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HomeMy WebLinkAbout1991-06-24 91-260 RESOLVEDate fi-041-91 Item No. 91-260 Rom/Subject: F=W, IM -IC 401(a) Plan Responsible Department. Pimrce Commeasary: The attachal 1iPP[IlatiDll IS the suggested fo® for eat ICM W. As discueeed with Cantil east appacaved by the Fr s Crmrnitms selth a mll t to t Cneacdl upas amepta by IC W, ilre sas b shgent of the 401(a) Plan sill begin Hre p a cif offaefng a qualifis3 plan to evmvlally replace tare high wat of Maim State R6tlzaaR SySteo. AS Proposal m tha Plnarcp C ttea east I(I W, fitred f® casffl1e � �i� cl � e Iurlai, art wcvld pe�arwarR park time eTlaYera rot saoporuy arplo}ers eat eagfbla m 1gL5 would be EICA coveted. hgffa3Ae date world ba 7-1-91. art, nr /InA �' Manager's Comments: Associated Information: ", kvi"& bi4A OW Budget Approval: -Mbawevme,lor Legal Approval: Cry5a;;c;ra, Intr used For p assag gFirst Reading - pages _of_ 0 Referral 91-260 Assigned to Councilor Cohen, June 24, 1991 CITY OF BANGOR (TITLE.) ¢SOIU¢, vsrmas�mmrc t rov+-rc aol/ l Pel........._._... . BY the City Council Of LAS aim of Denver. B WLVBD, W®AAS• the City of Bent (The Employer) has ®ploy Pe re Yhr129 valuettle servicss; ant ... vat, the esthD11s1Yrent of a Plan benefits e^PloY by P iding funds for mtirerent and fug Eor their baeficiarv� fn the event of death; ard [aha ' the 0iployer desires that; its Bey purcheae rattremt Plan be by the ItM tasrireQart Corporation and that to fuMe 1 ld I, such plan ba inveetai in the ICM Trust, a trust established by Public employers for the mlleetive investment of fuMe held umer tleix rettx®ent ard deferral ompaea•:.... P11m; K1Vr 49ffi�[RIRBr BB TT AP.Y = that to Baployer hereby a vorey purcitase +er:.m.. Plan in the io® of: the Exployem: hereby esseemarns the IM �bvevmmht; tlx� Plan amml to invest all funds hem Urcler tha Plan arvi w imest 1, Russell J M Renna , Clerk of tha City of Bengt¢, do hemby certify that the foregoing IAu3olution Pzw s by Un City Ca=U, vse passed ab adcpbed by the City Cwe of the City of Bangor, at its regular rreetlog ifecmf aes�bled this 24th day of June , 1991. (City S ) 91-260 nES0tve Establishment, of 1C - RC 401 A plan in city. council June 24.1991 Passed ui y Clerk CITY of . w�Y ��. /,1'.'!t'+i MAINE Ann SAM .ar ':AIN5 Cason «M FINANCE DEPARTMENT yM1n Uunromro, Finance Oiracto, May 20, 1991 To: Edward A. Barrett, City Manager Fr: John Duartararo, Finance Director Re: Follow up to May 16, 1991 memo Since writing the May 16, 1991 memo I have spoken with Hina Andersen at ICMA-RC concerning the establishment of a 401(a) plan. The conversation centered upon the following iterts: 1.ceation of the plan before June 30, 1991 to be effective as before July111991; R. inclusion of the four fixed term contract employees who de not belong to Maine State Retirement System; and the permanent part timers who are covered by neither Maine State Retirement nor social security. These employees are excluded from MSRS because they are working less than 770 hours between anniversary dates therefore inclusion in the 401(a) plan would provide them With a DC retirement plan, without the costs of social security to the employees. It the employee works the 710 Snowed hours, they are eligible for MSRS coverage at their next a versary date and would be dropped from the 401(a) plan but allowed to make voluntary contributions to the 457 plan; 3.aeasonal employees would be FICA covered And not added to the 401(a) planthis is due to the transient nature of the employment and the 104 excise tax on the participant if they withdraw the employer's share prematurely. The establishment of such a plan with "highly compensated employees" (HCR) and those denied participation in the MSRS system begins the process of a plan which would meet the nondiscrimination tests for 401(a) place that go into effect on December 31, 1991. Further, as the city moves towards changes in the struture of its contracts and Tetirement package wew ould be able to amend the 401(a) plan, but the Conditions for mandatary employee contribution and the rate on city contribution must be applied across the board to all participants otherwise the plan could be disqualified by the IRS as discriminatory towards the HCR. For those HCB whose contracts arefor more than 7.54 city share, the city share would be made through the section 457 plan which does not have to meet nondiscriminatory standards. Further, employees who make contributions whether voluntary or mandatory under the 401(a) plan i excess of the allowance under the 401(a) regulations Could make excess those contributions under the 451 plan. Therefore the recommendation is: 1. establishment of a 401(a) plan through ICMA-RC for the fixed term contract employees who are not enrolled in MSRS; 2. include permanent part time employees who are not eligible to join MSRS because they do not work the necessary 120 hours per year in the r 401(a) plan, while they a employed or until they are eligible to join MSRS on their anniversarydate; 3. enrollment of seasonal employees in social security rather than. the 401(a) plan; 4. establish a city contribution level of 1.5% with 100% vesting at the time of earnings, no mandatory employee contribution and allow voluntary employee contribution for enrollees; S. pay contracted city contributions in excess of the 7.5% rate through the 451 plan; and 6. if the city negotiates changes in employment contracts which removes MSRS for new employees, the city would reset the terms for mandatory employee contribution and the city contribution to the 401(a) plan for all employees in conformance with the policy and agreed terms for w hires - it is anticipated that changes in contracts and the retirement plan would be accomplished within the neat 6 months. Social Security!! 401 (a) !! 451 Medicaid City Employee Mon -Dig Contrib. Voluat FICA Rate Require Vol. Test Fixed Yes No 1.5% 0 Yea Yes Excess Yes Term Contract Contract Amount Permanent Yes No 7.5% 0 Yes Yea None Yes Part time Seasonal No 'Yes N/A MIA MSRS Yes No N/A Nene Yes employees CITYOF ��%:F MAINE OR. a..gnAIMS b FINANCE DEPARTMENT MM1n Ouarumo. Finance Ductal May 16, 1991 To: Edward A. Barrett, City Manager Fr: John quartering, Finance Director Re: Social Security and retirement as of 1/1/91 The proposed Federal Regulations governing mandatory Social Security for non -participants in a state or local retirement plan have been published and are in the comment stage. The IRS has taken the unusual step of being cry generous with the definition of a retirement plan which is different from the initial indications we were getting when Congress first passed the legislation requiring participation far non -retirement plan enrollees. Based upon the regulation and looking at the city's work force I offer the following recommendations which I suggest be brought to the Finance Committee for discussion: 1. Addition of a 401 (a) Money Purchase Plan through rCMA, in addition to the 457 Deferred Compensation Plan. The 401 (a) allows 25% contribution of taxable income to amum $30,000 -- the 457 tops out at $7,500. The 401 (a) allows employes contributions, mandatory employee contributions and vol notary employee contributions. The total combines is 25%, and the employee share Can not exceed 10% of the total taxable income -- whether mandatory of voluntary. 2. The city c e void all social security (except the Medicaid portion) by providing 7.5% through a defined contribution plan. That 7.5% can be by city contribution only, employee contribution only, or a combination of the two. 3. The are specific clauses in the regulations defining, part time, anal and temporary employees and requiring they be fully (100%) vested to avoid FICA for the employees. - Part time: works less than 20 hours per week Seasonal: works full time but less than 5 months a year Temporary: works under contract for 2 years or lees. 4. The problem that i see concerns the duration of employment and the time worked. Buy person who works less than 720 hours (anniversary date to anniversary date) is not eligible to join Maine State Retirement, therefore either Social Security or alternate must be Provided. He have long term employees who do not meet the 720 hour threshold and who are not receiving any retirement consideration. We may want toconsider a difference cin participation for permanent part timers who are excluded from MESA, and place them in a SIC plan; Versus, seasonal employeesfor whom Social Security would provide them with a better alternative than a DC plan since their benefits are portable. 5. amp loyees covered under a 457 or 401 (a) who withdraw their retirement amounts before age 59 1/2 are subject to a 104 excise tax. Seasonal employees covered order a DC plan will add to the administrative costs of establishing their accounts with ICHA-RC when hired, maintaining their accounts while employed and reporting their terminations. The employee risks the lose of the 10% excise if they withdraw their account balance which Is a loss to than, even if the full amount was contributed by the city. Allowing those persons to enroll in Social Security would be a direct cast to the city, but that direct cost is traded for additional administrative processing if these employees are placed in a DC plan. 6. Long term part timers, on the other hand, should be introduced to the DC plan because it allows them to adjust their set aside, and actively. participate in the investment decision for their retirement. Up to this point these employees have no retirement option with either the retirement plan or ial security. A required contribution .with a city match in lieu of social security would begin building equity for these employees. 7. The addition of the 401 (a), with its increase in total amount set aide, would allow employees who are currently at the maxim= $1,500/year to increase e their levels of participation to approach the $30,000/pear. Emp loyeescould also participate in the 457 plan while enrolled in the 401 (a) plan. Contract employees whose contracted contributions are in excess of the $7,500 would be afforded the full benefit of their contract.