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Home My WebLink AboutHR Termination of Defined Contribution Plann. I 1 *4 - Agenda Item No: 3. d Meeting Date: August 3, 2015 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: Management Services Prepared by: Deirdre Dolan, HR Director City Manager Approval: TOPIC: TERMINATION OF DEFINED CONTRIBUTION PLAN SUBJECT: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE TERMINATION OF THE CITY OF SAN RAFAEL PARS DEFINED CONTRIBUTION PLAN RECOMMENDATION: Adopt Resolution to terminate the City of San Rafael PARS Defined Contribution Plan. BACKGROUND: The City provides a Management Allowance to Executive and Mid -Management employees. At its inception, the Management Allowance was set at a City contribution level of 3.0% of salary, and has increased over time to the current 4.54% of salary for Mid -Management employees and 4.59% for Executive Management employees. In concert with the establishment of the Management Allowance, the City adopted the City of San Rafael PARS Defined Contribution Plan (401a plan) effective July 1, 2000. Management and Mid -Management employees were given the option to elect an employer contribution of the Management Allowance into the 401 a plan on a pre-tax basis, or to receive the Management Allowance as taxable income. The majority of management and mid -management employees have elected to receive the Management Allowance as taxable income. Currently, out of 36 eligible employees, only 12 have elected to participate in the 401 a plan, and the remainder elected to receive the Allowance as cash. In 2012, the Mayor and City Council members also became eligible to participate in the 401a plan, at a fixed 3.0% of salary City contribution level. (This equates to $7.02 per pay period contribution for Council members, and $10.53 for the Mayor, based on their respective monthly salaries.) Currently, four out of five of these elected officials participate in the 401 a plan. The Council approved extending this plan to the Mayor and Council Members on staff's recommendation because it was a simple way to remedy an issue that came to light when FOR CITY CLERK ONLY File No.: 7-1-36A x 7-4 Council Meeting: 08/03/2015 Disposition: Resolution 13979 SAN RAFAEL CITY COUNCIL AGENDA REPORT / Page: 2 Mayor Phillips was elected. At the time of his election to the office of Mayor, the law governing MCERA would not have permitted Mayor Phillips to serve on the Council again without reinstating from retirement; however, reinstatement would cause him a significant loss of accrued retirement benefits. Foreseeing that this circumstance would be a disincentive to other retirees who might choose to return to service on the Council, staff determined that the problem could and should be avoided by enabling elected officials to participate in a qualified retirement plan other than MCERA, which purpose the 401 a plan satisfied. Significantly, however, in 2013 the law changed and now permits retired elected officials to return to office without having to reinstate from retirement or participate in an alternate qualified retirement plan. ANALYSIS: Over the course of the past year the Management Allowance/401 a plan has undergone an extensive administrative and legal review. The results of the review indicate that certain adjustments in plan design and administration would be necessary to insure ongoing compliance with IRS regulations and qualified plan requirements. Given the low participation and interest in the plan, and the nature of the adjustments that would be required to maintain a compliant plan, the better option for the City would be termination of the plan. The results of the plan review, the change in requirements for retirees to serve as elected officials, and the recommendation to terminate the plan were discussed with the City Council's Finance Committee, and the Committee was in concurrence with this recommendation. Should the 401 a plan be terminated, Management and Mid -Management employees would continue to receive the Management Allowance, in the form of taxable income only. The participating Mayor and City Council members also would no longer receive the 3.0% plan contribution, and no alternate plan is available to replace it. However, because the law has changed to eliminate the need for elected officials to participate in an alternate retirement plan, staff recommends that the benefit simply be eliminated entirely for these elected officials. Employees and elected officials with existing 401a account balances would have the option to receive a lump sum distribution, or lump sum rollover to an IRA or qualified plan. FISCAL IMPACT: The fiscal impact for termination of the 401 a plan will be minimal as the Management Allowance contributions will continue for Management and Mid -Management Employees. The savings from terminating the contributions to participating Mayor and Council members will be $758.16 per year. OPTIONS: The City Council has the following options to consider on this matter: 1. Staff's recommendation to adopt the Resolution. 2. Adopt resolution with modifications. 3. Direct staff to return with more information. 4. Take no action. RECOMMENDED ACTION: Adopt the Resolution to terminate the City of San Rafael PARS Defined Contribution Plan. ATTACHMENTS: 1. Resolution RESOLUTION NO. 13979 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE TERMINATION OF THE CITY OF SAN RAFAEL PARS DEFINED CONTRIBUTION PLAN WHEREAS, the City of San Rafael (the "City") previously adopted the City of San Rafael PARS Defined Contribution Plan (the "Plan") effective July 1, 2000; and WHEREAS, the City has decided that it is in the best interest of the City and the Plan to terminate the Plan, and WHEREAS, as of the date of Plan termination, all amounts credited to the Account of any affected Participant are one hundred percent (100%) vested; and WHEREAS, all Plan assets shall be distributed to eligible Participants as soon as administratively feasible following the Plan termination; and WHEREAS, the Plan shall be amended to include recent legislation and regulations applicable to qualified 401(a) defined contribution plans through the date of Plan termination; and WHEREAS, in accordance with Section 7.3 of the Plan, the City has the right to amend and terminate the Plan. NOW THEREFORE, the City Council of the City of San Rafael does resolve, declare, determine, and order as follows: (1) The Plan is hereby terminated effective August 3, 2015. (2) As of the effective date of the Plan termination, all amounts credited to the Account of any affected Participant are one hundred percent (100%) vested. (3) All Plan assets shall be distributed to Participants having an undistributed balance in the Plan as soon as administratively feasible following the Plan termination. (4) The City Manager is hereby authorized to execute any and all Plan amendments and documents and to do any and all acts that may be necessary in connection with the termination of the Plan. I, Esther Beirne, Clerk of the City of San Rafael, hereby certify that the foregoing resolution was duly and regularly introduced and adopted at a regular meeting of the council of said City held on the 3rd day of August, 2015 by the following vote, to wit: AYES: COUNCILMEMBERS: Bushey, Colin, Gamblin, McCullough & Mayor Phillips NOES: COUNCILMEMBERS: None ABSENT: COUNCIL MEMBERS: None ESTHER BEIRNE, CITY CLERK ROUTING SLIP / APPROVAL FORM INSTRUCTIONS: Use this cover sheet with each submittal of a staff report before approval by the City Council. Save staff report (including this cover sheet) along with all related attachments in the Team Drive (T:) --> CITY COUNCIL AGENDA ITEMS —> YEAR --> MEETING DATE 4 TOPIC Agenda Item # i Date of Meeting: 8/3/2015 From: Deirdre Dolan Department: MS - Human Reources Date: 7/23/2015 Topic: TERMINATION OF DEFINED CONTRIBUTION PLAN Subject: RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN RAFAEL AUTHORIZING THE TERMINATION OF THE CITY OF SAN RAFAEL PARS DEFINED CONTRIBUTION PLAN Type: ® Resolution ❑ Ordinance ❑ Professional Services Agreement ❑ Other: APPROVALS ® Department Director I IT lot Rm. ® Finance Director Remarks: ® City Attorney Remarks: LG approved 7/24/15. No changes. Thanks. ® City Manager