REPORT TO COUNCIL
SUBJECT
Title
Action on a Resolution Adopting CARES Act Provisions Relating to the City’s Section 457 Deferred Compensation Plan and Authorizing the City Manager to Execute the Necessary Documents [Council Pillar: Manage Strategically Our Workforce Capacity and Resources]
Report
BACKGROUND
The recently passed federal Coronavirus Aid, Relief, and Economic Security (CARES) Act enables participants in qualified retirement plans, such as the City’s 457 deferred compensation plan, who have been adversely affected by COVID-19, to take a distribution or loan from their deferred compensation account without incurring the penalties normally associated with such a transaction. In order for City plan participants to take advantage of these provisions, the City Council must approve a plan amendment allowing for it.
DISCUSSION
The recently passed federal Coronavirus Aid, Relief, and Economic Security (CARES) Act enables participants in qualified retirement plans, such as the City’s 457 deferred compensation plan, who have been adversely affected by COVID-19, to take either a distribution of, or a loan against, their 457 plan account funds upon favorable terms. Some elements of the CARES Act include:
• no immediate tax withholding of 20% on distributions, with ordinary income tax applied over a three-year period
• ability to repay a distribution over three years
• loans of up to $100,000 or 100% of the account value, whichever is less.
These changes to both the distribution and loan elements of the 457 plan apply only for a limited period of time. Attached is a summary of the key retirement provisions included in the CARES Act provided by the HYAS Group, the City’s deferred compensation consultant (Attachment #1).
In order for City plan participants to take advantage of these provisions, the City Council must adopt the provisions of the federal law and authorize the City Manager to execute the necessary documents (see, e.g., Attachment #2). Eventually, the plan document itself should also be amended; the deadline for governmental plan sponsors to implement the necessary plan amendments is not until 2024. The plan amendments will be brought forward for Council consideration at a later date, if so directed by Council.
Once approved by the City Council, the City’s third party recordkeeper, Nationwide Retirement Services, is prepared to handle the administrative aspect of this directly with plan participants. Plan participants are responsible to self-certify to Nationwide that they have been adversely impacted by COVID-19.
ENVIRONMENTAL REVIEW
The action being considered does not constitute a “project” within the meaning of the California Environmental Quality Act (“CEQA”) pursuant to CEQA Guidelines section 15378(b)(5) in that it is a governmental organizational or administrative activity that will not result in direct or indirect changes in the environment.
FISCAL IMPACT
There is no fiscal impact to the City with this action.
COORDINATION
This recommendation has been coordinated with the City’s Human Resources, Finance and City Attorney departments.
PUBLIC CONTACT
Public contact was made by posting the Council agenda on the City’s official-notice bulletin board outside City Hall Council Chambers. A complete agenda packet is available on the City’s website and in the City Clerk’s Office at least 72 hours prior to a Regular Meeting and 24 hours prior to a Special Meeting. A hard copy of any agenda report may be requested by contacting the City Clerk’s Office at (408) 615-2220, email clerk@santaclaraca.gov <mailto:clerk@santaclaraca.gov>.
RECOMMENDATION
Recommendation
1. Adopt a Resolution adopting the provisions of the CARES Act relating to the City’s 457 plan and authorizing the City Manager to execute the documents necessary for Nationwide Retirement Services to offer these new provisions to the City’s plan participants; and
2. Direct staff to revise the plan document accordingly and bring it back to the Council for approval at a later date.
Staff
Reviewed by: Nadine Nader, Assistant City Manager
Approved by: Deanna J. Santana, City Manager
ATTACHMENTS
1. Key Retirement Provisions, Coronavirus Aid, Relief, and Economic Security (CARES) Act
2. Nationwide Retirement Solutions Plan Sponsor Election Form
3. Resolution