Staff Report
PREPARED BY: LISA VELASCO
Human Resources Director
Reviewed by: Town Manager, Assistant Town Manager, Town Attorney, and Finance Director
110 E. Main Street Los Gatos, CA 95030 ● 408-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 08/15/2017
ITEM NO: 5
DATE: AUGUST 7, 2017
TO: MAYOR AND TOWN COUNCIL
FROM: LAUREL PREVETTI, TOWN MANAGER
SUBJECT: APPROVE A CALIFORNIA PUBLIC EMPLOYEES’ RETIREMENT SYSTEM
(CALPERS) RESOLUTION TO TAX DEFER MEMBER PAID CONTRIBUTIONS –
IRC 414(H)(2) EMPLOYER PICK-UP FOR TOWN OF LOS GATOS ELECTED
OFFICIALS
RECOMMENDATION:
Approve a California Public Employees’ Retirement System (CalPERS) resolution to tax defer
member paid contributions – IRC 414(h)(2) employer pick-up for Town of Los Gatos Elected
Officials.
BACKGROUND:
The Town of Los Gatos currently pays for the employee pension contribution, as well as the
employer contribution, for Town Council Members. Under California Public Employees’
Retirement Law, employers may pay some or all of the required employee pension
contributions for identified employee groups. This is known as employer paid member
contributions (EPMC).
The Pension Reform Act of 2013 (PEPRA) created a two-tier membership within CalPERS
resulting in Classic members and PEPRA members. Classic members were enrolled and actively
contributing to CalPERS before January 1, 2013 and PEPRA members, in general, joined a
CalPERS retirement plan for the first time on or after January 1, 2013.
Pension reform prohibits employer paid member contributions (EPMC) for PEPRA members
employed by public agencies unless an employer’s existing Memorandum of Understanding
PAGE 2 OF 3
SUBJECT: APPROVE A RESOLUTION TO TAX DEFER MEMBER PAID CONTRIBUTIONS – IRC
414(H)(2) EMPLOYER PICK-UP FOR TOWN OF LOS GATOS ELECTED OFFICIALS
DATE: AUGUST 15, 2017
S:\COUNCIL REPORTS\2017\08-15-17\CalPERS\Staff Report-CalPERS Resolution FINAL.docx 8/10/2017 12:55 PM LV
BACKGROUND (Cont’d):
(MOU) would be impaired by this restriction. Town Council Members are categorized as
Elected Officials and therefore are not members of a bargaining group covered by an MOU.
CalPERS recently enhanced its membership reporting database and identified two Town of Los
Gatos Council Members as PEPRA members. After consultation with CalPERS, a final
determination was made that the two Council Members must pay the pension contributions
through payroll deductions.
DISCUSSION:
The provisions of PEPRA related to EPMC, and particularly to Elected Officials, has been an
unclear provision of the Act since it requires MOU impairment but Elected Officials are not
covered by an MOU. Although PEPRA took effect in 2013, CalPERS just recently enhanced the
functionality of its myCalPERS database to identify discrepancies related to membership and
corresponding benefits. The Town was recently advised by CalPERS that the two Council
Members in the PEPRA category should have been paying the employee pension contribution
of 6.75% from Council stipend since their optional election of CalPERS membership.
Both Council Members have been notified and will reimburse the Town for all employee
contributions paid on their behalf. The total amount to be repaid is $511.32. Beginning with
the pay date of August 18, 2017, the employee contribution of 6.75% will be deducted from
each Council Member’s stipend and paid directly to CalPERS.
A benefit that employers can provide to their employees at no cost to the employer or
employee is Internal Revenue Code (IRC) section 414(h)(2), commonly referred to as Employer
Pick-Up. Under this provision, employees pay their own member contributions from reportable
compensation and defer state and federal income taxes on the member contributions. This is a
benefit that is provided to all other Town employees through resolutions that were approved
by Council and filed with CalPERS.
The CalPERS template resolution (Attachment 1), if approved, would allow Elected Officials
under PEPRA to contribute 6.75% of their semi-monthly stipend to CalPERS on a pre-tax basis.
The relevant Town of Los Gatos information has been inserted within the grey fields of the
template. CalPERS template documents do not allow for editing or the creation of a clean
document without highlights and instructions.
PAGE 3 OF 3
SUBJECT: APPROVE A RESOLUTION TO TAX DEFER MEMBER PAID CONTRIBUTIONS – IRC
414(H)(2) EMPLOYER PICK-UP FOR TOWN OF LOS GATOS ELECTED OFFICIALS
DATE: AUGUST 15, 2017
S:\COUNCIL REPORTS\2017\08-15-17\CalPERS\Staff Report-CalPERS Resolution FINAL.docx 8/10/2017 12:55 PM LV
CONCLUSION:
As a result of pension reform that requires PEPRA members to pay the employee pension
contribution, staff is requesting Council approval of a CalPERS resolution (Attachment 1) to
permit future payroll deduction payments on a pre -tax basis.
COORDINATION:
This report was coordinated with the Finance Department.
FISCAL IMPACT:
Elimination of EPMC for PEPRA Council Members results in an annual cost savings to the Town
of $121.50 per Council Member. If the resolution is approved, the Town will recognize federal
and state tax savings for the portion of the stipend that is paid by Elected Officials to CalPERS
on a pre-tax basis.
ENVIRONMENTAL ASSESSMENT:
This is not a project defined under CEQA, and no further action is required.
Attachments:
1. Resolution to Tax Defer Member Paid Contributions – IRC 414(h)(2) Employer Pick-Up