may nor exceed 50 percent of the participant's account balance at the time the loan is taken. Only the portion of the account-balance that corresponds to the amount of the outstanding loan balance is used as collateral, X. Acceleration [select one] ❑ All loans are due and payable in full upon separation from service. ❑ All loans are due and payable when a participant receives a distribution of all of his/her account balance after separa- tion from service. The amount of the outstanding loan balance will be reported as a distribution in addition to the amount of cash distributed from the plan. C3 All loans are due and payable when a participant receives a distribution of part of his/her account balance after separa- tion from service. The amount of the outstanding loan balance will be reported as a distribution in addition to the amount of cash distributed from the plan. XI. Reamortization Any outstanding loan may be reamortized. Reamortization means changing the terms of a loan, such as length of repayment peri- od, inmrest race, and frequency of repayments. A loan may not be reamortized to extend the length of the loan repayment period to more than five (5) years from the date the loan was originally made, or in the case of a loan to secure a principal residence, beyond the number of years specified by the employer in Section V above. A participant must request the reamortization of a loan in writing on a reamortization application acceptable to the plan adminis- trator. Upon processing the request, a new disclosure statement will be sent to the employer for endorsement by the participant and approval by the employer. The executed disclosure statement must be returned to the plan administrator within 10 calendar days from the date it is signed. The new disclosure statement is considered an amendment to the original promissory note, therefore a new promissory note will not be required. A reamortization will not be considered a new loan for purposes of calculating the number of loans outstanding or the one loan per calendar year limit. X11. Refinancing existing loans If a participant has one outstanding loan, that loan maybe refinanced. If a participant has more than one outstanding loan, no loans may be refinanced. Refinancing means concurrently repaying an existing loan and borrowing an additional amount through a new loan. Refinancing includes any situation in which one loan replaces another loan and the term of the replacement loan does not exceed the latest permissable term of the replaced loan. In order to refinance an existing loan, a participant must request this in writing on an application approved by the plan administra- tor. Such request must be made at a time when the participant is eligible to obtain a loan as defined by the employer in Section III above. The amount of the additional loan amount requested for the purpose of refinancing is subject to the loan limits specified in Section IV above. Because a refinancing is considered a new loan, only active employees may refinance an outstanding loan. 5/7 I C M A- R C X111. Reduction of Loan 0 If a participant dies prior to full repayment of the outstanding loan(s), the outstanding loan balance(s) will be deducted from the account prior to distribution to the beneficiary(ies). The unpaid loan amount is a taxable distribution and may be subject to early withdrawal penalties. The participant's estate is responsible for taxes or penalties on the unpaid loan amount, if any. A beneficiary is responsible for taxes due on the amount he or she receives. A Form 1099 will be issued to both the beneficiary and the estate for these purposes. XIV. Deemed Distribution Loan repayments must be made in accordance with the plan document, plan loan guidelines, and as reflected in the promissory note signed by the participant. If a scheduled payment is not paid within 30, 60, and/or 90 days of the due date, a notice will be sent to both the employee and the employer. A loan will be deemed distributed when a scheduled payment is still unpaid at the end of the calendar quarter following the calen- dar quarter in which the payment was due. If the total amount of any delinquent payment is not received by ICMA-RC by the end of the calendar quarter following the calendar quarter in which they payment was due, the loan is considered a taxable distribution, and the principal balance, in addition to any accrued interest, is reported as a distribution to the IRS. However, no money is paid in this distribution, because the participant already has the loan proceeds. The loan is deemed distributed for tax purposes, but it is not an actual distribution and therefore remains an asset of the partici pant's account. Interest continues to accrue. The ourstanding loan balance and accrued interest are reported on the participant's account statement. Repayment of a deemed distribution will nor change or reverse the taxable event. The loan continues to be outstanding, and to accrue interest, until it is repaid or offset using the participants account balance. An offset can occur only if the participant is eligible to receive a distribution from the plan as outlined in the plan document. participants are required to repay any outstanding loan which has been deemed distributed before they can be eligible for a new loan. The deemed distribution and any interest accrued since the date it became a taxable event is taken into account when deter-' mining the maximum amount available for a new loan. New loans must be repaid through payroll deduction. The employer is obligated by federal regulation to comply with the loan guideline requirements applicable to participant loans, and to ensure against deemed distribution by monitoring loan repayments, regardless of the method of repayment, and by advising em- ployees if loans are in danger of being deemed distributed. The tax-qualified status or eligibility of the entire plan may be revoked in cases of frequent repayment delinquency or deemed distribution. XV. Fees Fees may be charged for various services associated with the application for and issuance of loans. All applicable fees will be debited from the participant's account balance and/or from the participants loan repayments prior to crediting the repayment of principal and interest to the participant's account. A schedule of fees applicable to this plan is specified in ICMA-RC's current publication of Making Sound Investment Decisions: A Retirement Investment Guide. 6/7 • O Loan Guidelines Agrccment XVI. Other The employer has the right to set other terms and conditions as it deems necessary for loans from the plan in order to comply with any legal requirements. All terms and conditions will be administered in a uniform and non-discriminatory manner. In Witness Whereof, the employer hereby caused these Guidelines to be executed this 8th day of January 20 08 EMPLOYER p By: OeL C"'~.o Accepted: ICMA RETIREMENT CORPORATION By: Title: City Manager Title: Attest Arrest 7/7 0 STATE OF CALIFORNIA ) COUNTY OF LOS ANGELES ) SS. CITY OF ROSEMEAD 1 0 I, Gloria Molleda, City Clerk of the City of Rosemead, do hereby certify that the foregoing Resolution No.2008-02 being: A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROSEMEAD, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, IN THE MATTER OF AMENDING THE ICMA-RC RETIREMENT PLAN TO PERMIT LOANS was duly and regularly approved and adopted by the Rosemead City Council on the, 8th of January 2008 by the following vote to wit: Yes:Clark, Low, Nunez, Taylor, Tran No:None Abstain:None Absent:None Gloria Molleda City Clerk