HomeMy WebLinkAboutCity of Fresno Retirement Boards - City of Fresno Retirement Boards litigation arising from the provisions of the pending tax compliance ordinances that relate to internam revenue code section 401(a)(9) and their application to employeesTHIS AGREEMENT is entered into this 2r day of January, 2011 by and between the
CITY OF FRESNO, a municipal corporation (herelemfter CITY) and the City of Fresno Fine and
Police Retirement Board, which administers the City of Fresno Fire and Police Retirement
System, mM the City of Fremt Employees Retirement Board, which administers the City of
Fresno Employees Retirement System (hereinafter collectively, "Retirement Boards').
WfINESSETH
WHEREAS, the Retirement Boards stand as fiduciaries to members, retirees, and
beneficiaries of the systems;
WHEREAS, among the Boards' fiduciary duties is the duty to comply with applicable
laws;
WHEREAS, compliance with those provisions of the Internal Revenue Code insurer that
the members, retirees, and beneficiaries remma eligible for the tax-fbvomd treatment of
retirement contributions and benefits:
WHEREAS, the latemal Revenue Service has expressed its strong desire that
governmental defined benefit retirement systems apply to the Service on or before Jmuary 31,
2011 for a determination than the terms of the retirement plans comply with the applicable
provisions of the Tntemel Reveraue Code;
WHEREAS, the Retirement Boards have engaged the services of Ice Miller, a nationally
recognized tax law f with extensive experience with governmental defined benefit retirement
plans, to review the plans, to offer amendments to enhance Municipal Code compliance with the
applicable provisions of the Internal Revenue Code, and to submit an application m the Service
fm a determination that the Items of the plans comply with the Internal Revenue Cede;
WHEREAS, Ice Miller has prepared daft tax compliance ordimuces which have been
reviewed and approved by the Retirement Bowds w their recommendation to the Council;
WHEREAS, the daft tar compliance ordinances have been submitted for review to the
employee organiv tions that have not mixed my issues or questions;
A6 anent Between COF Mirement Boartls and COF
Pogo l of
II_
AGREEMENT BETWEEN THE CITYOF FRESNO
RETIREMENT BOARDS AND THE CITY OF FRESNO
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WITH RESPECT TO LITIGATION ARISING FROM
THE PROVISIONS OF THE PENDING TAX
89
COMPLIANCE ORDINANCES THAT RELATE
u$
TO INTERNAL REVENUE CODE SECTION 401(a)(9)
t,
AND THEIR APPLICATION TO EMPLOYEES WITH
REGISTERED DOMESTIC PARTNERS OR TO
SAME-SEX MARRIAGES
THIS AGREEMENT is entered into this 2r day of January, 2011 by and between the
CITY OF FRESNO, a municipal corporation (herelemfter CITY) and the City of Fresno Fine and
Police Retirement Board, which administers the City of Fresno Fire and Police Retirement
System, mM the City of Fremt Employees Retirement Board, which administers the City of
Fresno Employees Retirement System (hereinafter collectively, "Retirement Boards').
WfINESSETH
WHEREAS, the Retirement Boards stand as fiduciaries to members, retirees, and
beneficiaries of the systems;
WHEREAS, among the Boards' fiduciary duties is the duty to comply with applicable
laws;
WHEREAS, compliance with those provisions of the Internal Revenue Code insurer that
the members, retirees, and beneficiaries remma eligible for the tax-fbvomd treatment of
retirement contributions and benefits:
WHEREAS, the latemal Revenue Service has expressed its strong desire that
governmental defined benefit retirement systems apply to the Service on or before Jmuary 31,
2011 for a determination than the terms of the retirement plans comply with the applicable
provisions of the Tntemel Reveraue Code;
WHEREAS, the Retirement Boards have engaged the services of Ice Miller, a nationally
recognized tax law f with extensive experience with governmental defined benefit retirement
plans, to review the plans, to offer amendments to enhance Municipal Code compliance with the
applicable provisions of the Internal Revenue Code, and to submit an application m the Service
fm a determination that the Items of the plans comply with the Internal Revenue Cede;
WHEREAS, Ice Miller has prepared daft tax compliance ordimuces which have been
reviewed and approved by the Retirement Bowds w their recommendation to the Council;
WHEREAS, the daft tar compliance ordinances have been submitted for review to the
employee organiv tions that have not mixed my issues or questions;
A6 anent Between COF Mirement Boartls and COF
Pogo l of
WHEREAS, the draft net compliance mrdimmes have been submitted to the City
Anomey's Office for is review and consideration;
WHEREAS, the intent of one provision in each of the draft tar ordimnces is he clarify
dad any optional form of benefit under the plan that gives a gremer than 50% continuance is not
available m a retiree who has named a non -spousal beneficiary who is younger than the retiree
by more than tea years:
WHEREAS, this provision is mandated by she Internal Revenue Code w supplemented
by the Federal Defense of Marriage Act;
WHEREAS, the distinction in Federal law between spouses of different sexes and
meriml-type auocietinns, including domestic partnerships registered under the laws of the State
of California, is the subject of litigation elsewhere in the nation:
WHEREAS, the City Anomey's Office is reasonably concerned that she inclusion of the
provisions described above may result in expensive and time-consuming provision involving not
only the Retirement Boards but also the City;
WHEREAS, she parties to this agreement acknowledge that, formal to existing
valuation methodology as recommended by the system's actuary, she type of payments that may
be made antler tIris agreement will be included in determining any unfimded armorial accrued
liability of the system from whose fimds the payment was made; and
WHEREAS, it is fiduclarily appropriate under the limited c'vcumstzrsces of enhancing the
compliance of the retirement systems wish the applicable provisions of the Internal Revenue
Code for the Retirement Boards to indemnify the City with respect to any litigation in which the
City is named as a party and in which registered domestic Fanners or same sex married couples
are suing the City to be treated the same as married members and retirms with respect
to selection of optimal forms of benefit under one or IroN of the retirement systems.
NOW. ]HEREFORE,. W LIGHT OF THE FOREGOEVG, IT IS HEREBY AGREED AS
FOLLOWS:
1. For purposes of this agreement the following definitions shall apply:
a. "Litigation' means any actions or Pmceciings that are judicial,
adminishative, or otherwise in which the legality of the provision of either ofthe rax compliance
ordinances restricting m m more than 51fe the optional form of benefit to non -spousal
beneficiaries ( hereinafter "tax compliance ordinance'j is being contested by plaintiffs who
sure members ol" a domestic partnership registered under the laws of the State of Ca ifomia or
comparable jurisdiction or who are members of a same,sex marriage which is Iawfif under the
laws of the jurisdiction in which the marriage was entered
b. "Indemnify" means to provide an anomey and pay for legal F and costs
generated in the defense of City in any claim, demand, action, proceeding or litigation, including
expert whines fees.
Agreement Between COP Mimment Bonds was COF
Page 2 of 5
"Hold harmless" means that City shell bear an fiscal or financial burden
whatsoever resulting from any demand, claim, action, proceeding or litigation arising from,
resulting from, or in connection with the has compliance ordinance, including the satisfaction of
any final judgment rendered in any litigation under this agreement.
d. "Tender a defense" means to provide written notice of any demand, claim,
aeuon, proceeding, or litigation whether through electronic means or otherwise, to both the
Retirement Administrator of the retirement systems and to the legal counsel for the Retirement
Boards and obtain confirmation of receipt by them.
e. "City of Fresno" means the City of Fresno, its officers, officials,
employees. or agents.
2. The Retirement Boards shall indemnify, hold harmless, and defend City and
each of its officers, Officials, employees, and agents drum any and all loss, liability, E es,
penalties, forfeitures, costs end damages (whether in coavact, tort or strict liability including but
not limited to personal injury, death a any time and property damage) incurred by City,
Retirement Boards or any other person, and from any and all claims, demands and actions in law
r equity (including attorney' s fees and litigation expetues), arising or alleged to have arisen out
of the City's adoption and enforcement of the sex compliance ordinance The Retirement
Board's obligations under the preceding sentence shad not apply to any loss. liability, fines,
Penalties. forfeitures, costs or damages caused solely by the gess negligence, or caused by the
willful misconduct, of City or any of its officats, oBicisls, employees, or agents. Tax, section
shell survive termination ser expiration ofthis Agreement.
3. Each Retirement Board shall be responsible to comply with paragraph 2 of Btis
agreement only with respect to litigation in which it is either a named party or in which
the demand claim.. action proceeding or fitigation comers the validity of those Municipal Cade
Provisions which it is abfigand to administer.
4. The obligations of either Retirement Board under this agreement only apply if the
City of Fresno tenders a defense within 20 calendar days of receipt of any demand, claim, action,
proceeding, or litigation in which City is to be indemnified and held harmless by the Retirement
Boards.
5. The City will work with the Retirement Bounds for the selection of the attorney
normally agreed to by both parties to represent the City of Fre um in litigation under this
agreement. in the event the ponies marmot agree to fix selection, the City shall make the final
selection. Under such circumstances, the Retirement Boards may exercise its right to ttquire that
the counsel selected by the City possess cenaiv minimum qualifications, which may include that
selected counsel have 1) at least five (5) years of civil litigation practice. which lactates
substantial defense experience in the subject at issue in the litigation, and 2) errors and omissions
coverage.
6. Nothing contained herein shall prohibit City, in its sale discretion, from
participating in the defense of any demand claim, action, proceeding, or litigation over and
above representation by outside counsel, or from participating in the defense of any demand,
claim, action, proceeding, or litigation. If City elects to also defend, it shall do so in good faith.
Agreement Berwrcn COr Retirement Bods and COF
%&e3or5
In an event shall City's participation in the defense of any demand, claim, action, proceeding, or
litigation affect the obligations imposed upon the Retirement Boards under this agreement.
7. Without limiting the City's right to recover its costs Gam Retirement Boards
order this agreement. Retirement Boards agree to reimburse the City for its actual costs incurred,
including but not limited to, City muff and money time expended for certifying anchor preparing
the administrative record in connection with and proceedings related to the subject maner of this
Indemnification agreement. Retirement Boards shall pay such cost to City before receiving such
administrative record. to the extent administrative record reimbursement and related costs ere
recovered in any litigation by the City, Retirement Boards shall he reimbursed to the extent any
such recover is made as cost necessary items.
S. Any insurance maintained by the Retirement Boards shall be primary and an
contribution shall be required of City, its officers, officials, employees, or agents. The fact that
insurance is maintained by Retirement Boards and City shall not be deemed to release o
diminish the liability of Retirement Boards, including, withom limitation, liability under the
indemnity provisions of this Agreement, The duty to Indemnify City shall apply to all claims
liability and lawsuits regardless of whether any insurance policies are applicable. The policy
limits do not act as a limitation upon the amount of Indemnification to be provided by Retirement
Boards. Upon request of City, Retirement Boards shalt immediately famish City with a complete
copy of any insurance policy maintained by the Retirement Boards, including all eMorsements,
with said copy cenifred by the underwriter to be a nue and correct copy of the original copy.
This requirement shall survive expiration or terminstion of this Agreement
9. A material failure of the City to coopemk with the defense of the litigation shall
void the obligations of me Retirement Boards under dus agreement.
10. This agreement shall cease to be operative as of January 31, 2016, although the
obligations of this agreement shall continue 0 to my litigation under this agreement which
commenced prior to that dem.
It. If either party is required to commence any proceeding or legal nation to enface
or interport any term, coveaam, or condition of this agreement, the prevailing party in such
proceeding or action shall be entitled to recover from the other party its reasormble attorney's
fees and legal expenses.
Agrti Bemttn COF Retaemenr prisms ard COF
Fags 4 of
12. If any provision of this agnament is determined to be invalid in a final judgment
by a wort of competent jurisdiction, each and every atha provision hereof shall remain in full
form and effect.
IN WITNESS WHEREOF, the parties have executed this agreement at Fresno,
California, the day and year first above written.
CITY OF FRESNO, CITY OF FRESNO FIRE AND POLICE
a Municipal
��corporration� 11 RETIREMENT BOARD
By: /1L4-f� B .
Mark Soon. City Meager Paul Cliby, Char
ATTEST:
REBECCA E. KLISCH
City Clerk
By:
Deputy Date
APPROVED AS TO FORM:
JAMES C. SANCIIEZ
City Attorney
By
Tel
Tei Yakim . Senior Deputy
Detect: l
CITY OF FRESNO EMPLOYEES
RETIREMENT BOARD
Ken Nerland, Can
APPROVED AS TO FORM:
SALTZMAN & JOHNSON
Board Counsel. Retirement Boards
By:
Russell Richeda, Board Counsel
Dated:
Agreement Between COP Retirtmrnt Bands and COP
Pnge 5 off
12. Jf my provision or Wis uge® tis del icd m be invalid N a fiml jdgamt
by a coon Of mmpelemjurisdidoa, eah ad evary other pmvisim Les f shall n m full
tome and bst.
W WFFNESS WHEREOF, the parties have executd this ageemmt at Frtano.
Calif ia, the day adym Bra above 5vanam.
CITY OF FRESNO,
emuaiuPV Wrporetloonn
By: k�4" '
Mark Sw%City Mar tr
ATTEST:
REBECCA E. KLISCN
City Clnk
By:
Deputy Data
APPROVED AS TO FORM:
JAMES C. SANCHEZ
City Ah sey
By: -4i. yi, l•.
Tei Yukirn jj Senior Deputy
Decd: I /l9 i II
CITY OF FRESNO FR AND POLICE
RETIREMENT BOARD
By:
Paul Cliby, Claur
CITY OF FRESNO EMPLOYEES
RBTIRBMENy BOARD
By:
Kea Netlad, Clair
APPROVED AS TO FORM:
SALTZMAN & JOIBJSON
BmM11^1CJ\oumel,Re(((fu 1m/rc�Intl(1-B�omda;
V—�YA/n/
Fr �_M
Rus all Richads, Board Coumel
Deed: q s I
ApCeemenl Bnlwan COF ReM1mmmt BwMud MF
Pt 5of5
AGENDA ITEM NO. _ 1 L _
REPORT TO THE CITY COUNCIL I COUNCIL MEETING 1/2.7/11
f+mminenunml
January 13, 2011
D np n
. _ _ 1�2]� �
FROM: CITY OF FRESNO RETIREMENT BOARDS )i ir"""
BY: STANLEYL. MCDIVITT RefbementAdministmfpr
RUSSELL RICHEDA, Legal Coursel forth s Retlmnrenf Boards
SUBJECT: INTRODUCTION AND ADOPTION OF ORDINANCES AMENDING
VARIOUS RETIREMENT SECTIONS OF THE FRESNO MUNICIPAL CODE
TO ENHANCE COMPLIANCE WITH THE INTERNAL REVENUE CODE AND
MAINTAIN THE RETIREMENT SYSTEMS' TAX DEFERRED STATUS
RECOMMENDATION
To enhance compliance with the Internal Revenue Code ("IRCl and maintain the Systems'
tax deferred status wBh Me Internal Revenue Service ("IRS7, the Refirement Boards haw:
approved Me attached two ordinances which amend various Retirement sections of the
Fresno Municipal Code. The Retirement Boards are recommending Mat the City Council
introduce the two ordinances today and subsequently adopt the ordinances at the January
27, City Council meeting. The Retirement Boards' Legal Counsel Russ Richeda arta staff
also concur with these proposed recommendations.
In fulfilling Meir fiduciary Mures, Me Retirement Boards retained the professional services of
Ice Miller. a specialized tax firm, to assist in reviewing Me applicable Retirement System
provisions of the Fresno Municipal Cade from a tax compliance perspective. Ice Miller has
performed an extensive review of Me retirement code and has recommended various
amendments to enhance compliance with Internal Revenue Code provisions. These
amendments have been incorporated in Me attached two ordinances.
Prior to approving Me ordinances for recommantlalion to Me City Council, the Retirement
Boards conducted public hearings on the proposed amendments and provided a formal
notice to all City Labor Omanaations. Additionally, on December 14. 2010, the City's
Labor Relations Manager also provided notice to the labor organizations and offered to
meet with the labor associations regarding Me impacts with a December 23 deadline to
respond. As of December 23, 2010, Labor Relations received no requests from the labor
associations to meet regarding Me impacts.
The City Attorneys Office has reviewed and approved Me ordinances as to form
TO THE CITU COUNCIL -January 13, 2011
Introduce Ordinances emending various notmon enl sections of Me FMC to enhance
compliance with the IRC and maintain the retirement sysfems'tax deferred status
BACKGROUND
The Internal Revenue Service has in recent years increased its focus upon governmental
defined benefit plans and has encouraged such plans to apply with Me Internal Revenue
Service for a determination that Me plan complies with Me applicable provisions of the
Internal Revenue Code.
In this raged, Me Boards retained the services of the law fine of as Miller to assist in
reviewing the plans from a tax compliance perspective, assist in deciding whether it is
appropriate to apply for a determination letter and submit the plans into the IRS's voluntary
compliance program for any corrections of minor issues.
Ica Miller has completed its review of our two Retirement Plans and the Retirement Boards
have reviewed and approved Ice Millers proposed tax compliance amendments for both
Retirement Systems. Ms. Terry Mumford of Ice Miller presented the firm's overview
memorandum, Me proposed amendments and answered questions at Me Boards
September 8, 2010 joint meeting. Ms. Mumford also discussed the firms
recommendations that each Board file with Me Internal Revenue Service for a tax
determination latter and submit Me plan into Me IRS's voluntary compliance program (VCP)
prior to January 31, 2011.
While almost all of the proposed amendments cWrify current prectice, it is important to note
the following changes:
1. One of the proposed amendments would require employees entering Me City's
Deferred Retirement Option Program to continue to make employee pension
contributions. Currently, members cease making employee contributions when May
enter the DROP program. Ice Miller has advised that the IRS would not support an
employee's mid-camer decision to cease employee contributions prior to retirement
therefore, May have proposed a prospective amendment where Me employee would
continue to make employee contributions into the employee's DROP account, as
compared to Me employee's contribution account.
2. AnoMer proposed amendment would limit benefit option selection for certain non-
spousal beneficiadas which include domestic partners registered with the State of
Cal'nfomia. Federal law di fers from state law on registered domestic partners and in
order to comply with the Internal Revenue Code, Me Retirement Systems need to
follow Me federal law in this area. Federal law dean not impact a retiree with a non-
spousal banefidary who is less Man tan Were younger Man the retiree. Such a
retiree will continue to be able to select any available benefit option in the event of
Me death of the retiree, consistent with existing practice. A retiree with a non-
spousal beneficiary or registered domestic partner who is mare Man tan years
younger than Me retiree, however, will be limited in Me benefit options available to
REPORT TO THE CITY COUNCIL -January 13, 2011
Subject Introduce Ordinances amending various retirement sections of Me FMC to enhance
compliance with the IRC and maintain the retirement systems' fax deferred status
be selected. However, this is not a reduction in the value of the benefit as the
benePo selected must be the actuarial equivalent of the membees full allowance.
Alm included as an attachment to this staff report are the Ica Miller Compliance
Worksheets for both Systems which cross reference the proposed amendments as
guidance to the appropriate Internal Revenue Code Section.
Finally, most public pension systems in California are performing the same due diligence
review and then fling for a tax determination letter with the IRS. The majority of public
pension systems in Cal'domia, including the CaIPERS System, have not previously fled for
a tax detemiinabon letter. but will likely be filing prior to the January 31, 2011, deadline.
Attachmentsr
L Proposed Ordinances
2. Ire Miller Compliance Worksheets