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Home My WebLink About06/20/2000, C4 - ESTABLISHMENT OF THE PARS (PUBLIC AGENCY RETIREMENT SYSTEM) DEFINED CONTRIBUTION SUPPLEMENTAL RETIREMENT PLAN FOR DEPARTMENT HEADS AND MANAGERS councit j ac En ba Repom 6-2 -Oo 4m Nmhv CITY OF SAN LUIS OBISPO FROM: Ann Slate,Director of Human Resources IY"" Prepared By: Karen Jenny,Risk Manager SUBJECT: ESTABLISHMENT OF THE PARS (PUBLIC AGENCY RETIREMENT SYSTEM)DEFINED CONTRIBUTION SUPPLEMENTAL RETIREMENT PLAN FOR DEPARTMENT HEADS AND MANAGERS CAO RECOMMENDATION Adopt a resolution authorizing the establishment of the PARS (Public Agency Retirement System)Defined Contribution Retirement Plan for Department Heads and Management Employees and directing the Finance Director to transfer funds from the General Fund unallocated fund balance in the amount of$6,800 to the Human Resources Department Budget for the set up and first year expenses of the PARS Defined Contribution Plan. DISCUSSION Ori February 29,2000,the Council approved in concept a I% salary contribution to be placed in a deferred compensation for management employees, effective the first fill pay period in July, 2000. Department Heads already receive a 2%contribution from the City to deferred compensation. A committee of managers,headed by the Director of Human Resources, reviewed the options available and recommends that a supplemental retirement plan be established under Section 401 (a)of the Internal Revenue Code for Department Heads and Managers,rather than simply making the contribution to the deferred compensation program. As indicated in the February 29 Council Agenda Report,enhancements to retirement continue to be of intense interest to this and other employee groups. The City's deferred compensation program,established under Section 457 of the Internal Revenue Code,has an annual maximum deduction of$8,000 or 25%of annual salary,whichever is less. By adding a 401 (a) supplemental retirement plan,department heads and management employees can set aside additional monies for retirement,as long as deductions for both plans do not exceed 25%or $30,000 annually(again,whichever is less). And,while retirement enhancements have been identified as a top priority for this group,no one approach is going to work for everyone in this group. The PARS (Public Agency Retirement System)Defined Contribution Retirement Plan is recommended because of the flexibility the plan offers for participants. In addition to the 2% City contribution for department heads and I%City contribution for management employees, employees will have the choice among levels of participation depending on their financial situation and retirement needs. Participation levels for employees are proposed to be set from 0%to 9%. These varying levels will allow employees who are interested in aggressively setting C4-1 Council Agenda Report—Establishment of PARS Defined Contribution Supplemental Retirement Plan for Managers and Supervisors Page 2 aside money for retirement to do so,while those who have other financial priorities to participate to a lesser degree. The PARS Trust was established in 1991 by the Huntington Beach City School District and the State Center Community College District. Since then,more than 140 public agencies,including cities, counties, school districts and other agencies,have adopted the trust to provide retirement options to more than 180,000 participants,while providing maximum security under the law. The resolution adopts the PARS Trust, administered by Phase II Systems,which includes the PARS Defined Contribution Plan,appoints the City Administrative Officer as the City Administrator for PARS and authorizes him to execute the PARS legal documents to implement and maintain the plan. Plan specifics will be developed by Phase II Systems once the PARS Trust has been adopted and the agreement for administrative services is executed. In addition to designing plan specifics,Phase H Systems will conduct group orientation meetings,coordinate with the PARS Trustee and Investment Provider(Union Bank of California),prepare various required annual reports,advise the City of on-going compliance and qualification requirements, provide ongoing consultation for plan revisions and amendments, and prepare an application to the IRS for a letter of Plan Determination,which will ensure the tax-qualified status of the plan. FISCAL EWPACT The resolution authorizes a City contribution of 1%of salary for management employees and the transfer of the 2%of salary contribution for department heads from deferred compensation into the PARS Defined Contribution Plan. The I%contribution for management employees represents an additional cost of$29,000 per year. Phase II Systems will be compensated for their services in the following manner. a one time set- up fee of$2,000; and on-going administration fee of$400 per month; an annual asset fee based on the value of plan assets. It is proposed that the City pay the one-time set up fee and the administration fee of$400 per month, or$4,800 on an annual basis. The annual asset fee is proposed to be paid from the balances in participants' accounts, as is currently done with deferred compensation accounts. This is consistent with the way many cities who have joined the PARS Trust share the costs of this plan. For the first few years,the City's annual fee will be more than the annual asset fee paid by employees;however,within five years the costs will be shared equally. The resolution authorizes a transfer of fiords from unallocated fund balance to fund this cost for the first year,thereafter, funds will be budgeted in the Human Resources budget. ALTERNATIVES 1. Continue the contribution to the existing deferred compensation program. This alternative is not recommended,because it limits employees' flexibility in setting aside funds for their retirement to a maximum of$8,000 annually,including the City contribution. C4-2 Council Agenda Report—Establishment of PARS Defined'Contribution Supplemental.Retirement Plan for Managers and Supervisors Page 3' 2. Establish a 401 (a)plan with one of our existing deferred compensation providers. The deferred compensation providdt offer 401 (a)plans,but they are generally a "one size fits all" approach.with:no flexibility of particip ati on. The PARS-Wan is recommended because it has built-in flexibility for participation, so that employees can particip$e.at:the.level that;Makes the best financial sense for their,particular situation. ATTACHMENTS Resolution Copies of the following attachments-are in the)Council.Reading File'. Public Agency Retirement System(PARS)Trust Agreement: Agreement for Administrative Services Cd-.3 ATTACHMENT 1 RESOLUTION NO. (2000 Series) A RESOLUTION OF THE COUNCIL OF THE CITY OF SAN LUIS OBISPO AUTHORIZING THE ESTABLISHMENT OF THE PARS DEFINED CONTRIBUTION RETIREMENT PLAN TO BE ADMINISTERED BY PHASE II SYSTEMS,PARS TRUST ADMINISTRATOR WHEREAS,it is determined to be in the best interest of the City of San Luis Obispo CICIM to establish the PARS Defined Contribution plan to provide retirement benefits for its employees and their beneficiaries; and WHEREAS,the CITY is eligible to be a member of the Public Agency Retirement System(PARS), a governmental plan,which has made available its Defined Contribution(DC), a supplemental retirement plan, supplementing PERS (Public Agency Retirement System), and qualifying under relevant sections of the Internal Revenue Code and the California Government Code. NOW THEREFORE BE IT RESOLVED by the Council of the City of San Luis Obispo as follows: SECTION 1. The PARS Trust is hereby adopted,including the PARS Defined Contribution Plan(DC), effective July 6, 2000,the effective date for the benefit of employees on that date and hired thereafter, and. SECTION 2. The City Administrative Officer, or the designee of the City Administrative Officer,is hereby appointed as CITY Administrator for PARS, and further authorizes him/her to implement the plan. SECTION 3. The CITY's PARS Administrator is hereby authorized,to execute the PARS legal documents on behalf of the CITY and to take whatever additional actions that are necessary to maintain the participation of the CITY in PARS and to maintain PARS compliance with relevant regulations issued or as may be issued. SECTION 4. A contribution of 1%of salary for management employees to the PARS Defined Contribution Plan(DC)is hereby authorized, and a contribution of 2%of salary for department heads to the PARS Defined Contribution Plan(DC)in place of the 2%contribution to the deferred compensation program. SECTION 5. The Finance Director is hereby directed to transfer funds from unallocated fimd balance of the General Fund in the amount of$6,800 to the human Resources Department Budget for the set up and first year expenses of the PARS Defined Contribution Plan(DC). Upon motion of seconded by , and on the following roll call vote: AYES: NOES: C4-4 Resolution No. _ —_ (1992 Series) Page 2 —— — — ABSENT: The foregoing resolution was adopted flus 20th day of June;2000. Mayor-Allen Settle ATTEST: Le:Mce;City Clerk APPROVED AS TO FORM- 4; R Jeffrey G. Jorgensen, Vt _ _omey -- C4-5