Recommendation
Staff recommends that the Mayor and Council approve the changes that are being proposed for the City's Pension Plan.

Discussion
The City's Pension Plan is a qualified plan under Internal Revenue Code (IRC) section 401(a). Several regulatory changes, are being recommended to ensure that the Plan stays in compliance with the IRC, so that it will retain its qualified status. The passing of the Pension Protection Act in August 2006, and other changes to the laws governing pension plans, subsequent to the City's last determination letter, has precipitated these regulatory changes. In addition, staff is recommending changes that would streamline the Plan document and make it easier to read and comprehend.

Qualified Plan's are typically the recipients of favorable tax treatment. As the City is a tax exempt organization, the predominant benefits are that the Plan's assets earnings are exempt from tax, and an employer's contributions to a tax-qualified plan on behalf of an employee are not taxable to the employee. Employees pay tax only when they receive distributions of their pension benefits, usually after retirement.

To be assured that a pension plan qualifies for these tax benefits, an employer sponsoring a plan usually asks the Internal Revenue Service to approve its plan. Upon proper application, the IRS issues a so-called "determination letter" that assures the employer that the plan meets the detailed qualification requirements contained in the Internal Revenue Code.

A determination letter tells an employer that its pension plan is qualified under the tax rules in place at the time the letter was issued. When Congress changes the tax code, those changes force employers to amend their pension plans and request new determination letter.

The City has to submit its Plan to the IRS by January 31st, 2009. On average a determination letter is requested in five year cycles.

None of the changes that are being recommended, provide employees with additional benefits, or will have a cost impact on the administration of the Plan.

Mayor and Council History
This is the first time this item has been brought before the Mayor and Council.

Boards and Commissions Review
The City's Retirement Board was apprised of these changes at its November 14, 2008 meeting. A copy of the Board's agenda packet concerning this item is reflected on attachment D. The Board was asked to approve the Plan changes as summarized by Venable, but they have not seen the specific changes that are before the Mayor and Council.

Fiscal Impact
There is a $1,000 filing fee to the IRS for the Application for Determination for Employee Benefit Plan form 5300.

Next Steps
Venable, the Pension Plan's attorney, will submit the Application for Determination for Employee Benefit Plan, form 5300 on behalf of the City by January 31st 2009.

Attachments

A - Plan document with recommended changes.

B - Plan document with recommended tracked changes incorporated.

B1 - IRS Form 5300

C - Report from the Retirement Board meeting on November 14th.

Department Head:



Gavin Cohen, Director of Finance
Approved on: 01/19/2009

Assistant City Manager:


Jenny Kimball, Assistant City Manager
Approved on: 01/21/2009

City Manager:

Scott Ullery, City Manager
Approved on: 01/21/2009