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Home My WebLink AboutMINUTES - 12162008 - C.104 ' R TO: BOARD OF SUPERVISORS (acting in its capacities � s E'L` �� Contra As the Governing Body of Contra Costa County, Contra Costa County Fire Protection District East = -$` `. Costa Contra Costa Fire Protection District, In-Home Supportive Services Authority) ��~� C u n ty srA_couK FROM: DAVID TWA, COUNTY ADMINISTRATOR DATE: December 16, 2008 SUBJECT: EMPLOYER PICKUP OF MEMBER CONTRIBUTIONS TO RETIREMENT SYSTEM SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION RECOlVMMENDATION(S) ADOPT Resolution No. 2008/765 which reconfirms and authorizes continued implementation of Contra Costa County, Contra Costa County Fire Protection District, East Contra Costa Fire Protection District, and Contra Costa In-Home Supportive Services Authority's "pickup" of member contributions to CCCERA for tax purposes. FISCAL IMPACT None. Contra Costa County, Contra Costa County Fire Protection District, East Contra Costa Fire Protection District, and Contra Costa In-Home Supportive Services Authority's "pickup" of employee retirement contributions is only for tax purposes. CONTINUED ON ATTACHMENT: AYES SIGNATURE: RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE ❑ VAPPROVE ❑ OT SIGNATURE(S): ACTION OF BOARD ON IDQ_t�VY1bc( llo. Y� APPROVED AS RECOMMENDED ❑ OTHER VOTE OF SUPERVISORS: I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND UNANIMOUS (ABSENT YlOrl-1- ) ENTERED ON THE MINUTES OF THE BOARD OF SUPERVISORS ON THE DATE SHOWN. AYES: NOES: ABSENT: ABSTAIN: ATTESTED: December 16, 2008 Contact: Lisa Driscoll (335-1023) DAVID TWA, CLERK OF THE BOARD OF cc: Human Resources SUPERVISORS AND COUNTY ADMINISTRATOR County Counsel County Administrators.Office By: Deputy Page 2 REASONS FOR RECOMMENDATIONBACKGROUND In 1989, the Board of Supervisors considered and approved implementation of the "pickup" of employee retirement contributions to CCCERA pursuant to Internal Revenue Code section 414 (h) (2). Inn 1994, in Resolution 94/70, the Board of Supervisors again readopted and continued this program. A "pickup"refers to the situation where an employee makes retirement contributions out of his or her salary, the employer has specified in a resolution that it will "pickup"the contributions for tax purposes, and the IRS agrees that no tax is then due on the contribution. Section 414 (h) (2)permits employer tax "pickups" of member contributions made to public retirement systems, so that these contributions may be made on a tax deferred basis. On November 17, 2008 CCCERA asked the Auditor about the County's implementation of the "pickup" to ensure compliance with Internal Revenue Code (IRC).414 (h) (2). County Counsel was asked to review the County's existing 414(h) (2) resolution(No. 94/70). After review, Counsel recorn vended that a new resolution be adopted to clearly cover employees in the East Contra Costa Fire Protection District, the In Home Supportive Services Public Authority and certain County bargaining units-that did not exist at the time that the resolution was adopted. Additionally, it was proposed that the new resolution expressly state that the.414 (h) (2) program applies to those Tier II-Tier III buybacks and purchases of services credit where the employee irrevocably elects to make payment through a salary deduction. In order to implement a"pickup" of member contributions, the IRS requires the following: 1. The contributions must be stated to be member contributions. 2. The employer must state that the contributions are "paid by the employer" (though only for tax purposes). 3. The employer must take formal action to comply with #2 and this must be evidenced by minutes of a meeting, resolution or an ordinance. 4. The formal action must be on behalf of a.specific class of employees. 5. This action must apply only for the future. 6. The employer(and presumably the formal action) cannot permit a member to opt out of the pickup for any reason at the time pickups become effective or at any later date. Apparently, problems with documentation on implementation of"pickups" are not uncommon and thus the IRS has given agencies a grace period until January 1, 2009 to correct any documentation problems. CONSEQUENCES OF NEGATIVE ACTION Failure to adopt a resolution that complies with the Internal Revenue Code requirements by January 1, 2009 could result in a determination that the County's and other named agencies' implementation of the tax "pickup" is out of compliance with Internal Revenue Code section 414 (h) (2). If a tax "pickup" is out of compliance, then every employee could be taxed on the frill amount of their contributions to CCCERA and the County and other named agencies could be liable for additional income tax withholding (e.g., FICA), penalties for failure to properly report income and interest on taxes and penalties owed. THE BOARD OF SUPERVISORS OF CONTRA COSTA COUNTY, CALIFORNIA acting in its capacities as the Governing Body of Contra Costa County, Contra Costa County Fire Protection District,East Contra Costa Fire Protection District,and Contra Costa In-Home Supportive Services Authority Adopted this Order on , by the following vote: AYES: GIOIA, UILKEMA, PIEPHO. BONILLA &GLOVER NOES: NONE ABSENT: NONE ABSTAIN`. . NONE SUBJECT: County Employees' Retirement RESOLUTION NO. 2008/765 Contributions [I.R.C. §414(h)(2)] WHEREAS, Section 414(h)(2) of the Internal Revenue Code, empowersemployers to "pick up" retirement contributions on behalf of employees; and WHEREAS, such contributions are not included in the employee's gross income in the year in which such amounts are contributed by the employers; and WHEREAS, such amounts are includable in the gross income of the employee, or beneficiary, in the taxable year in which such amounts are distributed; and WHEREAS, Section 17501 of the Revenue and Taxation Code incorporated the provisions of IRC Section 414(h)(2); and WHEREAS, Goveimnent Code Section 31581.2 authorizes the County to "pick up", for the sole purpose of deferring income taxes thereon, the normal contributions made by County employees; and WHEREAS, for purposes of this Resolution, "County"refers respectively to the County of Contra Costa, the Contra Costa County Fire Protection District, the East Contra Costa Fire Protection District, and the Contra Costa In-Home Supportive Services Authority, NOW THEREFORE, BE IT RESOLVED THAT: With respect to all management and unrepresented employees, and with respect to all employees represented by recognized employee organizations, who are members of the Contra Costa County Employees' Retirement Association, the County Auditor-Controller shall implement the "pick up," of County-paid member contributions to the Contra Costa County Employees' Retirement Association Retirement System. 1. The County shall malce member contributions on behalf of the County-paid employees which shall be in lieu of contributions by said employees to the Contra Costa County Employees' Retirement System. Such contributions shall be treated as employer contributions for purposes of reporting and wage withholding under the Internal Revenue Code and the Revenue and Taxation Code. Such RESOLUTION NO. 2008/765 1 contributions may be regular contributions, buy back contributions or purchase of service credit contributions. 2. The amount "picked up"under Section 414(h)(2), shall be recouped through an offset against the salary of each employee for whom the County"picks up" member contributions. This offset is akin to a reduction in salary and shall be made solely for purposes of income tax reporting and withholding. The member contributions "picked up"by the County shall be treated as compensation paid to employees for all other purposes. 3. The County-paid contributions to the Contra Costa County Employees Retirement System shall be paid from the same source of funds as used in paying the salaries of the affected employees. 4. No employee shall have the option to receive the County-paid contribution amounts directly instead of having them paid to the Contra Costa County Employees' Retirement System. 5. The County paid member contributions shall be reported to the Contra Costa County Employees' Retirement System as employer-paid contributions; such contributions will be credited to the employees' account in the Contra Costa County Employees' Retirement Fund. In 1989, the Board of Supervisors considered and approved implementation of this program as of January 1, 1990. In 1994 in Resolution 94/70, the Board readopted and approved continuation of the program. By this resolution the Board again readopts and approves the continuation of this program, and to any extent which may be necessary, ratifies all prior actions implementing this program. This resolution shall remain*in effect until superseded, or until such time as employer- paid employee retirement contributions are no longer excludable from employee gross income under the provisions of the Internal Revenue Code or the California Government Code. Orig.Dept.: County Counsel I hereby certify that this is a true and correct copy Contact Person: Mary Ann Mason(335-1800) of an action taken and entered on the minutes of the Board of Supervisors on the date shown. cc: Auditor-Controller County Administrator County Counsel ATTESTED: CCCERA—Retirement Administrator Human Resources Director Dczm 0.( y o- 1 Chief, CCC Fire Protection District. DAVID TWA,Clerk of the Board of Supervisors Chief,East Contra Costa Fire Protection District and County Administrator Executive Director,IHSS By ��/ �J�'S� Deputy RESOLUTION NO. 2008/765 2