HomeMy WebLinkAbout0252.094, .
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June, 9, 1991
'1'11& HONORABLE CI'l'Y COUNCIL
Palo Atto, Cal{forni~
RgTIR~ PLAN ALTBRNATIV~ FOR HOURLY EMPLOY2£S
H~mber8 of t,he cound .. 1:
iloport in 8riol!
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City of Palo Alto Hourly ~_rnployee6. au required by law, have been
coveJ:"ca by tho fo'edcral Insurance Contributions Act {I-'lCA) since
July A. 199:1. As of that date ~ICA contributions of 6.2 percent
have wen l'"equired of the: employee~ matched by a 6.2 percent
contribution by the City. 'fhe law provides that Hourly employees
ffHlY be excluded from FICA covel-age. if they are members of an
altel:native retirement system which meets certain requirements ..
This report recommends the adoption of a retil'ernent plan
alternative to FICA for .lll Hourly employees. Hourly employees
cove .. -ed \lndel~ an alte:r:ative plan will be required to contribute to
the pHm~ but will have the opt 10n of withdrawing their
contributions at the end of tnei;: work aSBi~Jnment. The City of
Palo Alto wi 11 pay all adrrlinist .. -ativ~ costs. but will make no
direct contributions. Based on current utilization of Hourly
employees, a,dovtlon of the alternative retirement plan will result
in cost savi.n99 to, the City of $~15.000 per year.
Bao>tgcoWld
.l\ll regular City of Palo Alto employees working at least 1.000
hours per fiscal ycat' a:r:e ~overed under the California Public
Employees' R(",tirement System (PERS). Hourly employees working less
than LOOt) hours are currently covered by FICA. Section 3121 of
the Intel"nal Revenue Code states that these Hourly employees may be
excluded h-om FICA cov€ra.ge~ if they are ml'rrWera of a retirement
system meeting IRS requirements. The requirem.ents that an
alternative system rl'luat meet al:e:
1. At least., ,s percent of the emplo}'ee's compensation must be
cont.k:ibuted to the plan.
2. Participation is mandatory for all qualified employees.
CMR:252:94
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3. The employee's account in the plan is credited with e~rning8
Mat a rate that ia reaoonable under all the facts and
circumstances, R or the accounts are held in a sepal."ale txust
and credited with the actual earnings on the tk:uat fund,
Staff has examined various qualified retirement plan alternative.o.
1\ defined benefit alternative xetirement plan offers a fi",ed
pension benefit and a var~·irl.g contribution r;:.te. The
administration of this type of alternativo system i8 complex, and e,xpene iva,
A defined contX'ibution aH:€>l"nAtive retirement plan offers a fixed
contribution and a pension benefit that varies, baaed upon the
amount of money in the employee's l'etircO".ent plan fond. An IRS
Section 45'1 deferred ,compensation ph» maeta the definition of an
alternative retirement plan. Such a plan ia offered by ICMA~ one
of ouk.~ current deferred comenaation plan providers.
Under this plan, Hourly employee contributions will he rofunded to
the employee upon termination of employment t'o'ith the City. unless
the employee specifically requests that contribut iOTlS be left in
his or her account. Because of the tempor.uy natll:re of thci:t:
employment. we eetimate that 90 to 95 percent o[ Bourly employees
would withdraw their contributions I,lpon termination. lIou:dy
employees ",-ho 'Work for the city lees than 1,000 hours per fiecal
year, but on a continuing basis {eueh as Pollce reserveD}. f:\ay
elect to have their contributions accumulate on e; tax-deferred
basis;
Administrative costs of the plan will be-. paid by the City. These
costs include:
• Plan administration fee of 1.23 percent of plan assets
• A moximum annual participant fee of $50.00 ($12.50 per
quarter)
Potenti«l Savings
The City of Palo Alto budget:: for HOU1"ly emp10yeea for fiscal yeak"
1994-95 is $2,300.000, Under the ~lternative retirement system
plant the potential savings to the City will be:
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FICA employer contributions
(annual payroll x 6.2\)
Less plan administ'ration fee
(1.23% x $172,500 asset fund)
Less annual participant fee
($50 x 525 employees)
Total Savings
Cr-IR: 252: 94
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$142,600.00
2,121. 75
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$118,490.75
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Page Three
AdvantageD to Hourly Employees
l>,hile employee contributions Ni11 increase from 6.2 percent to 1.5
percent~ the alternative retirement plan will be advantageous to
Hourly employees because they will r~ceive all contributions plus
interest upon termination. In addition, longex term employees may
elect to leave contributions in their account to earn interest
untIl retirement. Taxes on contributions and earnings are deferred
until monies are withdrawn.
A poa-sible disadvantage of the alternative t"etirement plan is t.hat
no credits filccrue toward the minimum numbel' of quarters (40) to
qualify for FICA benefits, This disadvantage is mitigated because
most Hourly employees satisfy this requirement through othel:'
private sector employment which is covered by FICA.
EnviTonm~ntal Aseessment
1'his action is not a project under the California Bnvironmental
Quality Actl therefore, no environmental assessment is necessaq',
Recommendation
Staff recommends adoption of the attached resolution I adopting the
alternative retirement system for Hourly employees {the" PTS Plan")
effective July 1, 1994, and approving an agreement with IeMA.
Retil'ement Corporation fOl" administration of the Plan,
Respectfully sumnitted,
~~
ager of 'Employee Benefits
'? c I~_~=-_
JAY C. ROUNDS
Director of Human ResourceA
Attachlnents: Resolut,ion and Agreement
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RESOLUTION NO.
RESOLUTION OF THR COUNCIL OF TilE-CITY OF PALO ALTO
ADOPTING A RBTIREMBNT PLAN FOR THB CITY'S HOURLY
BMPLOYBBS; AND APPROVING EXECUTION OF AN AGRBmmNT
WITH ICMA RETIREMENT CORPORATION FOR
ADl~INISTRATION OF THB PLAN
wHEREAS, the Federal Insurance Contributions Act (the
!lAct") requires employer and employee contributiono to the Socia.l
security system for all etnployees, wlth certain exceptions; and
WHEREAS, employees who are members of a ·public retirement
system" and their employers may be exempted from the requirement to
make such Social Security contributions; and
WlIBREAS, the IO-iA Retirement Corporation ("leMA") has
offered a deferred compensation plan under Section 457 of the
Internal Revenue Code which qualif.ies as a 'public retirement
system li for part-time, temporary and seasonal employees, fol.'
pUl.1>0sea of the Act'S exempt.ion, under the following conditions:
1. At least 7.5 percent of the employce~5 "compensation"
is contributed;
2, Compensation inCludes at least the employee's base pay
up to the Social Secul.'ity cut off point;
3. Participation is mandatory for qualified employessi
and
4. 'l'he employee's account in the plan is credited with
earnings "at a rate that is 1'easonable under all the
facts and circumBtancee," or the accounts are held in
a separate trust and are credited with actual earnings
on the trust fundj and
'WHBRRAS, the Council desires to adopt. the plan for hourly
employees of the City, and to enter into an agreement with ICMA for
administration of the plan.
NOW, THERBFORE, the Council of t.he City of Palo Alto does
RBSOLVE as follows:
SBCTION 1, The Council hereby adOpts "1~e City of Palo
Al to/PTS 457 Deferred Compensation Plan 'the "Plan"), a copy of
which plan is on file in the office of the Director of Human
Resources, and to which copy reference is hereby made concerning
the full particulars t.hereof, as the "public re'tirement system" for
hourly employees of the City.
SECTIQN 2. The Council hereby approves that certain
agreement by and between the City and I~m for administration of
the Plan, and authorizes the City Manager to execute the agreement
for l\nd on behalf of the City. A copy of the agreement is attached
~s lie 0030931
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hereto as Exhibit -A" and incorporated herein by r.eference.
SBCTIO«-l, The Council finds that this i8 not a project
under the California Rnvi:;onmental Quality Act:..
INTRODUCRD AND PASSED:
AYES,
NOBS:
ABSRNT:
ABS'l'RlfrIONS:
IITI'HS'r:
APPROVED AS TO PORM:
APPROVED:
Mayor------------
City· ~"i'I.nager
Director of Finance
Directo"r of Human Resources
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ADMINI!lTRATIVE SERVICES AGREEMENt
Type: 457
1<:111/\
RnjRI-:.\.IF.NT
CORPORATIOS
Account Numbe" 3953
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ADMINISTRATIVE SERVICES AGREEMENT
This Agreement, made as of the day of
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R~;rIRt-~~I~~"1
<:ORPOR,nm:\'
199 ,(herein referred to as the 'IncePtion Date'l. botween The International City
Management Association Retirement Corpora !Ion (liRe·" a nonprofit corporation
organized and existing under the laws of the State of Delaware; and tho City of Palo
Alto ('Employe,") a City organi ..... d and existing und., tho Jaws of the St.te of
California with an oHice at 250 H"milton Avenlle, Pelo Alia, Celilornie 94Z03,
Recitals
Employer acts as a public plan sponsor for a retirement plan ('Plan') with
responsibility to obtain investment arternativ8S and services (or ampl(:ivees
participating in that Plan;
Tho leMA Retirement Trust (the "Trust'" is a common law trust governed
bV an elected Board of Trustees for the commingled investmonl of retirement funds
held by state and local governmental units for 1heir ernployoo.G;
RC acts as investment adviser to tfle Trust; RC has designed. and the
Trust offers. a series of separato funds for the inv8stmefll of plan assets including a
growth stock fund. an S&P index fund. an equity incomo fund. an assot allocalioll
fund. a medium·term bond fund. a U,S. Treasury Securities fund flr-.lI an' onhan'c-e<J
sllort·u:rm bond fund. Those funds, (collectively. the "flJllds·j are avoilabre only to
public employers and only through the TIlISl and RC.
In addition to serving as investment advisor 10 tho Trusi. RC provides a
complete offering of services to public employers for tho operation of employee
retirement prDnS including. but not limited to. communications concerning ill"olestmcnt
alternatives, account maintenance, account record-kp.eping. inveslmont and lax.
repottlng~ form processing, benefil disbursement and asset manas;Joment.
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1. Appglntment of Be
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Agreements
IC~fJ\
RETlRt\lENT
CORPOR,\l'lOS
Employer hereby designates Re as Administrator of the Plan to perform
all non-discretionary functIons necessary for Hie administration of the Plan with
respact to assats In the Plan deposited wilh the Trust. Tho functions to be performed
by Re include:
(8) allocation in accordance with parllcipant direction of Individua1
accounts to Investment Funds offered by the Trust;
(b) maintenance of individual accounts for participants re1leeting
amounts deferred, income, gain, or foss credited, and amounts dIsbursed as benefits;
(~) provision of periodic feports to the Employer and participants of the
status of Plan Investments and individual accounts;
(dJ communication to participants of information regarding their rights
and elections under the Plan; and
tel disbursement of benefils as agent for the Empfoyer in accordance
with telms of the Pian.
2. Adoption Qt.InJ.s1
Employer has adopted the Oec!aration of Trust of tho leMA Rotirement
Trust and agrees to the commingled investment of assets of the Plan within tho Trust.
Employer egrees that operation of the Plen and investment. management and
disbursement of amounts deposited in tho Trust shall ba subject to the Declaration of
Trust, as It may be amended from time to time end shaUalso be subject to terms and
condltlcns set forth In disclosure documents Isuch as the Retirement Investment
Guide cr Employer Bulletins) as thoseta,ms and conditions may be adjusted from time
to time. It Is und.erstood that the term "Employer Trust" as it is used in the
DJ;:lclaration of Trust shall mean this Admini~trative Services Agreement.
3. EmplQyer puty 10 furoimlnfiu.mat!.o.n
Employer agrees to furnish to RC on a timely basis such information as
is necessary for RC to carty out its responsibflities as Administrator of the Plan,
incruding information needed to allocate individual participant accounts to Funds in the
Trust, and information as to the employment status of participants, and participant
ages, addresses and other identifying information (including tax identification
numbers). Re shall ~e entitled to rely upon the accuracy 01 any information that is
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Plan t/r'\. .... :f1 3 RI-:lIRFJ,tp.::"r ~'-______ ~C~O"~P~O~R~'\~T~IO~S
furnished to it by a re,'!ponslble official of the Employer or ;eny information mlating to
An Individual participant or benoficiary that is furnished by such participant or
beneficiary, and RC shall not be responsible for any error arising from its reliance on
such information. If within ninety 1901 days after the mailing of any report, statement
or accounting to the Employer or a participant, the Employer or participant has not
notifIed RC in w(jting of any error or objection, such report. statement, or accounting
shall be deemed to have be.n accepted by the Employer and the participants.
4. Cftrtain Representations, Warrar,ties, and Covenants
RC represenls and Warrents to Employor that:
(al RC is a non~profit corporation with full power and authority to enlar
into this Agreement and to perform its obtfgatiOns under this Agr£;ement. The abititv
of RC to serve as investment adviser to the Trust is dependent upon the continued
willingnoss of the Trust tor RC to servo in that capacily.
{bJ RC is an investment adviser registercd as such with the Securities
and Exchange Commission under the Investment Advise,s Act of 1940, as amended.
ICMA~RC S8rvlces~ Inc. (a whollv owned subsidiary of RC) is registered as a brok.er·
dca!sr with the Securitres and Exchange Commission {SEC) ami is a member in good
slanding of the National Association of Securities Dealers, Inc.
RC covenants with employer that:
(el AC shall maintain and administer the Plan in comj)Hance with the
requirements for eligit)I.o deferred compensation plans under Section 45"1 ot the
Internal Revenue: Code; provided, however, RC shall not!Je responsible for the eligible
status of the Plan in the event that the Employer directs RC to administer the Plan or
disburse assets rn a manner inconsistent with the requirements of Section 457 or
otho(wlse causes the Plan not to be carried out in accordance with its terms;
provided, further, that If the plan document used by the Employer contains terms that
differ from the terms of RC'. standardized plan documant, RC shall not b. responsible
for the eligible stalus of tho Plan to the oxtent affected by tt," differing terms in ihe
Employer's plen document.
Employer represents and warrants to RC that;
(d) Employer is organized in the form and manne/ recited in the opening
paragraph of this Agreement with full power and authority to enter into and perform
its obligations .under this Agreement ancj to act for the Plan and participants in the
manner contemplated tn this Agreement. Execution, delivery. and performance of this
Agreement will not conflict with any law, rule. regulation or contract by which the
Employer is bound or to which it is a party.
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REi"TIRt:,""E1IT
CORPORATlO:-';
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5.
The Employe, hereby authorizes RC to act as agont, to appear on its
behalf, and to loin the Employer as 0 necessary pany in ell legal proceedings involving
the g{lfnlshr'T'M!n,t of oonefil.!: or 1he transfer ot benefits pursuant to the divorce or
.eparati<>n of participants In tho Employer Plan, The Employer consents to the
disbursement by RC of benefits that have ba.n garnished or transferred to 8 former
$POUS8, spouse or child pursuant to 8 domestic reiations order.
6. Comp80!~QliOD aod PaVrrumt
leI Plan Administration Fee. The amount to be paid for plan
administration sorvi<:es under this Agreemant shall bo 0.9% per annum of the amount
of Plan aSSet. investod In the Trust. Such fee shall be computed and pold monll.ly
or, plan assets In the TrUs.t at the end of each month.
Ib) Account MarntenancQ Fee. Thero shalt be an annuaf account
maintenance rea of .$60.00. The account maintenance fee is payablo in full on
Januaiy l of each yaar on each account in eX4$tence on that data. For accounts
(lstablisnad after J81)U9ry 1, tho feo is payable on the first day of tho calendar quarter
following establishment and is proratod by reference to the number of calendar
quarters (emalnlng on the day of payment.
lei Compensetlon fOI Advisory Selvices 10 the TruSI. Employer
acknowledgesl"at in addition to amounts payeble under this Agreement, RC receives
fees from the Trusl for investmont advisory services furnished to the Trust.
Id) r.yment Procedures. Ii) All payments to RC pursuant to Section 61al
,hall be paid out of Ihe Plan ASsets held by the Trust and Sh311 be paid by the Trusl.
'rhe amount of Plan Assets held In the Trust shell be adjusled by the Trust as required
to refleCI such payments. IliI All payments to RC pursuant to Section 61b) shall be
paid dlre<:t1y by Employ.r, and shall not be doducted from Plan Assets held by the
Trust.
(0) This offer of pricing is cONingent upon (11 the City maintaining the
existing assets In lho C~y of Palo Alto's 457 Deferred Compensation Plan #1315. and
(2) the City of Palo AltO continuing to offer Plan #1315 to all new and existing
employee. of Ihe City.
7.
Emplover understands that amounts invested in the Trust are to be
remitted direC1!y 10 the Trust in accordance with instructions provided to Employer by
RC end ~re not to bo ,om'ilted to RC. In the event that any check 01 wire transfer is
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RtllRt\U',:'\T
CORPORATjO~
incorrectly laheUed or transl.rred to RC, RC is aulhorized. acting on hehall of Il,.
transferor, to transfor such check or 'tviro transfe( to the Trost.
8,
RC shall not he responsible for any aCIS or omissions of any person olhor
than RC in conneCllon wilh Ihe adm'nlstratlon or opelalion of tho Plan.
9.
This Agrearrnml may he telmlnotod without penally by either parlv on
slxty days advance notice in writing to tho other"
fa) This Agreement may no~ bet amondod except by wrilten ins.tfl.)m{'!nt
Signed by tile parties.
(b) The parties agree that compenS8!ion fot scr .... Jccs under this
Agreement and adminislf8tive and operational amHlQ6rnenrs may b~ adjusted as
follows:
AC may propos!) an ~djustmeot by wrinon {Jotko 10 the EmploYur given
at lasst 60 days before the ,offective date of the adjustment and Iha nOllce may
appear ill discrosure documents such 8S Employer Bulletins and tho Roti(smem
Investmont Guide, Such adJuslment .,hi.rl become effeclil'. uIlless, within the 60 day
period before the affective date the Employo! Ilotifies RC jn writing that it does not
accept such adjustmant, In which event RC shall be und~r no obllgetlon to provide
services under this Agreement.
(e! No failure to e.erclse end no delay In exercising any lighl, remedy,
power or privilege hereund91 shall operate as. 3 warver 01 Such right, remedy! power
or prjvilege.
11. NoJices
All notiGes raQulred to be delivered unde, Ihis Agreemenl shall bo
delivered porsonally or by (oglstered or cenHied mail, postago prepaid, return receipt
requested. to (i! RC al 777 North Capitol Sireet, N.E.. Suito 600, Washington, D.C,
20002-4240; Iii! Employer at the office s.t forlh in the first peragraph horeof, or to
any 01her address daaignated by the party to receive ths same by written notice
simitarly given,
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12. CortIQlet9 Agreement
Plan' r':';3
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IOf"
RF,rIRF~'!&'H
CORPORATlO~ --.:..~
This Agreement S~8n constitute tho Gal. agreement between RC end
Employer relating to the object of this Agreement and correctly sets forth tho
complet. rights, duties .nd obligations of .ach party to the other as of its dato. Any
pllor agreements. promises, negotiations or representaUQns. vorbal Of othorwiso. not
expr •• sly sot forth in thi. Agreement aro of no torco and effect.
13. .GQw.ning Law
This agr •• ment shan bo govorned by end con.trued in accordanco with
the laws of the Stata of California applicable to conlracts mad. in that Jurisdiction
without reference to its conflicts of laws provisions.
In Witness Whereof, tho parties hereto have execuled this Agreement as
of the Inception Date first above written.
ATTEST,
APPROVED AS TO FORM,
Senior Asst. City Attorney
APPROVED,
City Manager
Director of Finance
Director of lIuman Resources
CITY OF PALO ALTO
Mayor .---------... -.. -----
INTERNATIONAL CITY MANAGEMENT
ASSOCIATION RETIREMENT
CORPORATION
by: 9+ l.. 0\;)~ t/o.,j" .. ~m. NordholtlDate 7
Corporate Secretary
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