HomeMy WebLinkAbout2000-11-21; City Council; 15966; Adopting Pre-Tax Payroll Deduction Plan for Service Credit Purchases. CITJU OF CARLSBAD - AGENW BILL 74 +kLEs
ADOPTING A PRE-TAX PAYROLL DEDUCTION
PLAN FOR SERVICE CREDIT PURCHASES
RECOMMENDED ACTION:
Adopt Resolution No. @dd*~@~ approving a pre-tax payroll deduction plan for
service credit purchases.
ITEM EXPLANATION:
The City of Carlsbad’s contract with the California Public Employees’ Retirement
System (CalPERS) allows eligible employees to purchase additional years of service
credit for military service and other qualifying public service. The purchased service
credits are added to the years of City service, resulting in quicker vesting and/or
increased retirement benefits.
Currently, employees who want to purchase service credits must do so using after-tax
dollars. However, adopting the attached resolution would enable employees to purchase
these credits using pre-tax dollars.
This is accomplished by implementing the provisions of Internal Revenue Code section
414(h)(2). These provisions would require participating eligible employees to
irrevocably elect to have their salary reduced by fixed amount each pay period. The City
would then pay this amount to CalPERS to purchase service credits on the employees’
behalf. For tax purposes, even though the money is actually coming from the employees
(in the form of a salary reduction), it is considered to be City money and a City
contribution. Consequently, the money is not included in the employees’ income and is
not taxed until the employees receive it in the form of retirement benefits.
Staff recommends that the City Council approve the pre-tax payroll deduction plan for all
employees covered by the City’s three contracts with CalPERS to include all police, fire
and miscellaneous employees.
FISCAL IMPACT:
There will be no fiscal impact to the City of Carlsbad. The pre-tax payroll deduction plan
payments for service credit purchases agreed upon by the employee will be reported to
CalPERS as part of normal payroll processing.
EXHIBITS:
Resolution No. da(36 :3 c) 7
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RESOLUTION NO. 2ooo-347
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARLSBAD, CALIFORNIA, GRANTING A PRE-TAX
PAYROLL DEDUCTION PLAN FOR EMPLOYEES
PURCHASING SERVICE CREDIT FROM CALPERS.
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5 WHEREAS, the City of Carlsbad is a contracting public agency of the California
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Public Employees’ Retirement System; and
WHEREAS, the Board of Administration of the California Public Employees’
Retirement System (CalPERS) at the April 1996 meeting approved a pre-tax payroll
deduction plan for service credit purchases under Internal Revenue Code (IRC) section
1 1 II 414(h)(2); and
12 WHEREAS, the City of Carlsbad has the authority to implement the provisions of
13 IRC section 414(h)(2) and has determined that even though implementation is not
14 required by law, the tax benefit offered by this section should be provided to those
employees who are members of CalPERS; and
WHEREAS, the City of Carlsbad elects to participate in the pre-tax payroll
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1 8 deduction plan for all employees in the following CalPERS coverage group(s):
19 l Miscellaneous
20 l Fire
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l Police
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Carlsbad, California, as follows:
1. That the City of Carlsbad will implement the provisions of IRC section
26 ~414 (h)(2) by making employee contributions for service credit purchases
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pursuant to the California State Government Code on behalf of its employees who are
members of CalPERS 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 CalPERS 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.
2. That the contributions made by the City of Carlsbad to CalPERS, although
designated as employee contributions, are being paid by the City of Carlsbad in lieu of
contributions by the employees who are members of CalPERS.
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 Carlsbad to
CalPERS.
4. That the City of Carlsbad shall pay to CalPERS the contributions
designated as employee contributions from the same source of funds as used in paying
salary, thereby resulting in tax deferral of employees contributions.
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.
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6. That the governing body of the City of Carlsbad shall participate in and
adhere to requirements and restrictions of the pre-tax deduction plan by reporting pre-tax
deductions when authorized by CalPERS for those employees of the above stated
Coverage Group(s) who have elected to participate in this plan.
PASSED, APPROVED, AND ADOPTED at a regular meeting of the Carlsbad
City Council held on the 21ST day of November ,2000, by the following vote, to
I/ wit:
AYES: Council Members Lewis, Hall, Finnila, Nygaard and Kulchin.
NOES: None
ABSENT: None
II ATTES :
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FINAL AGENDA BILL
ROUTING COVER SHEET *
&EN& BillTjT[E: Adopting a Pre-Tax Payroll Deduction Plan for Service Credit Purchases
REQuEsTEd CouNcil MrxriNq DATE: 1 l-14-00
INiTiATOR: Julie Clark DEPARTMEM: Human Resources PRONE #: 602-2438
3 Public t-hRiNC( NOTiCiNC( REQUiREMENT . DAYS
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Fiml APPROVAL PR~CSS
CoNfomEd AGENDA
II a Copy SENT TO: DATE: II
Revised February 8,200O Instructions on Reverse