Loading...
HomeMy WebLinkAbout11 401A Planenda Item # CONSENT To: Board of Directors 11 From: Jeremy Popov Date. April 06, 2016 Subject: Consideration to Amend the Adoption Agreement for the District's 401A Plan 1. WHY THIS MATTER IS BEFORE THE BOARD Board approval is required to amend the existing Adoption Agreement for the District's Governmental Money Purchase Plan & Trust 401(a). 2. HISTORY The District currently maintains several retirement plans, including both a qualified 401(a) plan and a qualified 457 plan administered by ICMA Retirement Corporation. Together with a CalPERS defined benefit plan (pension), the retirement plans provide reasonable retirement security to employees of the District. All District employees are eligible to participate. Resolution No. 2007-10 established and defined a 401(a) money purchase plan retirement account for District employees. The 457 and 401(a) plans are similar in that both are intended to provide employees the opportunity to save for retirement through pre-tax contributions into a quaed retirement account. Currently, the Public Employees' Pension Reform Act (PEPRA) eligible employees contribute 6.78% of their pay on a pre-tax basis into their respective 457 retirement accounts. The District currently matches this contribution, and also deposits a 6.78% match into the 457 retirement account for each eligible employee. 3. NEW INFORMATION For 2016, the 457 retirement account IRS annual deferral limit, for both employee and employer contributions combined, is a maximum of $18,000 (adjusted annually by the IRS). As a result of the employer contributions into the account, PEPRA employees are limited in their ability to contribute into this account. As a result, PEPRA employees are not able to take full advantage of the $18,000 contribution limit using solely employee contributions. Additionally, there is potential that total contributions will exceed the IRS limit. When this occurs, the District will be restricted and unable to meet the negotiated Memorandum of Understanding. In order to resolve this, the District must consider a revision to the 401(a) Adoption Agreement to allow employer contributions into the 401(a) Plan rather than the 457 Plan. Currently, the 401(a) is designed to not permit employer contributions. The District has the capability to adjust the Plan to elect employer (District) contributions into an employee's 401(a) account. The contribution limits of the 401(a) and 457 retirement accounts are independent, and an employee can save to both plans up to the maximum IRS deferral limits. This would provide the District's CalPERS PEPRA employees the ability to increase employee contributions to their 457 retirement accounts, thereby maximizing their pre-tax retirement savings. Although the 401(a) and 457 retirement plans are similar, there are advantages and disadvantages between them. Staff has determined the benefits of depositing employer contributions to the 401(a) instead of the 457 retirement plan outweigh the disadvantages for both the employees and ratepayers of the District: Similarities between the 401(a) and 457: • Loans are available in both the 401(a) and 457; • Both plans allow for retirement at age 55 without an IRS early withdraw 10% penalty, as long as the employee retires from employment with a qualified plan at or after age 55; • Both plans provide 100% vesting for the employee and provide the employee full control; and • Both plans provide online access. Advantages of the 401(a): • Increased pre-tax contribution ability for PEPRA employee contributions; and • 401(a) employer contributions are exempt from FICA, which will save the District ratepayers 7.65% on all contributions. Disadvantages of the 401(a): • Employees will have two accounts to review instead of one (457 and 401(a)); • Hardship withdraws are not permitted in the 401(a), however they remain permitted for the employee funds contributed into the 457; and • Similar to a 401(k), if an employee terminates employment and does not roll the funds into a qualified plan the funds may be subject to a 10% IRS penalty. The 457 plan is not subject to a 10% early withdraw penalty. 4. FISCAL IMPACT There are no additional costs to the District associated with the proposed action. Depositing employer (District) contributions into the 401(a) instead of the 457 will save the District 7.65% on all District contributions, as 401(a) employer contributions are exempt from Social Security FICA tax. The District's current contribution to the 457 plan is not exempt. There is no fiscal impact to the District's employees as contribution percentages remain identical, this consideration only provides for a different account in which District contribution funds will be deposited. 5. RECOMMENDATION Approve Resolution 2016-06 to amend and restate the Adoption Agreement for the District's 401(a) plan, to permit fixed employer contributions. Jeremy Popov Administrative Services Manager Michael D. Holley General Manager Resolution No. 2016 - 06 Amend and Restate the Governmental Money Purchase Plan &Trust WHEREAS, the District has employees rendering valuable services; and WHEREAS, the District has established a qualified retirement plan for such employees that serves the interest of the District by enabling it to provide reasonable retirement security to its employees, by providing increased flexibility in its personnel management system, and by assisting in the attraction and retention of competent personnel; and WHEREAS, the District has determined that the continuance of the qualified retirement plan will serve these objectives; and NOW, THEREFORE, BE IT RESOLVED by the Board of Directors of the Truckee Donner Public Utility District as follows. • The District hereby amends and restates the qualified retirement plan (the "Plan") in the form of the ICMA Retirement Corporation Governmental Money Purchase Plan & Trust and any associated amendments provided by the District (executed copies attached hereto) BE IT FURTHER RESOLVED that the assets of the Plan shall be held in trust, with the District serving as trustee ("Trustee"), for the exclusive benefit %J Plan participants and their beneficiaries, and the assets shall not be diverted to any other purpose. The Trustee's beneficial ownership of Plan assets held under the Plan in the ICMA Retirement Trust shall be held for the further exclusive benefit of the Plan participants and their beneficiaries; BE IT FURTHER RESOLVED that the Human Resources Manager of the District shall be the coordinator for the Plan; shall receive reports, notices, etc., from the ICMA Retirement Corporation or the ICMA Retirement Trust; shall cast, on behalf of the District, any required votes under the ICMA Retirement Trust; may delegate any administrative duties related to the Plan to appropriate departments. BE IT FURTHER RESOLVED that the District hereby agrees to serve as Trustee underthe Plan. BE IT FURTHER RESOLVED that the District hereby authorizes the Human Resources Manager to execute all necessary agreements with the ICMA Retirement Corporation incidental to the administration of the Plan. 11 PASSED AND ADOPTED by the Board of Directors of the Truckee Donner Public Utility District at a meeting held within said District on April 6, 2016 by the following roll call vote: AYES: NOES: ABSENT Directors: None None TRUCKEE DONNER PUBLIC UTILITY DISTRICT By Joseph Aguera, President ATTEST: Michael D. Holley, District Clerk E