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HomeMy WebLinkAboutAgenda Packet - April 24 1996 - CC CIIIMIE OF AZUSA 740 Cave*Cfry Finance Department • 213 E. Foothill Blvd. • P.O. Box 1395 • Azusa, CA 91702-1395 (818)334.5125 AGENDA ITEM TO: HONORABLE MAYOR AND MEMBERS 0 THE CITY COUNCIL FROM: GEOFF CRAIG, DIRECTOR OF FINANCE ' VIA: HENRY GARCIA, CITY ADMINISTRATOR�Q� DATE: APRIL 24, 1996 ti�� SUBJECT: AMENDMENT TO CONTRACT WITH PUBLIC EMPLOYEES' RETIREMENT SYSTEM TO INCLUDE EMPLOYER-PAID MEMBER SHARE IN BASE PAY DURING FINAL COMPENSATION PERIOD Background As part of the negotiations which culminated in the five-year contracts with the various bargaining units, management agreed that, effective July 1, 1996, the City shall amend its contract with the Public Employees Retirement System(PERS)to include the Employer Paid Member Share in base pay during the fmal compensation period. This report explains the procedure and the cost and presents the required Ordinance for second reading. Findings The City of Azusa joined the California Public Employees' Retirement System on January 1, 1949. The System is the State of California's retirement plan for its employees and it allows local agencies to contract with it for similar services. In this way, cities such as Azusa are spared the trouble and expense of administering separate, smaller, retirement systems, respectively. Contributions to the System consist of a fixed"employee" share of 7%of compensation and a variable"employer" share of between 5% and 6% (plus any additional that is still needed to pay for the"unfunded liability" for the cost of retirements of employees who were already eligible for benefits when the City joined and for changes over the ensuing years in the overall age, longevity and contractual benefits of the ■. Honorable Mayor and Members of the City Council April 24, 1996 Page 2 City work force). As a rule, cities in California pay both shares of the Retirement System contributions for their full-time employees by depositing the required funds with the System following each pay period. Several years ago,the PERS Board of Administration made the finding that, if the employer agrees, the 7% "employee" share can be included in the measurement of compensation upon which the annuitant's future retirement pay will be based. This is known as "Employer-Paid Member Contributions Converted to Payrate During the Final Compensation Period" for local miscellaneous members. (At Azusa, for miscellaneous members, the"Final Compensation Period" is defined as the 36 highest-paid consecutive months of PERS-covered full-time employment.) As part of the negotiations which culminated in the five-year contracts with the various bargaining units, management agreed that, effective July 1, 1996, the City shall amend its PERS contract with the Public Employees Retirement System (PERS)to include this provision. The employee share will be shown as both an addition to, and a deduction from, gross pay. Federal and State Income Taxes will be deferred until the employee receives his or her retirement income. The City has nearly paid its "unfunded liability". In addition, PERS investment specialists have, in recent years, garnered a double-digit rate of return on their investment of the System's idle cash. For these reasons,PERS estimates that the cost to the City of Azusa for this amendment will be as low as 1.196% of payroll for the next twenty years (a total of$852,700) and that it will drop to 0.536%thereafter. However, it appears that the PERS investment specialists will again achieve a very large return on their investments and that this could have the effect of altogether erasing the City's "unfunded liability". Thus, Azusa's increase would only be 0.536%, or, perhaps, less. In return, City employees agreed to forego a cost-of-living increase scheduled in 1995 and they developed a lower-cost disability insurance plan that together saved the City over $250,000 annually, beginning with this Fiscal Year. At the last regular meeting, Council began the amendment process by passing a Resolution of Intention and a Resolution pertaining to deferral of income taxes on the contributions. Then Council introduced the attached Ordinance authorizing the amendment. Staff is recommending that Council proceed with the second reading. Honorable Mayor and Members of the City Council April 24, 1996 Page 3 Recommendations Staff recommends that Council conduct the second reading and adopt the Ordinance Authorizing an Amendment to the Contract Between the City Council of the City of Azusa and the Board of Administration of the California Public Employees' Retirement System. GJC:pap e\councinepmcpers.7% EMBER 0 OF AZUSA 7 Finance Department • 213 E. Foothill Blvd. • P.O. Box 1395 • Azusa,CA 91702-1395 (818)334-5125 CERTIFICATION OF FINAL ACTION OF GOVERNING BODY I hereby certify that the CITY COUNCIL (Governing Body) of the CITY OF AZUSA(Public Agency) adopted on May 6, 1996, by an affirmative vote of a majority of the members of said Governing Body, ORDINANCE NO. approving the attached contractual agreement between the Governing Body of said Agency and the Board of Administration of the California Public Employees' Retirement System, a certified copy of said Ordinance in the form furnished by said Board of Administration being attached hereto. City Clerk : Adolph A. Solis Date: PERS-CON-5(Rev.1/96) ■■ RESOLUTION NO. 96-051 RESOLUTION OF INTENTION TO APPROVE AN AMENDMENT TO THE CONTRACT BETWEEN THE BOARD OF ADMINISTRATION OF THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM AND THE CITY COUNCIL OF THE CITY OF AZUSA WHEREAS, the Public Employees' Retirement Law permits the participation of public agencies and their employees in the Public Employees' Retirement System by the execution of a contract, and sets forth the procedure by which said public agencies may elect to subject themselves and their employees to amendments to said Law; and WHEREAS,one of the steps in the procedures to amend this contract is the adoption by the governing body of the public agency of a Resolution giving notice of its intention to approve an amendment to said contract, which Resolution shall contain a summary of the change proposed in said contract; and WHEREAS, the following is a statement of the proposed change: "To provide Section 20615.5, 7% Employer Paid Member Contributions Converted to Payrate During the Final Compensation Period for local miscellaneous members only." NOW, THEREFORE, BE IT RESOLVED that: Section 1. The City Council of the City of Azusa does hereby give notice of intention to approve an amendment to the contract between the said governing body and the Board of Administration of the Public Employees'Retirement System, a copy of said amendment being attached hereto, as an "exhibit" and by this reference made a part hereof. Section 2. The City Clerk shall certify to the adoption of the Resolution. APPROVED AND ADOPTED this 15th day of April, 1996. April MAY R I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the City Council of the City of Azusa at a regular meeting thereof, held on the 15th day of April, 1996 by the following vote of Council: AYES: COUNCILMEMBERS: Hardison,Madrid,Naranjo,Beebe,Alexander NOES: COUNCILMEMBERS: None ABSENT: COUNCILMEMBERS: N• e CI ' CLE ' / fordance\peramsvcies RESOLUTION NO. 96-052 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF AZUSA, CALIFORNIA, TO IMPLEMENT PROVISIONS OF INTERNAL REVENUE CODE 414(h)(2) REGARDING EMPLOYEE PAID CONTRIBUTIONS TO PUBLIC EMPLOYEES' RETIREMENT SYSTEM WHEREAS, the City Council of the City of Azusa has the authority to implement the provisions of section 414 (h)(2) of the Internal Revenue Code (IRC); and WHEREAS, the Board of Administration of the Public Employees' Retirement System adopted its resolution re section 414(h)(2) on September 18, 1985; and WHEREAS, the Internal Revenue Service has stated in December 1985 that the implementation of the provisions of section 414(h)(2) IRC pursuant to the Resolution of the Board of Administration would satisfy the legal requirements of section 414(h)(2) IRC; and WHEREAS, the City Council of the City of Azusa has determined that, even though the implementation of the provisions of section 414(h)(2) IRC is not required by law, the tax benefit offered by section 414(h)(2) IRC should be provided to its employees who are members of the Public Employees' Retirement System; NOW, THEREFORE, BE IT RESOLVED: Section 1. That the City Council of the City of Azusa will implement the provisions of section 414(h)(2) Internal Revenue Code by making employee contributions pursuant to California Government Code section 20615.5 to the Public Employees' Retirement System on behalf of its employees who are members of the Public Employees' Retirement System. "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 Code section 20615.5. Section 2. That the contributions made by the City Council of the City of Azusa to the Public Employees' Retirement System, although designated as employee contributions, are being paid by the City Council of the City of Azusa in lieu of contributions by the employees who are members of the Public Employees' Retirement System. Section 3. That employees shall not have the option of choosing to receive the contributed amounts directly instead of having them paid by the City Council of the City of Azusa to the Public Employees' Retirement System. Section 4. That the City Council of the City of Azusa 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. Section 5. That the amount of the contributions designated as employee contributions and paid by the City Council of the City of Azusa to the Public Employees' Retirement System on behalf of an employee shall be the entire contribution required of the employee by the Public Employees' Retirement Law (California Government Code Section 2----, et seq.) Section 6. That the contributions designated as employee contributions made by the City Council of the City of Azusa to the Public Employees' Retirement System shall be treated for all purposes, other than taxation, in the same way that member contributions are treated by the Public Employees' Retirement System. PASSED, APPROVED AND ADOPTED this 15th day of, April , 1996 4MA OR I HEREBY CERTIFY that the foregoing Resolution was duly adopted by the City Council of the City of Azusa at a regular meeting thereof, held on the 15th day of April , 1996 by the following vote of the Council: AYES COUNCIL MEMBERS: Hardison,Madrid,Naranjo,Beebe,Alexander NOES COUNCIL MEMBERS: None ABSENT COUNCIL MEMBENone ..� ii./../A / . /a/ CITY C RK (:ocddnance\persepmc.tax