HomeMy WebLinkAbout101-Pre-Tax Resolution Report.pdfPage 1 of 2
SARATOGA CITY COUNCIL
MEETING DATE: December 7, 2011 AGENDA ITEM:
DEPARTMENT: Finance & Administrative CITY MANAGER: Dave Anderson
Services Department
PREPARED BY: Monica LaBossiere DIRECTOR: Mary Furey
Human Resources Manager Finance &Administrative
Services Director
SUBJECT: Resolution to authorize tax deferral of member paid contributions to California
Public Employee Retirement System under Internal Revenue Code Section 414(h)(2)
RECOMMENDED ACTION:
Adopt resolution authorizing tax deferral of member paid contributions to California Public
Employee Retirement System (CalPERS) under Internal Revenue Code Section 414(h)(2).
BACKGROUND:
One cost reduction element which resulted from the labor negotiations with the City’s bargaining
groups is an agreement for employees to pay the full 7% employee contribution into the
CalPERS retirement plan on a pre-tax basis. The City will continue to pay the full employer
contribution.
Internal Revenue Code (IRC) Section 414(h)(2) allows employee contributions to be made on a
pre-tax basis. Under this provision, the 7% employee contributions are withheld from employee
compensation and submitted directly to CalPERS by the City, thereby lowering the employee’s
tax reportable compensation. In effect, this defers state and federal taxation until the time
CalPERS members receive their retirement pension payments.
In order to report member contributions as tax deferred compensation, CalPERS requires the
City’s governing board to adopt a resolution authorizing this provision of Internal Revenue Code
Section 414(h)(2), and to then file the resolution with the CalPERS agency. The resolution
authorizing member contributions as tax deferred compensation is attached for your approval.
FISCAL IMPACTS:
There are no fiscal impacts to the City resulting from implementing this IRC provision.
CONSEQUENCES OF NOT FOLLOWING THE RECOMMENDED ACTIONS:
Employee member contributions would be taxed, in violation of the memorandum of
understanding agreement.
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ALTERNATIVE ACTION(S):
N/A
FOLLOW UP ACTION(S):
The resolution will be submitted to CalPERS.
ADVERTISING, NOTICING AND PUBLIC CONTACT:
Pursuant to Government Code 54954.2, this item was properly posted as a City Council agenda
item and was included in the packet made available on the City’s website in advance of the
meeting. A copy of the agenda packet is also made available at the Saratoga Branch Library each
Monday in advance of the Council meeting.
ATTACHMENTS:
1. Resolution