CC - Item 2E - Payment to Employer Paid Member Contribution•
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'~URRGRA'ED 19y0
RO~EMEAD CITY COUNCIL
STAFF REPORT
TO: THE HONORABLE MAYOR AND CITY COUNCIL
FROM: OLIVER CHI, CITY MANAGER
DATE: NOVEMBER 18, 2008
SUBJECT: RESOLUTIONS APPROVING CITY PAYMENT OF THE EMPLOYER
PAID MEMBER CONTRIBUTION (EPMC)
SUMMARY
Since the City first signed a contract with CaIPERS on August 1, 1992, the City has
been paying the employee's portion of the member contribution (EPMC) required by
CaIPERS. CaIPERS recently conducted an audit of all their member files to ensure
compliance with all Internal Revenue Code and California Government Code sections
related to retiree benefits and discovered that the City has never approved the
necessary resolutions related to the payment of the EPMC. On October 3, 2008 City
staff was notified (Attachment A) of this necessity and was informed by CaIPERS that
the required resolutions must be adopted prior to December 31, 2008 or the Internal
Revenue Service would no longer allow the City to make the EPMC payments.
Staff Recommendation
Staff recommends that the City Council adopt Resolutions 2008-77 (Attachment B) and
2008-78 (Attachment C) authorizing payment of EPMC under Internal Revenue- Code
section 414(h)(2) and California _Government Code section 20691.
LEGAL REVIEW
The City Attorney has reviewed the proposed Resolutions.
PUBLIC NOTICE PROCESS
This item has been noticed through the regular agenda notification process.
Submitted by:
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Matthew E. Hawkesworth
Assistant City Manager -Internal Business Units
Attachment: CaIPERS Circular 200-049-08
Resolution 2008-77
Resolution 2008-78
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APPROVED FOR CITY COUNCIL AGENDA: ITEM NUMBER:
Pox 942709
Sacramento, CA 94229-2709 .
888 CaIPERS (or 888-225-7377)
Telecommunications Device for the Deaf
,.~: ~~~~ No Voice (916) 795-3240
CaIPERS www•calpers.ca.gov
Circular Letter
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Date:
Reference No.:
,Circular Letter No.:
Distribution:
Special:
Octot~~~A~~~'IENT A
200-049-08
VI, XII, XVI
TO: PUBLIC AGENCIES, COUNTY SUPERINTENDENT OF SCHOOLS,
SCHOOL DISTRICTS
SUBJECT: EMP! DYER. "PICK-UP" -REVENUE RULING 2006-43
DECEMBER 31, 2008 DEADLINE FOR ACTION
ATTENTION: FINANCE DIRECTORS, HUMAN RESOURCE .DIRECTORS
This Circular Letter is being sent to advise employers of Revenue Ruling 2006-43
concerning the pick-up of employee contributions to California Public Employees
Retirement System (CaIPERS), and of actions that an employer may be required to
take before December 31, 2008 to ensure compliance with pick-up requirements.
BACKGROUND AND PURPOSE
Internal Revenue Code (IBC) Section 414(h)(2) allows,public agencies and school
employers to designate required employee contributions as being "picked-up" by
the employer and treated as employer contributions for tax purposes. The effect of a
pick-up is to defer tax on employee contribution amounts until the member retires and
receives retirement benefits, or separates from employment and takes a refund of
contributions. Absent the 414(h)(2) .provision applicable to governmental .plans,
employee contributions to a defined benefit pension plan qualified under Section
401(a) would automatically be after-tax contributions (e.g. taxable income to the
employee at the time the contribution was made).
Since the early 1980s, CaIPERS has taken steps to ensure that contracting agency
and school employers have adopted and submitted to CaIPERS appropriate written
evidence of pick-ups prior to reporting tax-deferred member contributions to CaIPERS.
This Circular Letter is being sent as a reminder of the federal tax reporting
requirements, to encourage each contracting agency and school employer who reports
tax-deferred member contributions to review their documents and, if necessary, adopt
conforming documentation prior'to the deadline set by Revenue Ruling .2006-43. To
view the ruling, visit CaIPERS online.
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Circular Letter # 200-049-08 -2- October 3, 2008
REVENUE RULING 2006-43
Revenue Ruling ~OO~A,-43 provides, in general, that an employee contribution will not be
treated as "picked-u~p~' under IRC 414(h)(2) unless:
(1) The .employer specifies that the contributions, although designated as
employee contributions, are being paid by the employer (this action must be
memorialized in writing); and
(2) The employer does not permit participating employees to opt out of the pick-
up or to receive the contributed amounts directly instead of having them paid by
the employer to the plan.
Revenue Ruling 2006-43 allows employers who do not have written evidence of a pick-
up, but their actions show that they intended to establish and carry out a pick-up, to be
treated as meeting the requirements of 414(h)(2) for past pre-tax contributions if the
employer takes formal action in writing prior to December 31, 2008 with respect to
future picked-up contributions. If formal action is not taken prior to December 31, 2008,
only contributions taken after the written documentation is in place may be treated as
picked-up.
lfefRITTEN DOCUMENTATION
Many of you offer spick-up of employee contributions under a resolution approved by
the IRS in a private letter ruling issued to CaIPERS on December 6, 1985, (PLR .
8609084). If your agency has adopted the approved resolution to implement 414(h)(2)
pick-ups, you may continue to rely on that ruling and need not adopt a new resolution.
This approved form, which is Sample E---Resolution for Employer Pick-up can be
viewed at CaIPERS online. If you have not previously sent a copy of the resolution to
us, or if you did not complete Sample E, but have other written documentation, please
send a copy of your document or resolution to us immediately.
After 1985, CaIPERS provided additional pick-up resolutions for adoption by
contracting agencies that distinguishes whether the pick-up was to be actually paid by
the employer or by the employee. When an employer pays the employee contributions,
it is referred to as Employer Paid .Member Contributions (EPMC). The employer may
also report the value of EPMC as special compensation. Contracting agencies that
adopted any of these resolutions were requested to submit the resolutions to
CaIPERS. Samples of Resolutions A through D can be viewed at CaIPERS online.
You may continue to rely on these resolutions but you should review them and validate
that the resolution covers all of the employees whose contributions are reported as tax-
deferred. If you have not previously sent a copy of the resolution to us, please do so
immediately.
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Circular Letter # 200-049-08 -3- October 3, 2008
CALPERS NEW BUSINESS ENVIRONMENT.
CaIPERS is in the process of building and installing a new business reporting system.
One of the design features will enhance CaIPERS ability to maintain accurate and up
to date information about contracting agency and school employer pick-ups. As a way
of ensuring that our system will accurately record your agency's pick-up provision,
CaIPERS requires all affected agencies to provide a copy of their existing or future
pick-up resolutions or other written documentation. This will ensure ongoing
compliance with federal tax reporting requirements. The new system will validate that
you have documentation on file with CaIPERS before accepting tax-deferred member
contributions. If documentation is not on file, your records will be rejected and will be
held until the appropriate documentation is received.
CONCLUSION
If you are submitting tax-deferred contributions on behalf of your members, we request
that you review your files for documentary evidence authorizing such employer pick-up
of employee contributions. If you do not have evidence, please take steps to have
your governing board adopt an appropriate resolution prior to December 31, 2008.
Please send a copy of your pick-up documentation to:
CaIPERS
Employer Services Division
Compensation Review Unit
P.O. Box 942709
Sacramento CA 94229-2709
If you have any questions, please call the Employer Contact Center at 888 CaIPERS
or (.888 225-7377).
Lori McGartland, Chief
Employer Services Division
Visit the CaIPERS website at www.aalpers.ca.gov (2008 Circular Letters) for more
information on the following:
1 -Revenue Ruling 2006-43
2 =Sample Resolution E
3 -Sample Resolutions A - D
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RES®~U~I®N: 200877
ATTACHMENT B
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROSEMIEAD,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, IN THE MATTER OF
IIVIPLEIVIENTING PROVISIONS OF SECTION 414(h)(2) OF THE INTERNAL
REVENUE CODE.
WHEREAS, the City of Rosemead 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 Rosemead 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, THE CITY COUNCIL OF THE CITY OF ROSEIVIEAD
HEREBY RESOLVES AS FOLLOWS:
That the City of Rosemead will implement the provisions of section 414(h)(2) IRC
by making employee contributions pursuant to California Government 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 salary of employees
and are credited to individual accounts pursuant to California Government Code
section 20691.
II. That the contributions made by the City of Rosemead to the Public Employees'
Retirement System, although designated as employee contributions, are being
paid by the City of Rosemead in lieu of contributions by the employees who are
members of the Public Employees' Retirement System.
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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 Rosemead to the
Public Employees' Retirement System.
IV. That the City of Rosemead 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 Rosemead 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 (California Government Code sections
20000, et seq.).
VI. That the contributions designated as employee contributions made by the City of
Rosemead 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.
PASSED, APPROVED AND ADOPTED this 18th day of November 2008.
John Tran
MAYOR
ATTEST:
Gloria Molleda
City Clerk
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FZES®~U~IO~I : 2008-78
ATTACI~MENT C
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF ROSEMEAD,
COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, IN THE MATTER OF
AMENDING THE CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM
PLAN TO INCLUDING EMPLOYER PAID MEMBER CONTRIBUTIONS.
WHEREAS, the governing body of the City of Rosemead has the authority to
implement Government Code Section 20691;and
WHEREAS, the governing body of the City of Rosemead has a written labor
policy or agreement which specifically provides for the normal member contributions to
be paid by the employer; and
WHEREAS, one of the steps in the procedures to implement Section 20691 is
the adoption by the governing body of the City of Rosemead of a Resolution to
commence said Employer Paid Member Contributions (EPMC); and
WHEREAS, the governing body of the City of Rosemead has identified the
following conditions for the purpose of its election to pay EPMC:
• This benefit shall aply to all employees who are enrolled in CaIPERS
• This benefit shall consist of paying 8% of the normal member contributions
as EPMC.
• The effective date of this Resolutions shall be August 1, 1992.
NOW THEREFORE, THE CITY COUNCIL OF THE CITY OF ROSEMEAD
HEREBY RESOLVES AS FOLLOWS:
The governing body of the City of Rosemead elects to pay EPMC, as set forth
above.
PASSED, APPROVED AND ADOPTED this 18th day of November 2008.
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John Tran
MAYOR
ATTEST:
Gloria Molleda
City Clerk
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