HomeMy WebLinkAboutItem 08 - Retirement System for Part-Time EmployeesMEMO TO:
FROM:
MEETING DATE:
SUBJECT:
RECOMMENDATION:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
ROGER NELSON, CITY MANAGER 0,
SEPTEMBER 21, 2004
ALTERNATIVE RETIREMENT SYSTEM FOR PART-TIME
EMPLOYEES
City Council to consider approving a resolution authorizing the City Manager to execute an
agreement with the Public Agency Retirement System (PARS) to provide an alternate
retirement system for part-time employees.
FUNDING SOURCE
FY 05 Budget — Account Number/Retirement Benefit(PARS) - 41237
BACKGROUND:
The City of Grapevine opted out of social security in 1982 pursuant to Federal legislation
allowing it. The opt out relates only to full-time employees. Federal legislation at the time
did not allow the City to opt out of social security for part-time employees. The City is
required to contribute an amount equal to 6.2% of each part-time employee's salary to
social security and the employee is required to contribute a similar amount for total
contribution of 12.4%.
In 1990 Congress adopted the Omnibus Budget Reconciliation Act (OBRA). OBRA
mandated that employees not covered at the time by a retirement program should be
enrolled in social security or an alternate retirement program, which meets the statutory
requirements of the act. The Public Agency Retirement System (PARS) offers an Alternate
Retirement System (ARS) that meets these requirements.
The ARS program provides certain benefits to both the employee and the City. The
legislation requires a minimum contribution to the alternate plan of 7.5%. The employee's
contribution will, therefore, remain the same as it is under social security - 6.2%. This
deduction can, however, be taken from pretax dollars and this will actually result in an
increase in take home pay for the contributing employees. The City will contribute the
remaining 1.3% for a total of 7.5%. The reduced rate of contribution by the City (1.3%
versus 6.2%) results in estimated first year savings of approximately $33,000. This level
September 16, 2004 (10:46AM)
of savings will continue each year with the amount varying depending the total number of
part-time employees and the hours worked.
The benefits to employees from enrollment in the ARS versus Social Security are as
follows:
1. PARS plans participants are fully vested in their individual accounts from day one.
This is the same as immediate ownership of the invested funds. This compares to
social security which requires contributions for a minimum of 40 calendar quarters (10
years total) before the employee is eligible for any social security retirement benefit.
2. In the event of the participant's separation from the City, the participant may receive
the contributed funds as follows:
(a) Distributed as a lump sum for the participant; or
(b) Rolled over to an IRA or other qualified plan that accepts rollovers.
3. PARS contributions are pre-tax dollars. Social Security contributions are post -tax
dollars (income tax). The result is additional take home pay for the enrolled
employees.
4. Contributions to the PARS plan increase account balances without limit. With Social
Security, once the limit is met, additional contributions do not result in any higher
benefits for the contributing participant.
Attached is resolution which authorizes the City Manager to execute the appropriate
documents to enter into the PARS program. Representatives from PARS will attend the
Council Meeting and will be happy to respond to questions.
Staff recommends approval.
WAG/cjc
H:AGMPARSRetirement
September 16, 2004 (10:46AM)
RESOLUTION NO.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS AUTHORIZING THE CITY OF
GRAPEVINE TO ENTER INTO AN AGREEMENT WITH
THE PUBLIC AGENCY RETIREMENT SYSTEMS TO
PROVIDE AN ALTERNATE RETIREMENT SYSTEM FOR
PART-TIME EMPLOYEES AND PROVIDING AND
EFFECTIVE DATE
WHEREAS, it is to be determined to be in the City's best interest and its
employees to provide a qualifying Retirement System ("Deferred Compensation FICA
Alternative Plan") for all its employees not currently eligible for such a Qualifying
Retirement System, thereby meeting the requirements of Section 113232 of the Omnibus
Budget Reconciliation Act (OBRA 90) and Section 3121 (b)(7)(F) of the Internal Revenue
Code (IRC); and
WHEREAS, the City is eligible to be a member of the Public Agency Retirement
System (PARS) Trust, which has made such a System available to the City and its
eligible employees and qualifies under Chapter 609 of the Texas Government Code,
OBRA 90 Section 11332, IRC Sections 3121 (b)(7)(F) and 4571, and meets the meaning
of the term "retirement system" as given by Section of 218(b)(4) of the Federal Social
Security Act.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF GRAPEVINE, TEXAS:
Section 1. That all matters stated in the preamble are found to be true and correct,
and are incorporated herein by reference as if copied herein in their entirety.
Section 2. That the City of Grapevine hereby adopts the PARS Trust, including the
PARS Section 457 FICA Alternate Retirement System (ARS), effective November 14,
2004, the effective date for the benefit of employees on that date and hired thereafter.
Section 3. That the City of Grapevine hereby appoints the Personnel Director, or
his/her successor or his/her designee as the City's Plan Administrator for the PARS 457
FICA Alternate Retirement System.
Section 4. The City's Plan Administrator is hereby authorized to implement the
plan(s), the PARS legal documents on behalf of the City and to take whatever additional
actions are necessary to maintain the City's participation in PARS and to maintain PARS
compliance of any relevant regulation issued or as may be issued; therefore, authorizing
him/her to take whatever additional actions are required to administrator the City's PARS
plan(s).
Section 5. That this resolution shall take effect from and after the date of its
passage.
PASSED AND APPROVED BY THE CITY COUNCIL OF THE CITY OF
GRAPEVINE, TEXAS on this the 21 st day of September, 2004.
F-11
ATTEST:
APPROVED AS TO FORM:
RES. NO. 2