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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. -2- 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 -3- 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