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/ AGENDA BILL Agenda Item No. 5(0) Date: July 15, 2014 To: El Cerrito City Council From: Karen Pinkos, Assistant City Manager Subject: Approval of a Resolution providing for the "Pick Up" of Employee Contributions to CalPERS under Internal Revenue Code Section 414(H)(2) ACTION REQUESTED Adopt a resolution providing for the "Pick Up" of employee contributions to CalPERS under Internal Revenue Code Section 414(H)(2), allowing those contributions to be pre- tax. BACKGROUND/ ANALYSIS The City of El Cerrito provides retirement benefits to eligible employees under the California Public Employees' Retirement System (CalPERS). Contributions made by employees to CalPERS occur via salary deductions that are then paid to CalPERS by the City. Under section 414(h)(2) of the Internal Revenue Code, these deductions, or "pick- ups," qualify for pre-tax status. The attached resolution will designate the amounts deducted from employees' compensation to fund retirement benefits under CalPERS as 11picked-up 11 by the City and therefore treated as paid by the City in lieu of contributions by the employee for tax purposes. By taking this action, the amounts deducted from employees' compensation will qualify for pre-tax treatment under section 414(h)(2) ofthe Internal Revenue Code. FINANCIAL CONSIDERATIONS This action has no financial impact to the City, does not affect in any way the amount of the City's pension obligations or employer contributions, and serves only to clarify the tax status of employee CalPERS contributions. Scott Hanin, City Manager Attachment: 1. Resolution providing for the "Pick Up" of Employee Contributions to CalPERS Under Internal Revenue Code Section 414(h)(2) ---PAGE BREAK--- Agenda Item No. 5(D) Attachment 1 RESOLUTION 2014-XX RESOLUTION OF THE CITY COUNCIL OF THE CITY OF EL CERRITO PROVIDING FOR THE PICK UP OF EMPLOYEE CONTRIBUTIONS TO THE CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM UNDER INTERNAL REVENUE CODE SECTION 414(H)(2) WHEREAS, the governing body of the City of El Cerrito has the authority to implement the provisions of section 414(h)(2) of the Internal Revenue Code (IRC); and WHEREAS, the City of El Cerrito 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 all employees of the City of El Cerrito who are members of the California Public Employees’ Retirement System: NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of El Cerrito: 1. The City of El Cerrito will implement the provisions of section 414(h)(2) Internal Revenue Code by making employee contributions pursuant to California Government Code Section 20691 to the California Public Employees’ Retirement System on behalf of all its employees who are members of the California Public Employees Retirement System (CalPERS). “Employee contributions” shall mean those contributions to CalPERS which are deducted from the salary of employees and are credited to individual employee’s accounts pursuant to California Government Code section 20691. 2. Although designated as employee contributions and deducted from employees' compensation, the contributions shall, for tax purposes, be characterized as "picked up" by the City in accordance with section 414(h)(2) of the Code and shall be treated as paid by the City of El Cerrito in lieu of contributions by the employee. 3. Employees will not have the option of choosing, directly or indirectly, to receive the contributions instead of having them paid by the City of El Cerrito to CalPERS. 4. The City of El Cerrito will pay to CalPERS the contributions designated as employee contributions from the same source of funds as used in paying salary. 5. Contributions picked up under this resolution will be tax deferred to the extent provided under the Internal Revenue Code, Treasury Regulations, and other guidance issued thereunder. 6. The contributions designated as employee contributions made by the City of El Cerrito to CalPERS shall be treated for all purposes, other than taxation, in the ---PAGE BREAK--- Agenda Item No. 5(D) Attachment 1 same way that member contributions are treated by the California Public Employees’ Retirement System. I CERTIFY that at a regular meeting on July 15, 2014, the El Cerrito City Council passed this resolution by the following vote: AYES: COUNCILMEMBERS: NOES: COUNCILMEMBERS: ABSENT: COUNCILMEMBERS: IN WITNESS of this action, I sign this document and affix the corporate seal of the City of El Cerrito on July XX, 2014. Cheryl Morse, City Clerk APPROVED: Janet Abelson, Mayor