TO: City of San Juan Capistrano Agenda Report Honorable Mayor and Members cil FROM: Tom Bokosky, Human Resources DATE: August 4, 2015 F6 SUBJECT: Consideration of a Resolution Amending and Restating the City of San Juan Capistrano Replacement Benefits Plan and a Memorandum of Understanding with the Orange County Employees' Retirement System RECOMMENDATION: By motion, adopt a resolution amending and restating the City of San Juan Capistrano Replacement Benefits Plan and authorize the City Manager to enter into a Memorandum of Understanding with the Orange County Employees Retirement System for the administration of the Plan. EXECUTIVE SUMMARY: The City contracts with the Orange County Employees' Retirement System (OCERS) to allow participation of eligible employees in its retirement system. Federal law establishes the maximum amount of pension benefits OCERS is allowed to pay an individual in any one year. The maximum benefit for calendar year 2015 is limited to $210,000 for someone retiring between the ages of 62 and 65; however, this amount is actuarially reduced for benefits beginning before age 62 and benefits to a participant who has less than 10 years of participation in OCERS (Attachment 1). Effective January 1, 2004, Government Code Section 31899.4 obligated the City to establish a replacement benefit program (i.e., replacement benefits plan) to make up the difference between the benefit the member is entitled to receive and the amount OCERS is allowed to pay. There is no anticipated fiscal impact because the City payments for benefits due from the replacement benefits plan are offset against City required contributions to OCERS. The recommendation is that the City Council adopts a resolution amending and restating the City of San Juan Capistrano Replacement Benefits Plan and authorizing the City Manager to enter into a Memorandum of Understanding with the OCERS for the administration of the Plan (Attachment 2).
Transcript
TO:
City of San Juan Capistrano Agenda Report
Honorable Mayor and Members cil
FROM: Tom Bokosky, Human Resources
DATE: August 4, 2015
F6
SUBJECT: Consideration of a Resolution Amending and Restating the City of San Juan Capistrano Replacement Benefits Plan and a Memorandum of Understanding with the Orange County Employees' Retirement System
RECOMMENDATION:
By motion, adopt a resolution amending and restating the City of San Juan Capistrano Replacement Benefits Plan and authorize the City Manager to enter into a Memorandum of Understanding with the Orange County Employees Retirement System for the administration of the Plan.
EXECUTIVE SUMMARY:
The City contracts with the Orange County Employees' Retirement System (OCERS) to allow participation of eligible employees in its retirement system. Federal law establishes the maximum amount of pension benefits OCERS is allowed to pay an individual in any one year. The maximum benefit for calendar year 2015 is limited to $210,000 for someone retiring between the ages of 62 and 65; however, this amount is actuarially reduced for benefits beginning before age 62 and benefits to a participant who has less than 10 years of participation in OCERS (Attachment 1).
Effective January 1, 2004, Government Code Section 31899.4 obligated the City to establish a replacement benefit program (i.e., replacement benefits plan) to make up the difference between the benefit the member is entitled to receive and the amount OCERS is allowed to pay. There is no anticipated fiscal impact because the City payments for benefits due from the replacement benefits plan are offset against City required contributions to OCERS.
The recommendation is that the City Council adopts a resolution amending and restating the City of San Juan Capistrano Replacement Benefits Plan and authorizing the City Manager to enter into a Memorandum of Understanding with the OCERS for the administration of the Plan (Attachment 2).
City Council Agenda Report August 4, 2015 Pa e 2 of 5
DISCUSSION/ANALYSIS:
The City contracts with OCERS to allow participation of eligible employees in its retirement system. The benefits payable by OCERS are restricted by Section 415(b) of the Internal Revenue Code ("Code") which establishes limits to the amount in benefit payments that OCERS can pay in a calendar year. Government Code Section 31899.4, added to the County Employees Retirement Act of 1937 ("1937 Act") effective January 1, 2004, obligated the City to establish a replacement benefit program (i.e., replacement benefit plan) to make up the difference between the benefit the member is entitled to receive and the amount OCERS can legally pay.
Federal Limitations on Benefits Paid by OCERS:
Federal law imposes a benefit cap on retirement benefits pursuant to Code Section 415(b). This section establishes the maximum amount of pension benefits OCERS is allowed to pay an individual in any one year. The maximum benefit for calendar year 2015 is limited to $210,000 for someone retiring between the ages of 62 and 65; however, this amount is actuarially reduced for benefits beginning before age 62 and benefits to a participant who has less than 10 years of participation in OCERS.
However, Code Section 415(m) permits public employers to adopt a replacement benefits plan for those retired employees whose retirement allowance is limited by Code Section 415(b) for the purpose paying out the benefit limited by Code Section 415(b). Although retirees that accrued service credit through the City's contract with OCERS have yet to be impacted by the limitations of Code Section 415(b), it is anticipated that future retirees will be affected.
City's Obligation to Provide for a Replacement Benefits Plan under State Law:
Effective January 1, 2004, the California Government Code obligated agencies participating in a 1937 Act plan, such as OCERS, to provide a replacement benefits plan to replace earned retirement benefits that may be limited by Code Section 415(b). Pursuant to Government Code Section 31899.4
"Each county and district shall provide a program to replace the benefits that are limited by Section 415 of the Internal Revenue Code for members whose retirement benefits are limited by Section 415 and cannot be fully maximized pursuant to Section 31538. The replacement benefits program shall provide benefits that, together with the benefits provided by the retirement system, are the same as, and may not exceed the benefits that would be paid by the retirement system but for the application of the limits of Section 415."
City Council Agenda Report August 4, 2015 Pa e 3 of 5
Effect of PEPRA (Pension Reform) on Recommended Action:
One of the pension reform measures in PEPRA, Government Code Section 7522.43, provides that a public employer that does not offer a replacement benefits plan prior to January 1, 2013, cannot offer such a plan for any employee, including existing employees, or on after January 1, 2013. In addition, employees deemed "new members" as that term is defined in Government Code Section 7522.04(f) are precluded from participating in a replacement benefits plan by Government Code Section 7522.43.
The City Attorney has opined that Government Code Section 7522.43 does not preclude the City from taking the recommended action since the City of San Juan Capistrano Replacement Benefits Plan (the "Plan") was originally provided for under the terms of California Government Code Section 31899.4 effective January 1, 2004. However, to date, there has been no need to operate and administer the Plan due to the fact that the retirement benefits of City employees have not been limited by Section 415(b ). Since the Plan is deemed to have been originally provided for effective January 1, 2004, the requested action is an amendment and restatement of an existing replacement benefits plan. However, employees deemed "new members" as that term is defined in Government Code Section 7522.04(f) are precluded from participating in a replacement benefits plan.
OCERS Requested Modifications:
OCERS recently informed City staff that it would be necessary to put the Plan into operation because it is anticipated that the retirement benefits of future City retirees, other than those deemed "new members" under the provisions of California Government Code Section 7522.04(f), could be limited by Section 415(b) and that, as such, it would be necessary to amend and restate the Plan to incorporate several provisions required by OCERS and to comply with the limitations of California Government Code Section 7522.43.
Proposed Replacement Benefits Plan and Memorandum of Understanding:
City staff has worked with the City Attorney to prepare a draft replacement benefits plan for the City Council's consideration. The draft plan has been prepared in accordance with Code Section 415(b) and the regulations thereunder and pursuant to Government Code Sections 7522.43 and 31899.4. The City Attorney has also prepared a Memorandum of Understanding between the City and OCERS which sets out the responsibilities of the City and OCERS with respect to the operation of the replacement benefits plan, including OCERS' obligation to offset benefits paid by the City under the replacement benefits plan against contributions due by the City to OCERS. OCERS legal staff has reviewed and approved both the draft Replacement Benefits Plan and the Memorandum of Understanding (Attachment 2).
City Council Agenda Report August 4, 2015 Pa e 4 of 5
Failure to adopt the amended and restated replacement benefits plan would expose the City to future liability by any retired employee whose retirement allowance is limited by Code Section 415(b). The courts have definitively ruled that the right to a pension benefit that has been earned and accrued by a public employee is a vested right which cannot be impaired (the foregoing does not apply to employees deemed "new members" under the provisions of Government Code Section 7522.04(f), in light of Government Code Section 7522.43). Thus, even though federal law limits the amount of benefits, state law makes it mandatory that the City provide a replacement benefits plan to pay retirement benefits, already earned and accrued, for any retired employee (other than those deemed "new members" pursuant to Government Code Section 7522.04(f)) whose benefits are limited by Code Section 415(b). As a result, if the City fails to adopt the amended and restated replacement benefits plan and the retirement benefits of any such employee are limited by Code Section 415(b), the City will still have to pay the excess benefit.
In addition, Section 4 of the proposed Memorandum of Understanding between the City and OCERS provides that City contributions to OCERS will be adjusted to take into account payments made pursuant to the replacement benefits plan, in accordance with recommendations by the OCERS actuary. This provision is pursuant to Government Code Section 31899.4(d). Whether or not an adjustment to the City's contributions to OCERS are recommended by the OCERS actuary, the fact is that the opportunity for any adjustments will not materialize if the Plan is not amended and restated to be consistent with the modifications required by OCERS.
FISCAL IMPACT:
There is no anticipated fiscal impact by amending and restating the replacement benefits plan. However, if the City does not adopt the amended and restated replacement benefits plan, the obligation to pay benefits limited by Section 415(b) remains and the OCERS offset will be lost.
ENVIRONMENTAL IMPACT:
Not applicable.
PRIOR CITY COUNCIL REVIEW:
Not applicable.
COMMISSION/COMMITTEE/BOARD REVIEW AND RECOMMENDATIONS:
Not applicable.
City Council Agenda Report August 4, 2015 Pa e 5 of 5
Ms. Brenda Shott Assistant CEO of Finance & Internal Operations Orange County Employees Retirement System 2223 Wellington Avenue Santa Ana, CA 92701-3101
Re: 415 Dollar Limit f()r 2015
Dear Brenda:
We are providing OCERS with a table of Section 415 Dollar Limits, reflecting the annual age 62 Dollar Limit of$210,000, for calendar year 2015. Based on the instructions below, the System may use this table to identify members who may potentially be impacted by Section 415 in 2015.
BACKGROUND AND METHODOLOGY
Based on our understanding of the Internal Revenue Code (IRC) and the Final415 Regulations ("Final Regs"), the "Worker, Retiree and Employer Recovery Act of2008" (WRERA) aligned the mortality table used in adjusting the Dollar Limits for benefits beginning before age 62 with the mortality table used to value minimum lump sums under IRC Section 417( e )(3 )(B) and there are distinct mortality tables for this purpose that apply to Annuity Starting Dates in calendar years 2009 through 2013 published in IRS Notice 2008-85, and in calendar years 2014 through 2015 published in IRS Notice 2013-49.
Developed using the mortality assumptions specified for 2015, the attached table of Section 415 Dollar Limits for 2015 would be applicable for any retiree that commence retirement in 2015. We also understand that the Section 415 Dollar Limits for General and Safety members who do not meet the "IRS Safety" requirements should be determined with mortality for members retiring before age 62.
Benefits, Compons<~tion and HR Consulting_ Member of The Segal Group. Offices throughout the United States and Canada
Ms. Brenda Shott December 9, 2014 Page 2
The Dollar Limits calculated using the above methodology together with a 5% interest rate are provided in the enclosed Table. For members covered under the legacy tiers who retire after age 65, we understand that no adjustments to the Dollar Limits are necessary because the plan's retirement factors for these members do not increase beyond that age. For General members covered under the CalPEPRA formulas, there may be a need to adjust the Dollar Limits after age 65 because the retirement factors for these members increase beyond age 65. However, for the purposes of screening, we believe the enclosed table can also be used for these members as this table will provide more conservative screening for General CalPEPRA members retiring after age 65.
Please note that the Dollar Limits provided in the enclosed Table should only be applied to the employer provided benefit. Any benefit paid for by the member's after-tax contributions plus interest earned on those contributions should be excluded from the test. We recommend that you consult with us and your legal counsel if you have any questions on how the 415 rules should be applied before you reduce a member's benefit.
Please let us know if you have any questions.
Sincerely,
frk c)v', \ Li 'V>-·~-·v Andy Yeung
JZR/bqb Enclosure
5341710v 1/05794.001
Table - Limit On Employer-Provided Benefits f(lr Calendar Year 2015 (With Mortality Decrement for Members Retiring Before Age 62)
Based on Mortality Table Specified in Internal Revenue Code Section 417( e)(3)(B)
for 2015, as published in IRS Notice 2013-49 and 5.00% Interest
415 LIMIT 415 LIMIT AGE FOR2015 AGE FOR2015
41 $53,873 61 $194,636
42 57,054 62 210,000
43 60,451 63 210,000
44 64,082 64 210,000
45 67,967 65 & Over 210,000
46 72,128
47 76,590
48 81,380
49 86,528
50 92,070
51 98,043
52 104,492
53 111,465
54 119,017
55 127,213
56 136,122
57 145,825
58 156,414
59 167,995
60 180,688
Limits must be further reduced for members with less than l 0 years of plan participation.
Limits not reduced below age 62 for members with 15 or more years of qualified police
or firefighter service.
Limits must be adjusted for members receiving a non-qualified joint and survivor annuity.
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN JUAN CAPISTRANO, CALIFORNIA AMENDING AND RESTATING THE CITY OF SAN JUAN CAPISTRANO REPLACEMENT BENEFITS PLAN AND AUTHORIZING THE CITY MANAGER TO ENTER INTO A MEMORANDUM OF UNDERSTANDING WITH THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM FOR THE ADMINISTRATION OF THE PLAN
WHEREAS, the Orange County Employees' Retirement Systems ("OCERS") provides retirement benefits to retired employees of the City of San Juan Capistrano ("City"); and,
WHEREAS, the amount of retirement benefits that can be provided by OCERS to retired City employees is limited by Section 415(b) of the Internal Revenue Code ("Section 415(b)"); and,
WHEREAS, the Internal Revenue Code allows the City to establish a replacement benefits plan to pay the full retirement benefits earned by City employees that are OCERS members whose benefits are limited by Section 415(b), and it is the City's responsibility under the County Employees' Retirement Law of 1937 ("CERL") to provide a program to replace retirement benefits that cannot be paid by OCERS because of the limits of Section 415(b); and,
WHEREAS, the City of San Juan Capistrano Replacement Benefits Plan (the "Plan") was originally provided for under the terms of California Government Code Section 31899.4 effective January 1, 2004 but there was no need to administer the Plan due to the fact that the retirement benefits of City employees have not been limited by Section 415(b ); and,
WHEREAS, OCERS recently informed the City that it would be necessary to put the Plan into operation because it is anticipated that the retirement benefits of future City retirees, other than those deemed "new members" under the provisions of California Government Code Section 7522.04(f), could be limited by Section 415(b) and that, as such, it would be necessary to amend and restate the Plan to incorporate several provisions required by OCERS and to comply with the limitations of California Government Code Section 7522.43; and,
WHEREAS, it is to the benefit of the City to ensure that all retired City employees receive the entire retirement benefits which they would earn under OCERS but for the limits of Section 415(b); and,
Attachment 2
WHEREAS, the most efficient way for the City to administer a replacement benefits plan is to enter into a memorandum of understanding with OCERS setting out the responsibilities of the City and OCERS with respect to the Plan.
NOW, THEREFORE, BE IT FURTHER RESOLVED, by the City Council of the City of San Juan Capistrano, as follows:
1. That the City of San Juan Capistrano Replacement Benefits Plan ("Plan"), originally provided for under the terms of California Government Code Section 31899.4 effective January 1, 2004, is hereby amended and restated, in the form attached hereto at Exhibit "A" and incorporated herein by this reference, effective August 4, 2015,
2. That City Manager is hereby authorized to enter into a memorandum of understanding with the Orange County Employees' Retirement System ("OCERS"), in the form attached hereto at Exhibit "B" and incorporated herein by this reference, which sets out the respective responsibilities of the City and OCERS with respect to the Plan.
PASSED, APPROVED, AND ADOPTED this 4th day of August, 2015.
DEREK REEVE, MAYOR
ATTEST:
MARIA MORRIS, CITY CLERK
Exhibit A
CITY OF SAN JUAN CAPISTRANO REPLACEMENT BENEFITS PLAN
ARTICLE I ESTABLISHMENT AND PURPOSE
1.1 Establishment. The City of San Juan Capistrano Replacement Benefits Plan (the "Plan") was originally provided for under the terms of California Government Code Section 31899.4 effective January 1, 2004, and the City of San Juan Capistrano (the "Employer") hereby amends and restates the Plan effective August 4, 2015.
1.2 Purpose and Authority. The purpose of the Plan is solely to provide the annual retirement benefits otherwise earned by and payable to employees of the City of San Juan Capistrano who are members of the Orange County Employees' Retirement System ("OCERS") but for the limitations of Section 415(b) of the Internal Revenue Code ("Code"). This Plan is designed to be a "qualified governmental excess benefit arrangement" under Code Section 415(m) and a "replacement benefits program" within the meaning of Section 31899 et. seq. of the California Government Code, and will be operated and constroed in accordance with the foregoing provisions. This Plan shall be deemed a "portion" of OCERS solely to the extent required by, and within the meaning of, Code Section 415(m)(3) as in effect on January 1, 2004, and not for any other purpose.
1.3 Effective Date. This Plan was originally effective as of January l, 2004 under the terms of California Government Code Section 31899.4, and is amended and restated effective August 4, 2015, or as such later date on which this Plan is approved and made effective by the City Council of the City of San Juan Capistrano.
1.4 Tax Status of the Plan. This Plan is an "exempt governmental deferred compensation plan" within the meaning of Code Section 312l(v)(3) and in accordance with Code Section 3121 (a)(5)(E) shall not be deemed wages for purposes of Social Security and Medicare taxes. No assets held directly or indirectly for purposes of this Plan shall be held in trost or otherwise held or set aside for the exclusive benefit of participants and their beneficiaries. This Plan shall be unfunded within the meaning of federal income tax laws.
below:
ARTICLE II DEFINITIONS AND CONSTRUCTION
2.1 Definitions. Capitalized terms used in this Plan shall have the meaning set forth
(a) CERL means the County Employees' Retirement Law of 1937 as set forth in the California Government Code, as amended.
(b) Code means the Internal Revenue Code of 1986, as amended, as applicable to a governmental plan, or corresponding provisions of any subsequent federal income tax law. The term shall also include any rules and regulations issued thereunder.
(c) Commencement Date means the date of commencement of participation in
61147.01801\127362942 1
this Plan as set out in Section 3.2 hereof.
(d) Effective Date means the first date with respect to which benefits are payable under this Plan as forth in Section 1.3 of this Plan.
(e) Eligible Survivor means the surviving spouse, surviving child or children, survlVlng parent or parents, or surviving beneficiary designated by the Member, to whom benefits are payable from OCERS on the death of the Member.
(f)
(g) 4.1 of this Plan.
Employer means the City of San Juan Capistrano.
Excess Benefit means the benefit determined in accordance with Section
(h) Member means a member, as defined in the CERL, of OCERS who is a current or former employee of the Employer. Notwithstanding the preceding, the term "Member" shall not refer to any current or former employee of the Employer that is considered a "new member" under California Government Code Section 7522.04(f) and is, therefore, excluded from participation pursuant to California Government Code Section 7522.43.
(i) OCERS means the Orange County Employees' Retirement System.
U) Participant means a retired Member who participates in this Plan pursuant to Article 3 of this Plan. An Eligible Survivor is not a Participant in this Plan, but JS a beneficiary who receives benefits under this Plan with respect to a Participant or Member.
(k) Payment Date means the first date during a Plan Y car with respect to which payment begins under this Plan.
(I) Plan means this City of San Juan Capistrano Replacement Benefits Plan.
(m) Plan Administrator means the City of San Juan Capistrano and includes any person or entity with whom the City of San Juan Capistrano contracts to provide services under pursuant to the Plan.
(n) on December 31.
Plan Year means the 12-month period beginning on January I and ending
( o) Retirement Ben~jit means the amount of retirement income payable to a retiree of OCERS, or the benefit payable to a beneficiary of such retiree, without regard to any limitation on the retirement income or benefit under Code Section 415(m).
2.2 Construction. Words used in this Plan in tbe masculine gender include the feminine gender where appropriate, and words used in this Plan in the singular or plural form include the plural or singular where appropriate.
61147.01801\12736294 2 2
ARTICLE III PARTICIPATION
3.1 Eligibility. Participation in this Plan is limited solely to retired Members whose benefits payable by OCERS are limited by Code Section 415(b) for periods on and after the Effective Date.
3.2 Terms of Participation. A retired Member shall commence participation in this Plan on the first date, on or after the Effective Date, that the retired Member has an Excess Benefit. Participation in the Plan ends for ru1y portion of a Plan Year in which the Retirement Benefit of a retired Member is not limited by Code Section 415(b) or when all benefit obligations under the Plan to the retired Member have been satisfied. If a Participant has ceased participation in this Plan but at a later date the full payment of his or her OCERS benefits is again limited by Code Section 415(b ), he or she shall again commence participation and shall cease participation as provided herein.
3.3 Eligible Survivors. Any Eligible Survivor of a Member shall receive benefits under this Plan as of the first date (on or after the Effective Date) on which benefits payable to him or her from OCERS cannot be fully paid because of the limits of Code Section 415(b ). The Eligible Survivor's benefits paid under this Plan shall cease as of the first date for which his or her OCERS benefit is no longer limited by Code Section 415(b) and therefore can be fully paid by OCERS. The Eligible Survivor's benefits paid under this Plan shall recommence at a later date if full payment of his or her OCERS benefits is again limited by Code Section 415(b ), and shall thereafter cease as of the next date that full payment of the OCERS benefit is no longer limited by Code Section 415(b).
3.4 Limited Participation. No one other than a person described in this Article shall receive any benefits under this Plan, except as provided in Section 5.2 of this Plan or as otherwise required by law.
ARTICLE IV PAYMENT OF BENEFITS
4.1 Initial Excess Benefit Amount. The initial benefit paid under this Plan to any Participant shall be the difference between the benefit payable to the Participant under OCERS if it were not limited by Code Section 415(b) and the benefit actually payable to the Participant by OCERS after reduction in accordance with Code Section 415(b ). This benefit shall be referred to for purposes of this Plan as the Excess Benefit and shall be determined as of the Commencement Date.
4.2 Redetermination of Excess Benefit Amount. As of each January 1 following the Participant's Commencement Date (or the date of commencement of benefits under this Plan for any Eligible Survivor), the Participant's, or Eligible Survivor's, benefit under this Plan may be redetermined by OCERS as it deems necessary for the administration of OCERS in accordance with Section 415(b). At the Plan Administrator's discretion, the amount of every Participant's and Eligible Survivor's benefits may be redetermined at a date other than January I for administrative convenience or if there is a material change in the rules governing the maximum benefit limits established under Code Section 415(b) or a material change in OCERS benefits
61147.01801\12736294.2 3
4.3 Determination of Excess Benefit. The Excess Benefit shall be determined by OCERS. Notwithstanding the preceding, this Plan and OCERS are separate entities and shall be administered separately. In addition, separate checks will be paid for the benetits under this Plan and OCERS. As such, the Plan Administrator shall provide separate tax reporting for the benefits paid under this Plan. Further, no assets of OCERS shall be used, directly or indirectly, to pay for benetits or administration or any other costs of this Plan. The Plan Administrator shall rely on the benefit calculations performed by OCERS for purposes of administering OCERS in accordance with Code Section 415(b ).
4.4 Amount of Benefit for Eligible Survivors. Eligible Survivors shall be entitled to benetits under this Plan as follows:
(a) Eligible Survivors shall be entitled to benetits under this Plan only if they are entitled to benefits that are limited by Code Section 415(b) under OCERS after the death of a Member or Participant.
(b) The benefit paid to an Eligible Survivor under this Plan shall be determined as if he or she were the Participant, substituting in the calculations under Sections 4.1 or 4.2, as applicable, the amounts due to the Eligible Survivor for the amounts due to the Participant.
4.5 Time tor Payment. In any Plan Year, benetits shall only be paid under this Plan to a Participant or Eligible Survivor after the date in the Plan Year that the benefits paid to such person from OCERS have reached the maximum annual benefit that OCERS can pay under Code Section 415(b) for that Plan Year. The day after the maximum annual benefit payment from OCERS is reached is the Payment Date for the Participant or Eligible Survivor for that Plan Year. The Payment Date may change from Plan Y car to Plan Year as the amount payable under this Plan is redetermined. The amount of benefits provided under this Plan shall be paid monthly starting as of the Payment Dale and continuing through the end of the Plan Year, or (if earlier) the date that participation ceases (or, tor an Eligible Survivor, the date that they would cease participation if an Eligible Survivor were treated as a Participant). If a retired Participant is reemployed by the Employer or another employer participating in OCERS and on reemployment his or her OCERS benefits cease, then his or her benellts under this Plan shall cease at the same time. Benefits shall resume under this Plan when the Member again starts to receive benefits under OCERS. At that time, a recalculation shall be made under Section 4.2 hereof, treating the first month for which OCERS beneflts resume as if it were a date of recalculation under Section 4.2. Similar rules shall apply if the benefits of an Eligible Survivor under OCERS cease (or resume) under OCERS for any reason, including without limitation ceasing to be an Eligible Survivor.
4.6 Form of Benefit. The benefit paid to a Participant or Eligible Survivor under this Plan shall be paid in the same form as beneflts are paid to him or her under OCERS. No election shall be provided at any time to the Participant or Eligible Survivor, directly or indirectly, to defer compensation under the Plan.
4.7 Taxes. The Plan Administrator shall have full authority to withhold any and all taxes that are or may be due from any and all amounts paid under the Plan (including but not limited to income and payroll taxes), to pay them to the appropriate government agency, and to file and distribute necessary or appropriate tax reports and form.
6114701801\12736294.2 4
4.8 Determination Solely by Plan Administrator. Subject to this Article IV, the Plan Administrator shall have the sole authority to determine the amount of benefits payable under this Plan.
4.9 Condition for Paving Benefits. No amount shall be paid to any person under this Plan unless such person provides, or makes readily available, to the Plan Administrator all information necessary or appropriate to provide such benefits, including but not limited to information concerning his or her benefits provided under OCERS and information used by OCERS for determining those benefits.
ARTICLE V ASSIGNMENT OF BENEFITS
5 .I Prohibition against Assignments. No benefit payable from the Plan to any Participant or Eligible Survivor or any other person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void. No such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to execution, attachment or any process whatsoever for or against such person, except to such extent as may be required by law.
5.2 Payment upon Marital Dissolution or Legal Separation. The proviSions of Section 5.1 will not apply in the case of any property settlements upon marital dissolution or legal separation that are made in accordance with a domestic relations order (DRO) issued in accordance with state domestic relations law. The provisions of Section 5.1 will apply in the case of any property settlement upon marital dissolution or legal separation which is made in accordance with a domestic relations order that is not qualified in accordance with this Section. When the Plan Administrator receives a domestic relations order, the Plan Administrator shall:
(a) Notify the Participant (or Eligible Survivor) and the former spouse or dependent covered by the domestic relations order of the receipt of the order with a notice which explains the procedures for determining the qualified status of domestic relations orders; and
(b) Under procedures established by the Plan Administrator, determine the qualified status of the domestic relations order.
For purposes of this Section, "domestic relations order" means any judgment, decree, or order made in accordance with state domestic relations law which relates to the provision of child support, spousal maintenance, or marital property rights of any spouse, former spouse, child or other dependent of a Participant. A domestic relations order shall not be considered a DRO with respect to this Plan if it is inconsistent with the Plan. To the extent practicable, the rules under the CERL governing the treatment of a domestic relations order shall equally govern payment of benefits under this Plan.
61147.01801\12736294.2 5
ARTICLE VI ADMINISTRATION OF PLAN
6.1 Powers of Plan Administrator. The Employer shall administer the Plan, and in such capacity shall be the Plan Administrator. In addition to the powers of the Plan Administrator specified elsewhere in the Plan, the Plan Administrator shall be responsible for the general administration and interpretation of the Plan and for carrying out its provisions, and shall have such powers as may be necessary or appropriate to discharge its duties hereunder, including, without limitation, the following:
(a) The Plan Administrator may adopt such Plan regulations, interpretations and procedures as it deems are necessary or appropriate for the effective operation of the Plan.
(b) The Plan Administrator shall have the right to delegate administrative duties with regard to the management and operation of the Plan (except that no employee or agent of the Plan Administrator shall have the authority to modify this Plan or to make representations, warranties or inducements that may provide benefits or any other payment other than as set forth in this Plan and the applicable Plan regulations. Any such representations, warranties, or inducements shall be null and void.
(c) The Plan Administrator shall act with respect to this Plan separately and apart from any duties that he or she may have with respect to any other retirement plan.
(d) The Plan Administrator shall determine all issues relating to the rights of Participants and Eligible Survivors and any other persons, and any legal representatives thereof, under the terms of the Plan, including but not limited to eligibility, the amount and time of payment of the benefit and the calculation of any benefit under the Plan.
(e) The Plan Administrator shall determine any factual questions arising in connection with the Plan's operation or administration after such investigation or hearing as the Plan Administrator deems necessary and appropriate.
(f) The Plan Administrator may engage legal, administrative, actuarial, investment, accounting, consulting or other services as the Plan Administrator deems necessary or appropriate.
(g) The Plan Administrator may request and receive from Members and Participants and other appropriate persons such information as necessary or appropriate for the proper administration of the Plan, including, without limitation, information to detennine each Participant's eligibility to participate in the Plan and the benefits payable to each Participant or his or her Eligible Survivor.
6.2 Absolute Discretion of the I'_] an i\dministrator. The Plan Administrator (or any individual acting on its behalt) shall, in its sole and absolute discretion, construe and interpret the terms and conditions of the Plan, and any issue arising out of, relating to, or resulting from the administration and operation of the Plan, which interpretation or construction shall be final and binding on all parties, including, without limitation, any Member, Participant or Eligible Survivor.
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6.3 Costs of Administration. The costs of administration of the Plan shall be paid by the Employer. Such expenses shall include, but are not limited to, expenses for professional, legal, accounting and other services and other necessary or appropriate costs of administration. No costs or expenses of administering this Plan shall be paid, directly or indirectly, by OCERS. Further, no assets of OCERS shall be used, directly or indirectly, to pay for benefits or administration or any other costs of this Plan.
6.4 Claims Review Procedure. Any person who has a claim for benefits under this Plan and who does not receive such benefits must make a written claim for benefits with the Plan Administrator at the time and in the fonn and manner determined by the Plan Administrator. The Plan Administrator shall provide notice in writing to any person whose claim for benefits under the Plan is denied, and the Plan Administrator shall provide such person a review of its decision with respect to such claim, if requested in writing by the person who has made the claim.
6.5 Correction of Errors. If an error or omission is discovered in the administration of the Plan, the Plan Administrator shall take such necessary or appropriate and equitable action as may be necessary or appropriate to correct the error. Such action shall include but not be limited to taking all reasonable or necessary action to recover overpayments of benefits under the Plan.
6.6 Written Communications Mailed. All written notices or communications to Participants and Eligible Survivors and any other person who may be entitled to benefits under this Plan shall be effective when sent by first class United States mail to the individual's last known address. Any notice or document required to be given to or filed with the Plan Administrator shall be properly given or filed if delivered or sent by first class United States mail, postage prepaid, to the Employer's Human Resources Manager.
ARTICLE VII SOURCE OF BENEFITS
7.1 Funding. The Plan is, and will remain, unfunded and the rights, if any, of any person to any benefits under the Plan are limited to those specified in the Plan. The Plan constitutes a mere unsecured promise by the Employer to make benefits payments in the future. Benefits due under this Plan shall be paid by the Employer from its general assets, which are subject to the claims of the Employer's general creditors. The Employer shall also pay all costs, charges and expenses relating to this Plan from the same asset sources.
7.2 NoJJse of OCERS Assets. Employer assets used to provide benefits under this Plan shall not be commingled with the monies of OCERS or any other qualified plans, nor shall this Plan ever receive or use any assets of OCERS.
ARTICLE VIII ADMJNISTRA TJON
8.1 Applicable Law. This Plan shall be governed by the laws of the State of California and applicable federal law
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8.2 No_Bight to Employment. Nothing in this Plan or in any resolution or regulation concerning this Plan shall be construed as giving to a Participant any right to be retained in the service of the Employer.
8.3 Unclaimed Benefits. In any situation where benefits are payable under this Plan, a reasonable search, including mailing of a registered letter to the last known address, shall be made to ascertain the whereabouts of the Participant or Eligible Survivor. If the person or persons entitled thereafter come forward and request payment and establish such entitlement, the amounts then due, including appropriate retroactive payments from the Commencement Date (but without payment of any interest thereon), shall be paid accordingly.
8.4 Benefit Limits. Nothing in this Plan shall be construed as creating an entitlement to any benefits greater than the difference between the amount of benefits that can be paid by OCERS without regard to the limitations of Code Section 415(b) and what can be provided by OCERS taking into account the limitations of Section 415(b ). Payment of a benefit under this Plan does not create any eligibility for any additional benefits provided by this Plan, by OCERS or under any other program maintained by the Employer.
ARTICLE IX AMENDMENTS AND TERMINATION
9.1 Right to Amend. The Employer has the right to amend this Plan at any time and in any manner for any reason whatsoever and may do so in its sole discretion to the extent such amendment is consistent with the provisions of PEPRA (the Public Employees' Pension Reform Act of 2012), including California Government Code Section 7522.43. However, any amendment to this Plan that affects benefits paid shall be commensurate with the purposes of this Plan to provide Participants and Eligible Survivors with retirement benefits that are otherwise earned and payable to members of OCERS but which are limited by Code Section 415(b ).
9.2 Preservation of OCERS Tax Status. Notwithstanding the preceding, this Plan shall not in any way jeopardize the tax qualified status of OCERS. To maintain this qualified status, the Employer shall take all necessary or appropriate action, including but not limited to amending this Plan and the rules governing this Plan, solely for the purpose of complying with applicable federal tax laws and regulations.
9.3 Preservation of Code Section 4!5(m) Status. The Employer shall have the authority to make appropriate amendments to the Plan in order to accommodate changes in the Code and United States Treasury Regulations in a manner that will preserve the status of the Plan under Code Section 41 5(m).
[SIGNATURES FOLLOW ON NEXT PAGE]
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IN WITNESS WHEREOF, the Employer has caused this San Juan Capistrano Replacement Benefits Plan to be executed on August 4, 2015
EMPLOYER:
CITY OF SAN .JUAN CAPISTRANO
By:
ATTEST:
By:
APPROVED AS TO FORM AND CONTENT:
BEST BEST & KRIEGER LLP
By: Attorneys for Employer
6! !47.0!801\12736294.2 9
Exhibit B
MEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF SAN JUAN CAPISTRANO AND THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM REGARDING THE CITY OF SAN JUAN CAPISTRANO REPLACEMENT BENEFITS PLAN
This MEMORANDUM OF UNDERSTANDING ("MOU") is entered into by and between the Orange County Employees' Retirement OCERS ("OCERS") and the City of San Juan Capistrano ("City") to be effective beginning on August 4, 2015.
WHEREAS, OCERS provides retirement benefits to retired employees of the City; and
WHEREAS, the amount of retirement benefits that can be provided to OCERS members is limited by Section 415(b) of the Internal Revenue Code ("Section 415(b )"); and
WHEREAS, the Internal Revenue Code allows the City to establish a replacement benefits plan to pay the full benefits earned by OCERS members whose benefits are limited by Section 415(b ), and the Government Code requires the City to provide a program to replace benefits that that cannot be paid by the OCERS because of the limits of Section 415(b ); and
WHEREAS, such a replacement benetits plan is used by many other entities, in both the private and public sector, to replace benefits limited by Section 415(b ); and
WHEREAS, it is to the benefit of the City to ensure that all of its employees receive the entire benefits which they would earn under OCERS but for the limits of Section 415(b ); and
WHEREAS, it is to the benefit of OCERS to ensure that OCERS is operated in compliance with the terms of the County Employees' Retirement Law of 1937 and Section 415(b); and
WHEREAS, the most et1icient way for the City to operate a replacement benefits plan is to enter into a memorandum of understanding with OCERS setting out the responsibilities of the City and OCERS with respect to such a plan; and
WHEREAS, the City has provided to OCERS the City of San Juan Capistrano Replacement Benefits Plan, a copy of which is attached hereto.
THEREFORE, IT IS HEREBY AGREED by and between the City of San Juan Capistrano and the Orange County Employees' Retirement System as follows:
I. Purpose of Agreement. This MOU is entered into by the City and OCERS in order to facilitate the efficient operation by the City of the City of San Juan Capistrano Replacement Benefits Plan ("Plan") which will provide benefits to City employees who are retired OCERS members and their eligible beneficiaries whose retirement benefits are limited by Section 415(b ).
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2. Payment of Replacement Benefits.
(a) In accordance with the Plan, the City shall pay to affected retired members of OCERS who were employees of the City ("Retirees"), and to their eligible surviving beneficiaries (if any), the difference between the benefits that would be payable by OCERS without regard to the limits of Section 415(b) and the benefits that may be paid by OCERS without violating Section 415(b). These benefits are called "Replacement Benefits".
(b) The City shall pay replacement benefits to Retirees from its general assets. No assets of OCERS shall be used to pay replacement benefits and no assets of OCERS shall be used to pay the cost of administration or any other costs regarding the operation of the Plan.
3. Determination of Amount of Replacement Benefits.
(a) In accordance with its responsibilities under Section 415(b ), OCERS shall determine the amount of benefits for any affected Retiree and eligible surviving beneficiaries that would be paid from OCERS without the limits of Section 415(b ), and shall determine the amount of the benefits that can be paid to such persons in accordance with the limits of Section 415(b ). The difference between these two amounts is the amount of Replacement Benefits payable by the City under the Plan.
(b) OCERS shall make this determination for the first year that the benefits of any affected Retiree or eligible surviving beneficiary are limited by Section 415(b) and for each relevant year thereafter. Annual determinations are necessary because both the amounts of the limits and the amount of OCERS benefits may change annually.
(c) 'I'o the extent that the amount of benefits that are limited by Section 415(b) change during the year, and in accordance with its responsibilities under Section 415(b), OCERS shall recalculate the benefits payable by the City under the Plan.
(d) In accordance with the Plan, the City shall rely on the calculations by OCERS set out in paragraphs (a), (b), and (c) of this section for purposes of determining the Replacement Benefits payable under the Plan.
(e) As provided in Section 5 of this MOU, OCERS shall communicate to the City the information determined under this Section 3.
4. Effect of Section 415(b) Limits on City Contributions to OCERS.
(a) In accordance with the recommendation of the OCERS actuary, City contributions to OCERS shall be adjusted to take into account the fact that OCERS cannot pay benefits that are greater than the limits provided by Section 415(b ).
(b) City contributions to OCERS shall be adjusted when, in fact, Replacement Benefits are payable under the Plan. At that time, OCERS shall reduce City contributions in an amount equal to the Replacement Benefits payable under the Plan in accordance with the
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recommendations of the OCERS actuary.
5. Communications Between the City and OCERS.
(a) OCERS shall communicate to the City, in wntmg and as soon as reasonably practicable, all information known to OCERS that is necessary or appropriate for the efficient administration of the Plan. This information may include, but is not limited to, the following: the names and identifying numbers of the Retirees and eligible surviving beneficiaries whose benefits are limited by Section 415(b) in any year; the amounts of their replacement benefits (if any) and the calculations that support these amounts; the date as of which the replacement benefits will become payable during each year (if any); the amount by which the replacement benefits change during the year (if at all); the amount of reduction in the City's contribution to OCERS that will occur under section 4 hereof; and the date that any Replacement Benefits must cease (for example, on the death of the retired member). The City shall keep confidential all information received from OCERS for the purpose of administering the Plan, to the extent permitted by law.
(b) The City shall communicate to OCERS, in writing and as soon as reasonably practicable, all information that is necessary or appropriate for the efficient administration of the Plan. (To the extent required by law, no info1mation shall be provided by the City to OCERS without the prior written consent of the Retiree or eligible surviving beneficiary.) This information may include, but is not limited to, the following: the names and identifying numbers of the Plan participants and eligible surviving beneficiaries who are paid replacement benefits; the amount of such payments; and the dates on which such payments occurred during the year.
6. Communications with Members.
(a) In accordance with its responsibilities under Section 415(b ), OCERS shall be responsible for testing member benefits with respect to the Section 415(b) limits. If the benefits of a Retiree or eligible surviving beneficiary are limited by Section 415(b ), OCERS will so inform the affected individual in writing, and will generally infom1 him or her that the Plan will provide Replacement Benefits.
(b) Upon receiving the needed information from OCERS with respect to the amounts and timing of payment of Replacement Bene tits for any Retiree or eligible surviving beneficiary, the City shall inform each afTected individual about how the Plan works with respect to him or her, including the amounts that will be paid under the Plan for the particular year, the timing of such payments, any tax withholding elections available and all other information that is necessary or appropriate for operation of the Plan as determined by the Plan Administrator in its discretion.
7. Reconciliation of Amounts.
(a) Reconciliation of payments between OCE_B._~_mJd the City. The City and OCERS shall take all reasonable steps to reconcile, after the end of each calendar year, the
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amounts of Replacement Benefits that have been identified as payable under the Plan by OCERS and the amounts of Replacement Benefits that have actually been paid under the Plan. In the event that the Plan has paid benefits which OCERS determines should have been paid by OCERS within the limits of Section 415(b ), OCERS shall reduce the contributions otherwise due to OCERS from the City as soon as reasonably practical in an amount equal to such payments. In the event that OCERS has paid benefits which OCERS detennines should have been paid under the Plan, the City shall immediately reimburse OCERS for the payments of such benefits by OCERS plus interest thereon calculated by using the OCERS then current actuarial valuation interest rate assumption.
(b) Underpavments or overpayments to Retirees. Underpayments or overpayments of benefits under this Plan to Retirees and eligible surviving beneficiaries shall be cmTected by the City in accordance with the Plan or as required by law. l1 shall be the City's responsibility to collect any such overpayments (plus interest) and to pay any such underpayments. The City shall not seck any recourse against OCERS relating to such overpayments or underpayments except to the extent that OCERS is required to reimburse the City as provided in section 7(a) above.
8. ·rax Reporting. OCERS and the City shall be separately responsible for their required reporting to the tax authorities, and neither shall be responsible for the other's reporting.
9. Costs of Administration and Payment of Benefits. The costs of administration of the Plan shall be paid by the City. No costs or expenses (direct or indirect) of administering this Plan (direct or indirect) shall be paid, directly or indirectly, by the OCERS. Further, no assets of the OCERS shall be used, directly or indirectly, to pay for benefits or any other costs (direct or indirect) of this Plan.
l 0. Indemnification and Hold Harmless. To the extent allowed by applicable law, each party to this MOU shall indemnify and hold the other harmless for any costs, damages, or other liabilities incurred hereunder on account of its own negligence or willful misconduct.
ll. Miscellaneous.
(a) ln~ration. This MOU and the documents referenced herein constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral.
(b) Amendment to MOU. This MOU may only be amended pursuant to a written agreement executed by both parties hereto.
(c) Notice of Amendment to Plan. The City will provide 30 days' written notice to OCERS of any proposed revision to the Plan. Notice shall be addressed to the Chief Executive Officer.
(d) Termination of MOU. This MOU shall be effective beginning on the date set out on the first page hereof and shall continue in effect unless and until terminated by
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either party on 30 days' written notice to the other. Notice shall be addressed to the Director of Finance, for the City, and to the Chief Executive Officer, for OCERS.
(e) Review. The City and OCERS will meet within one year from the first date that benefits are paid under the Plan to review the operation of this MOU and to make such revisions hereto as are mutually agreeable.
(f) Authority to Execute Agreement. The City and OCERS each represent and warrant that the person executing this Agreement on its behalf as indicated below has full power and authority to do so.
IN WITNESS WHEREOF, this Memorandum of Understanding has been entered into as of the date set forth on the first page hereof.
