HomeMy WebLinkAboutResolution 4554, Amending ICMA-RC 457 Deferred Compensation_5
Commission Memorandum
REPORT TO: Honorable Mayor and City Commission
FROM: Anna Rosenberry, Administrative Services Director
SUBJECT: Resolution No. 4554 - AMENDING THE ICMA-RC 457 DEFERRED COMPENSATION PROGRAM TO PERMIT LOANS TO PARTICIPANTS.
MEETING DATE: September 15, 2014
AGENDA ITEM TYPE: Consent RECOMMENDATION: Approve Resolution No. 4554 - AMENDING THE ICMA-RC 457
DEFERRED COMPENSATION PROGRAM TO PERMIT LOANS TO PARTICIPANTS.
BACKGROUND: The City currently has approximately 100 employees who participate in its ICMA-RC 457 Deferred Compensation program. The plan is similar to a private-sector 401(k)
plan, but is made for government employers.
When originally adopted, participant loans were not a feature of the city’s plan. We believe that allowing loans, in full conformance with IRS rules, will offer a number of advantages and very little risk.
• Of primary interest, adding the loan feature could incentivize employees to elect into our
High Deductible Health Insurance plan. One of the hurdles to joining the plan is having some method of covering the deductible and maximum out of pocket; up to $10,500/year for a family. Knowing that a loan from your 457 Plan was available, if needed, could
provide this critical “bridge” for some employees. This is the lowest-cost health
insurance plan we have; it is a consumer-driven plan that works to keep health insurance
cost-escalation at bay. Increasing participation in the High Deductible Health Insurance Plan will help to keep health insurance costs low for the City.
• Adding the loan feature could also increase employee’s contribution to this important
retirement-savings vehicle. Features that increase flexibility often increase people’s willingness to participate. Dollars that are contributed are exempt from Federal and State Income Tax, saving the employee money as they plan for retirement.
The risks for employers adding the loan feature are related to any significant number of
employees not repaying the loans. While employer dollars aren’t necessarily risked (because only a portion of current employee plan-assets are loaned,) the tax-deferred status of the plan could come under dispute by the IRS. ICMA-RC administers the loan repayments, completes
the necessary IRS reporting, and works with employers to manage this risk.
UNRESOLVED ISSUES: None.
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ALTERNATIVES: Do not approve the loan feature.
FISCAL EFFECTS: There are no immediate fiscal effects of adding the loan feature to our
457 Plan. In the future, there could be positive impacts on the City’s employee health care costs if participation in the High Deductible Health Insurance plan increases.
Attachments: Resolution No. 4554 ICMA-RC Loan Guidelines Agreement Report compiled on: September 3, 2014
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Page 1 of 2
COMMISSION RESOLUTION NO. 4554
A RESOLUTION OF THE CITY COMMISSION OF THE CITY OF BOZEMAN,
MONTANA, AMENDING THE ICMA-RC 457 DEFERRED COMPENSATION
PROGRAM TO PERMIT LOANS TO PARTICIPANTS.
WHEREAS, the City has sponsored a deferred compensation retirement plan (“the
Plan”) in compliance with Internal Revenue Code section 457(b), through the International City
Manager’s Association (Plan No. ICMA-RC 457 #300556); and
WHEREAS, the City has employees rendering valuable services to the community;
and
WHEREAS, the Plan has been established for such employees, which serves the
interest of the City by enabling it to provide reasonable retirement security for its employees, by
providing increased flexibility in its personnel management system, and by assisting in the
attraction and retention of competent personnel; and
WHEREAS, the City has determined that permitting participants in the Plan to take
loans from the Plan, in compliance with Plan rules, will serve these objectives; and
NOW, THEREFORE, BE IT RESOLVED by the City Commission of the City of
Bozeman, Montana: The Plan will permit loans.
PASSED AND APPROVED by the City Commission of the City of Bozeman,
Montana, at a regular session thereof held on the 15th day of September, 2014.
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Resolution 4554 – Amending ICMA-RC 457 Plan
Page 2 of 2
___________________________________
JEFFREY K. KRAUSS
Mayor ATTEST:
________________________________________
STACY ULMEN, CMC City Clerk
APPROVED AS TO FORM:
___________________________________
GREG SULLIVAN
City Attorney
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