REPORT TO DEFERRED COMPENSATION COMMITTEE
SUBJECT
Title
Action to Approve the Implementation of a 401(a) Deferred Compensation Plan, and Recommend Same to City Manager
Report
BACKGROUND
The City has had a section 457(b) Deferred Compensation Plan for several decades. The Internal Revenue Code (IRC) allows for several different types of deferred compensation plans, one of which is a section 401(a) plan. The plans have varying contribution limitations under the IRC. A section 401(a) plan option is primarily for employer contributions toward employee's accounts that do not count against the contribution limitation in section 457(b) accounts. Historically, the City did not contribute to employees' retirement accounts. In recent years, through the labor negotiations process, the City has begun to contribute to employees' accounts, depending on the employees' bargaining unit. More recently, the City has agreed to make deferred compensation contributions on behalf of City employees in classifications represented by the Unclassified Miscellaneous Management (Unit 9) bargaining unit on a successor Memorandum of Understanding (MOU) effective January 1, 2025.
DISCUSSION
The City has worked with the City's current deferred compensation administrator, Nationwide, to prepare a 401(a) plan to be available to allow for City contributions toward employees' deferred compensation. The 401(a) plan has been setup to mirror the existing 457(b) plan as closely as possible, including having the same mutual funds available to participants to invest in. Additionally, the 457(b) plan and the 401(a) plan have the same administrative fees.
If the City contributes the MOU provided employer contributions to deferred compensation to the 401(a) plan account, instead of the 457(b) plan account, employees will have the option to contribute more total dollars toward their deferred compensation by having employee contributions go into the 457(b) plan.
Nationwide allows for employees to have b...
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