12/22/08
Adopt a Resolution for Employer Pick Up to Allow the
City to Continue Implementing the Provisions of
Section 414(h)(2) Internal Revenue Code(IRC)
Pursuant to California Government Code Section
20691
MEETING DATE:
AGENDA ITEM:
ATTACHMENTS
Pages
1. Resolution
1-3
2. CalPERS Circular Letter 200-049-08
4-6RESOLUTION NO. 2008-R
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CULVER CITY, CALIFORNIA, TO TAX DEFER
EMPLOYER-PAID MEMBER CONTRIBUTIONS TO THE
PUBLIC EMPLOYEES' RETIREMENT SYSTEM.
WHEREAS, the City of Culver City has the authority to implement the
provisions of section 414(h)(2) of the Internal Revenue Code; and,
WHEREAS, the Board of Administration of the Public Employees' Retirement
System adopted its resolution regarding section 414(h)(2) of the Internal Revenue Code on
September 18, 1985; and,
WHEREAS, the Internal Revenue Service stated, in December 1985, that the
implementation of the provisions of section 414(h)(2) of the Internal Revenue Code
pursuant to the Resolution of the Board of Administration would satisfy the legal
requirements of section 414(h)(2) of the Internal Revenue Code; and,
WHEREAS, the City of Culver City has determined that even though the
implementation of the provisions of section 414(h)(2) of the Internal Revenue Code is not
required by law, the tax benefit offered by section 414(h)(2) of the Internal Revenue Code
should be provided to its employees who are members of the Public Employees'
Retirement System.
NOW, THEREFORE, the City Council of the City of Culver City, California,
DOES HEREBY RESOLVE as follows:
1. That the City of Culver City will implement the provisions of section
414(h)(2) of the Internal Revenue Code by making employee contributions pursuant to
California Government Code section 20691 to the Public Employees' Retirement System
on behalf of its employees who are members of the Public Employees' Retirement System.
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28"Employee contributions" shall mean those contributions to the Public Employees'
Retirement System which are deducted from the salary of employees and are credited to
individual employee's accounts pursuant to California Government Code section 20691.
2. That the contributions made by the City of Culver City to the Public
Employees' Retirement System, although designated as employee contributions, are being
paid by the City of Culver City in lieu of contributions by the employees who are members
of the Public Employees' Retirement System.
3. That employees shall not have the option of choosing to receive the
contributed amounts directly instead of having them paid by the City of Culver City to the
Public Employees' Retirement System.
4. That the City of Culver City shall pay to the Public Employees'
Retirement System the contributions designated as employee contributions from the same
source of funds as used in paying salary.
5. That the amount of the contributions designated as employee
contributions and paid by the City of Culver City to the Public Employees' Retirement
System on behalf of an employee shall be the entire contribution required of the employee
by the PublicEmployees' Retirement Law (California Government Code sections 20000, et
seq.).
6. That the contributions designated as employee contributions made by
the City of Culver City to the Public Employees' Retirement System shall be treated for all
ON.
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28purposes, other than taxation, in the same way that member contributions are treated by
the Public Employees Retirement System.
APPROVED and ADOPTED this day of 2008.
D. SCOTT MALSIN, MAYOR
City of Culver City, California
ATTEST:
MARTIN COLE, City Clerk
A08-00554
APPROVED AS TO FORM:
CAROL A. SCHWAB, City Attorney
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2814:f.
CalPERS
P.O. Box 942709
Sacramento, CA 94229-2709
888 CalPERS (or 888-225-7377)
Telecommunications Device for the Deaf
No Voice (916) 795-3240
www.calpers.ca.gov
Date: October 3, 2008
Reference No.:
Circular Letter No.: 200-049-08
Distribution: VI, XII, XVI
Special:
Circular Letter
TO: PUBLIC AGENCIES, COUNTY SUPERINTENDENT OF SCHOOLS,
SCHOOL DISTRICTS
SUBJECT: EMPLOYER "PICK-UP" - REVENUE RULING 2006-43
DECEMBER 31, 2008 DEADLINE FOR ACTION
ATTENTION: FINANCE DIRECTORS, HUMAN RESOURCE DIRECTORS
This Circular Letter is being sent to advise employers of Revenue Ruling 2006-43
concerning the pick-up of employee contributions to California Public Employees
Retirement System (CalPERS), and of actions that an employer may be required to
take before December 31, 2008 to ensure compliance with pick-up requirements.
BACKGROUND AND PURPOSE
Internal Revenue Code (1RC) Section 414(h)(2) allows public agencies and school
employers to designate required employee contributions as being "picked-up" by
the employer and treated as employer contributions for tax purposes. The effect of a
pick-up is to defer tax on employee contribution amounts until the member retires and
receives retirement benefits, or separates from employment and takes a refund of
contributions. Absent the 414(h)(2) provision applicable to governmental plans,
employee contributions to a defined benefit pension plan qualified under Section 401(a)
would automatically be after-tax contributions (e.g. taxable income to the employee at
the time the contribution was made).
Since the early 1980s, CalPERS has taken steps to ensure that contracting agency
and school employers have adopted and submitted to CalPERS appropriate written
evidence of pick-ups prior to reporting tax-deferred member contributions to CalPERS.
This Circular Letter is being sent as a reminder of the federal tax reporting
requirements, to encourage each contracting agency and school employer who reports
tax-deferred member contributions to review their documents and, if necessary, adopt
conforming documentation prior to the deadline set by Revenue Ruling 2006-43. To
view the ruling, visit CalPERS online.
Attachments Pg. 4Circular Letter # 200-049-08
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October 3, 2008
REVENUE RULING 2006-43
Revenue Ruling 2006-43 provides, in general, that an employee contribution will not be
treated as "picked-up" under IRC 414(h)(2) unless:
(1) The employer specifies that the contributions, although designated as
employee contributions, are being paid by the employer (this action must be
memorialized in writing), and
(2) The employer does not permit participating employees to opt out of the pick-
up or to receive the contributed amounts directly instead of having them paid by
the employer to the plan.
Revenue Ruling 2006-43 allows employers who do not have written evidence of a pick-
up, but their actions show that they intended to establish and carry out a pick-up, to be
treated as meeting the requirements of 414(h)(2) for past pre-tax contributions if the
employer takes formal action in writing prior to December 31, 2008 with respect to
future picked-up contributions. If formal action is not taken prior to December 31, 2008,
only contributions taken after the written documentation is in place may be treated as
picked-up.
WRITTEN DOCUMENTATION
Many of you offer a pick-up of employee contributions under a resolution approved by
the IRS in a private letter ruling issued to CalPERS on December 6, 1985, (PLR
8609084). If your agency has adopted the approved resolution to implement 414(h)(2)
pick-ups, you may continue to rely on that ruling and need not adopt a new resolution.
This approved form, which is Sample E---Resolution for Employer Pick-up can be
viewed at CalPERS online. If you have not previously sent a copy of the resolution to
us, or if you did not complete Sample E, but have other written documentation, please
send a copy of your document or resolution to us immediately.
After 1985, CalPERS provided additional pick-up resolutions for adoption by
contracting agencies that distinguishes whether the pick-up was to be actually paid by
the employer or by the employee. When an employer pays the employee
contributions, it is referred to as Employer Paid Member Contributions (EPMC). The
employer may also report the value of EPMC as special compensation. Contracting
agencies that adopted any of these resolutions were requested to submit the
resolutions to CalPERS. Samples of Resolutions A through D can be viewed at
CalPERS online. You may continue to rely on these resolutions but you should review
them and validate that the resolution covers all of the employees whose contributions
are reported as tax-deferred. If you have not previously sent a copy of the resolution to
us, please do so immediately.
Attachments Pg. 5Circular Letter # 200-049-08
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October 3, 2008
CALPERS NEW BUSINESS ENVIRONMENT
CalPERS is in the process of building and installing a new business reporting system.
One of the design features will enhance CalPERS ability to maintain accurate and up to
date information about contracting agency and school employer pick-ups. As a way of
ensuring that our system will accurately record your agency's pick-up provision,
CalPERS requires all affected agencies to provide a copy of their existing or future
pick-up resolutions or other written documentation. This will ensure ongoing
compliance with federal tax reporting requirements. The new system will validate that
you have documentation on file with CalPERS before accepting tax-deferred member
contributions. If documentation is not on file, your records will be rejected and will be
held until the appropriate documentation is received.
CONCLUSION
If you are submitting tax-deferred contributions on behalf of your members, we request
that you review your files for documentary evidence authorizing such employer pick-up
of employee contributions. If you do not have evidence, please take steps to have your
governing board adopt an appropriate resolution prior to December 31, 2008.
Please send a copy of your pick-up documentation to:
CalPERS
Employer Services Division
Compensation Review Unit
P.O. Box 942709
Sacramento CA 94229-2709
If you have any questions, please call the Employer Contact Center at 888 CalPERS or
(888 225-7377).
Lori McGartland, Chief
Employer Services Division
Visit the CalPERS website at www.calper&casiov (2008 Circular Letters) for more
information on the following:
1 - Revenue Ruling 2006-43
2 - Sample Resolution E
3 - Sample Resolutions A - D
Attachments Pg. 6
City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends the City Council adopt a resolution for Employer Pick up to allow
the City to continue implementing the provisions of Section 414(h)(2) of the Internal
Revenue Code (IRC) pursuant to Section 20691 of the California Government Code.
BACKGROUND:
In a CalPERS Circular Letter dated October 3, 2008, the City was informed of an
action that needs to take place by December 31, 2008. IRC Section 414(h)(2)
allows public agencies to designate required employee contributions as being
“picked-up” by the employer and treated as employer contributions for tax purposes.
The effect of a pick-up is to defer tax on employee contribution amounts until the
member retires and receives retirement benefits, or separates from employment and
takes a refund of contributions. Absent the 414(h)(2) provision applicable to
governmental plans, employee contributions to a defined benefit pension plan
qualified under Section 401(a) would automatically be after-tax contributions (e.g.,
taxable income to the employee at the time the contribution is made). Revenue
Ruling 2006-43 provides, in general, that an employee contribution will not be
treated as “picked-up” under IRC Section 414(h)(2) unless:
1. The employer specifies that the contributions, although designated as employee
contributions, are being paid by the employer (this action must be memorialized
in writing); and,
Meeting Date: 12/22/08 Item Number: C-4
AGENDA ITEM: Adoption of a Resolution for Employer Pick Up to Allow the City
to Continue Implementing the Provisions of Section 414(h)(2) of the Internal
Revenue Code Pursuant to Section 20691 of the California Government Code.
Contact Person/Dept.:
Jeff Muir, Chief Financial Officer
Phone Number: (310) 253-5865
Fiscal Impact: Yes [] No [X] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [ ] Attachments: [X]
Public Notification: Master E-Mail Notification List (12/18/08)
Department Approval:
Jeff Muir (12/12/08)
City Attorney Approval:
Carol Schwab (by H. Baker) (12/17/08)
Fiscal Impact Review:
Jeff Muir (12/12/08)
City Manager Approval:
Jerry B. Fulwood (12/17/08) City of Culver City, California
City Council Agenda Item Report
2. The employer does not permit participating employees to opt out of the pick-up or
to receive the contributed amounts directly instead of having them paid by the
employer to the plan.
Revenue Ruling 2006-43 allows employers who do not have written evidence of a
pick-up, but their actions show that they intended to establish and carry out a pick-
up, to be treated as meeting the requirements of IRC Section 414(h)(2) for past pre-
tax contributions if the employer takes formal action in writing prior to December 31,
2008 with respect to future pick-up contributions. Approval of this resolution will
provide the necessary documentation to meet the federal tax reporting requirements
outlined in Revenue Ruling 2006-43 and provides the City with the authority to
implement the provisions of IRC Section 414(h)(2).
DISCUSSION:
In order to ensure our ongoing compliance with federal tax reporting requirements
and avoid any complications with payroll reporting to CalPERS, it is imperative that
the City Council adopt this resolution. Failure to adopt the resolution and provide the
documentation to CalPERS will result in the City’s records being rejected until the
documentation is received.
FISCAL ANALYSIS:
Approving the authorizations will not increase City costs. The approval confirms the
elections currently in place in language prescribed by CalPERS to meet their and
IRC 414(h)(2) requirements.
ATTACHMENTS:
1. Proposed Resolution.
2. CalPERS Circular Letter 200-049-08.
MOTION:
That the City Council:
Adopt a resolution for Employer Pick up to allow the City to continue
implementing the provisions of Section 414(h)(2) of the Internal Revenue Code
pursuant to Section 20691 of the California Government Code.