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Home My WebLink AboutMINUTES - 12092008 - C.2 x C '. HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA TO: BOARD OF COMMISSIONERS FROM: Joseph Villarreal, Executive Director DATE: December 9, 2008 SUBJECT: EMPLOYER PICKUP OF MEMBER CONTRIBUTIONS TO RETIREMENT SYSTEM SPECIFIC REQUEST(S) OR RECOMMENDATION(S) & BACKGROUND AND JUSTIFICATION I. RECOMMENDED ACTION: ADOPT Resolution No. 5106 which reconfirms and authorizes continued implementation of the Authority's "pickup" of member contributions to CCCERA for tax purposes. II. FINANCIAL IMPACT: None. The Authority's pickup of employee retirement contributions is only for tax purposes. Ill. REASONS FOR RECOMMENDATION/BACKGROUND In 1999, the Authority considered and approved implementation of the "pickup" of employee retirement contributions to CCCERA pursuant to Internal Revenue Code section 414 (h) (2). 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 19, 2008 CCCERA informed the Authority that the agency may need to update its existing resolution implementing the "pickup" to ensure compliance with Internal Revenue Code (IRC) 414 (h)(2). 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. CONTINUED ON ATTACHMENT: YES SIGNATURE .Iosep Villarreal,Executive Director ECOMMENDATION OF EXECUTIVE DIRECTOR RECOMMENDATION OF BOARD COMMITTEE APPROVE OTHER SIGNATURE(S): ACTION OF BOARD ON APPROVED AS RECOMMENDED OTHER VOTE OF COMMISSIONERS I HEREBY CERTIFY THAT THIS IS A A UNANIMOUS (ABSENT TRUE AND CORRECT COPY OF AN AYES: NOES: ACTION TAKEN AND ENTERED ON THE ABSENT: ABSTAIN: MINUTES OF THE BOARD OF COMMISS ONERS ON THEgDATE SHOWN. ATTESTED JOSEPH VILLARREAL, CLERK OF TH BOARD OF COMMISSIONERS D EXECUTIVE DIRECTOR BY DEPUTY 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. The proposed resolution attached to this item is based on a sample resolution that was provided to the Authority by CCCERA. IV. 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 Authority's 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 full amount of their contributions to CCCERA and the Authority 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. r THE BOARD OF COMMISSIONERS HOUSING AUTHORITY OF THE COUNTY OF CONTRA COSTA RESOLUTION NO. 5106 RESOLUTION APPROVING THE "PICK UP" OF RETIREMENT CONTRIBUTIONS AS PERMITTED BY INTERNAL REVENUE CODE (IRC) 414 (H)(2) WHEREAS, Section 414(h)(2) of the Internal Revenue Code (IRC), empowers employers 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 employees, 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, Government Code Section 31581.2 authorizes the Housing Authority of the County of Contra Costa(HACCC)to "pick up" for the sole purpose of deferring income taxes thereon, the normal contributions made by HACCC employees, NOW, THEREFORE, BE IT RESOLVED THAT: With respect to all HACCC management and unrepresented employees, and with respect to all HACCC employees represented by recognized employee organizations, who are members of the Contra Costa County Employees Retirement Association, HACCC shall implement the "pick up," of HACCC-paid member contributions to the Contra Costa County Employees' Retirement System. L HACCC shall make member contributions on behalf of HACCC paid employees which shall be in lieu of contributions by said employees to the Contra Costa County Employee's 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 contributions may be regular 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 HACCC "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 HACCC shall be treated as compensation paid to employees for all other purposes. 3. HACCC-paid employer 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 HACCC employer contributed amounts directly instead of having them paid to the Contra Costa County Employees' Retirement System. 5. HACCC-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 January 1999, the Board of Commissioners considered and approved implementation of this program. By this resolution, the Board of Commissioners readopts and approves continuation of this program, and to any extent which may be necessary, ratifies all prior actions implementing this program. PASSED AND ADOPTED ON A A44 4 dG{� by the following vote of the Commissioners. AYES: el? eS , /D/�, �• /�E'��az A-e-10/r o, 'Vu n , /10, /(1 Ij r- r' NOES: 1qUr►,& ABSENT: /Voy% ABSTAIN: /Vuwe_ cc: Auditor- Controller CCCERA- Retirement Administrator County Counsel I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT COPY OF AN ACTION TAKEN AND ENTERED ON THE MINUTES OF THE BOARD OF COMMISSIONERS ON THE DATE SHOWN. ATTESTED eC(,�`�� / o�OFQl JOSEPH VILLARREAL, SECRETARY OF THE BOARD OF COMMISSIONERS AND EXECUTIVE DIRECTOR BY