HomeMy WebLinkAboutReso 44-1989RESOLUTION NO. 44-89
CITY COUNCIL, CITY OF SOUTH SAN FRANCISCO, STATE OF CALIFORNIA
A RESOLUTION AUTHORIZING THE PICKUP OF EMPLOYEES
RETIREMENT CONTRIBUTIONS PURSUANT TO THE AGREEMENT
BETWEEN THE CITY OF SOUTH SAN FRANCISCO AND THE
INTERNATIONAL ASSOCIATION OF FIREFIGHTERS LOCAL 1507,
AFL-CIO UNIT "B" DATED NOVEMBER 20, 1985
WHEREAS, the City Council of the City of South San Francisco previously
approved an Agreement between the City and the International Association of
Firefighters Local 1507, AFL-CIO for Unit "B" covering the period November 1,
1985 through June 30, 1988; and
WHEREAS, pursuant to that Agreement, members of Unit "B" have paid their
own contributions to the Public Employees Retirement System (PERS); and
WHEREAS, under the terms of the Agreement the City has made a good faith
effort to obtain from the Internal Revenue Service a deferral from federal
taxes of the employees contributions to PERS; and
WHEREAS, on February 3, 1989, the IRS did issue a letter ruling
IE:EP:R:iO) granting the deferral; and
WHEREAS, in order to obtain this deferral, the parties have agreed that
the City Will pick up the employees contribution to PERS for those members
of Unit "B" who elect on a one-time irrevocable basis to participate in the
pick up program;
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of South
San Francisco that:
1. Each member of Unit "B" represented by Local 1507 of the International
AssociatiOn of Firefighters shall be allowed to choose whether to have the City
"pickup" their employees PERS contribution in order to obtain a deferral of
income taxes under Internal Revenue Code Section 414(h)(2). The choice may be
made by each employee at any time after the effective date of the IRS rulin§.
An employee's decision to participate in the "pickup" program shall be
irrevocable.
2. No employee who opts to have the City pick up his or her employee PERS
contribution shall have the option of choosing to receive the contributed amounts
directly instead of having them paid to PERS by the City. These contributions
shall be paid by the City although they are designated as employee contributions.
I hereby certify that the foregoing Resolution was regularly introduced and
adopted by the City Council of the City of South San Francisco at a regular
meeting held on the 12th day of April , 1989 by the following vote:
AYES: Councilmembers Mark N. Addiego, Jack Drago, Richard A. Haffey,
Gus Nicolopulos, and Mayor Roberta Cerri Teglia
NOES: None
ABSTAIN: None
ABSENT: None
· Internal Revenue Service
ATTACHMENT "1" RESOLUTION 44-89
Department of the Treasury
Washington, DC 20224
City of South San Francisco
400 Grand Avenue
P.O. Box 711
South San Francisco, CA
Attn:
Telephone Number:
(202) 566-7440
94083 Refer Reply to:
Date:
Person to Contact:
Mr. Robert M. Wilansky
Lydia Tolmacheff
Coordinator of Labor Relations
Leqend:
State A = California
Employer M = City of South San Francisco
Plan X = California Public Employees' Retirement System
Group B
= The following employee classifications: Fire
Fighter, Fire Fighter/Paramedic, Paramedic/Fire
Fighter, and Fire Captain.
Dear Ms. Tolmacheff:
This letter is in response to your ruling request dated
November 9, 1988, concerning the federal income tax
treatment, under section 414(h) (2) of.the Internal Revenue
Code, of certain contributions to Plan X.
Plan X was established by State A for the benefit of
State A employees and employees of political subdivisions of
State A including Employer M. Plan X is contributory and
requires the participation of Employer M's Group B
employees. You represent that Plan X meets the
qualification requirements of section 401(a) of the Code.
By proposed resolution, Employer M has agreed to pick
up, i.e., assume and pay the mandatory employee
contributions of Group B, employees who make a one-time
irrevocable election to have such amounts picked-up, in lieu
of Group B employees paying such contributions. In
addition, employees will have no option to receive the
picked up contributions in cash in lieu of having such
contributions paid to Plan X.
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City of South San Francisco
Based on the aforementioned facts, you have asked for
rulings to the effect: (1) that the contibutions "picked
up" by Employer M will be treated as employer contributions
for federal income tax purposes; (2) that the contributions
"picked up" by Employer M will not constitute wages for
federal income tax withholding purposes, and (3) that no
which are picked up by Employer M be included in the gross
income of the employee.
Section 414(h) (2) of the Code provides that
contributions, otherwise designated as employee'
contributions, shall be treated as employer contributions if
such contributions are made to a plan established by a state
government or a political subdivision thereof, which is
described in section 401(a), and are picked up by the
employing unit.
The federal income tax treatment to be'accorded
contributions which are picked up by the employer within the
meaning of section 414(h) (2) of the Code is specified in
Revenue Ruling 77-462, 1977-2 C.B. 358. In that revenue
ruling, the employer school district agreed to assume and
pay the amounts employees were required by state law to
contribute to a state pension plan. Revenue Ruling 77-462
concluded that the school district's picked-up contributions
to the plan are excluded from the employees' income until
such time as they are distributed to the employees. The
revenue ruling held further that under the provisions of
section 3401(a)(12) (A) of the Code, the school district's
contributions to the plan are excluded from wages for
purposes of the Collection of Income Tax at Source on Wages;
therefore, no withholding is required from the employees'
salaries with respect to such picked-up contributions.
The issue of whether contributions have been Picked up
by an employer within the meaning of Code .section 414(h) (2)
is addressed in Revenue Ruling 81-35, 1981-1 C.B. 255 and
Revenue Ruling 81-36, 1981-1 C.B. 255. These revenue
rulings established that the following two criteria must be
met: (1) the employer must specify that the contributions,
although designated as employee contributions, are being
paid by the employer in lieu of contributions by the
employee; and (2) the employee must not be given the option
of choosing to receive amounts directly instead of having
them paid by the employer to the pension plan. Furthermore,
it is immaterial whether an employer picks up contributions
through a reduction in salary, an offset against future
salary increases, or a combination of both.
The resolution adopted by Employer M satisfies the
criteria set forth in Rev. Rul. 81-35 and Rev. Rul. 81-36 by
providing that Employer M will make contributions in lieu of
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City of South San Francisco
the employees' contributions and that the employees may not
elect, to receive such contributions directly.
Accordingly, we conclude that:
The amounts picked up by Employer M on behalf of those
employer contributions and will not be includible in the
employees' gross income in the year in which such amounts
are contributed. These amounts will be includible in the
gross income of the employees or their beneficiaries only in
the taxable year in which they are distributed,~ to the'
extent that the amounts represent contributions made by
Employer M. Further, the fact of the one-time irrevocable
election does not affect the pick up offered by Employer M.
Because we have determined that the picked-up amounts
are to be treated as employer contributions, they are
excepted from wages under section 3401(a)(12)(A)of the
Code. In addition, no part of the amounts that are. picked
up by Employer M will constitute wages for federal income
tax withholding purposes in the taxable year in which they
are contributed to Plan X.
For purposes of the application of section 414(h) (2)~ of
the Code, it is immaterial whether an employer picks ~up
contributions through a reduction in salary, an offset-
against future salary increases, or a combination of both.
The effective date for the commencement of any proposed
pick-up as specified in the resolution cannot be any earlier
than the later of the date the resolution is signed or the
date it is put into effect.
These rulings are based on the assumption that Plan X
will be qualified, under section 401(a) of the Code at the
time of the proposed contributions and distributions.
Sincerely yours,
e E. Floyd
Chief, Employee Plans
Rulings Branch
Enclosures:
Copy of this letter
Deleted copy
Notice 437