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). Eventua...
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