HomeMy WebLinkAboutAgenda Statement 1976/06/22 Item 16
CITY OF CHULA VISTA
' COUNCIL AGENDA STATEMENT
ITEM NO
16
FOR MEETING OF: 6/22/76
ITEM TITLE: RESOLUTION#8221: Approving Payment of All or a Portion of Employees
Contribution to Public Employees Retirement System
SUBMITTED BY~ Acting City Manager
ITEM EXPLANATION
Attached hereto is a memorandum under date of June 15, 1976 from the City Attorney
indicating that it is his opinion that a program whereby the City would pay all or
a portion of an employee's contribution to the Public Employees Retirement System
as deferred compensation is both legal and feasible.
During recent discussions with the City Council, the question of providing this benefit
to certain executives of the City was discussed and it was generally believed to be
the feeling of the City Council that if the program was determined to be feasible and
legal, this benefit could be offered to all Department Heads of the City.
It is proposed that the program would be limited to those positions indicated in the
Resolution and that the maximum contribution by the City would be limited to the
increases granted to each executive during the 1976-77 fiscal year. The employee would
have the option of applying all or any portion of his pay increase to the plan up to
the maximum equivalent to the percentage required by law to be paid to the system.
EXHIBITS ATTACHED
Agreement Resolution X Ordinance Plat Other X
Environmental Documenf~ Attached Submitted on
STAFF RECOMMENDATION:
Adopt resolution
BOARD/ COMMISSION RECOMMENDATION:
COUNCIL ACTION
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Form A-113 (Rev 5-75)
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OFFICE OF THE
CITY ATTORNEY
DATE: June 15, 1976
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City o~ C~nu~Qa ~1Jtsta
CALIFORNIA
TO: The Honorable Mayor and City Council of the
City of Chula Vista, Lane F. Cole, City
Manager, Gordon K. Grant, Director of Finance
FROM: George D. Lindberg, City Attorney
SUBJECT: Contribution to Public Employees' Retirement
System for Certain Employees as a Deferred
Compensation
A program has been outlined to the department heads for the
contribution of their approved salary increases in fiscal
year 1976-77 to the Public Employees' Retirement System as
deferred compensation.
Procedures for implementing the program, which are optional
with the employees, are relatively simple. However, questions
have arisen as to the tax consequences to the employees. Essen-
tially the concern was that IRS, which has not given its appro-
val to such a program, may very well render an adverse opinion
which would require the employee to pay a tax on such income.
The City Attorney's office has contacted both George Wakefield,
the City Attorney of West Covina and Glendora, and Stanley E.
Remelmeyer, the City Attorney of Torrance, (which are the three
California cities presently pursuing the program). In addition,
I have reviewed materials relating to deferred compensation pro-
grams. The consensus is that IRS should indeed approve the
program, but in the alternative, an adverse ruling would not
result in any penalty imposed upon the employee.
Many years ago, IRS did approve the California State Public
Employees Retirement System as a proper. deferred compensation
plan. However, this ruling was later withdrawn based upon what
George Wakefield, and I concur, considers a totally illogical
premise, i.e., PERS is not a single system, but a combination of
many different systems. Such a conclusion is totally unsupport-
able, but that of course does not prevent IRS from holding to
276 Fourth Avenue, Chula Vista, CA 92010 (714) 427-3300
The Honorable'Mayor and City Council
June 15, 1976
Page Two
that view. The sole issue is when the taxable incident arises.
There is never any doubt that you are going to have to pay tax
on income. Furthermore, it should not matter to IRS when that
taxable incident occurs. As things are presently structured,
the employee is paying currently on his total income through
the withholding process, therefore, at the time of his retire-
ment, he is not required to pay any tax on the portion which
he has contributed to PERS since the taxable incident occurred
during his working years. Under the proposed program, the
taxable incident is merely delayed until retirement and at
that time, the employee must pay. It is my understanding in
talking to the other City Attorneys that there is no problem
at all insofar as PERS is concerned.
In conclusion, it is the opinion of the City Attorney's office
that the program of payment of all or a portion of the employee's
contribution to the Public Employees' Retirement System as a
deferred compensation is both legal and feasible.
GDL:lgk