Agenda - Council - 03/11/2014 - Laserfiche WebLink

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QUICK REFERENCE GUIDE FOR PUBLIC EMPLOYERS Note: Employees covered under a public retirement system may also be covered for social security by a Section 218 Agreement. All state and local government employees hired after March 31, 1986, are subject to the Medicare tax. A worker hired prior to April 1, 1986, and not covered by a section 218 Agreement, may be exempt from Medicare if he or she was a bona fide employee on that date, and has been in continuous service since that date. Any worker hired after March 31, 1986, must be covered by Medicare, either by a section 218 Agreement or under mandatory coverage provisions. See Revenue Ruling 86-88 in Publication 963. Note: Any Section 218 Agreement in effect on April 20, 1983, cannot be terminated regardless of whether an additional retirement plan is later made available to affected employees. 3. PUBLIC RETIREMENT SYSTEM As stated above, employees are excluded from mandatory social security coverage if they are covered by a public retirement system. "A "public retirement system" is not required to be a qualified plan within the meaning of the Employees' Retirement Income Security Act of 1974 (ERISA). The employee may be a member of any type of retirement system, including a nonqualified system (for example, a section 457(b) plan, discussed below), as long as the plan provides a minimum level of benefits, as specified by law, under that system. A public retirement system may take one of two forms: the defined benefit retirement system, which is based on a guaranteed minimum benefit, and the defined contribution retirement system, which is based on a required contribution from the employee. In order for a defined benefit retirement system to be considered a public retirement system, it must provide a benefit generally comparable to that provided by social security. The computation of the benefit that the plan provides is made based on various factors, including years of service rendered by the employee, compensation earned by the employee and the age of the employee at retirement. The Service issued Revenue Procedure 91-40 to clarify the minimum retirement benefit tests, which must be met in the plan's formula. This Revenue Procedure can be found in the Appendix of Publication 963. In order for a defined contribution retirement system to be considered a qualified plan, the worker must be covered in a plan in which, generally, at least 7.5% of his/her compensation is credited to a retirement plan account on his or her behalf. This contribution can be any combination of employer and employee contributions, but must total a minimum of 7.5% of pay, and cannot include any credited interest in the calculation. The system may include any plan described in section 401(a), an annuity plan or contract under section 403(b) or a plan described in section 457(b) or (f) of the Internal Revenue Code. Any person working for a public employer after July 1, 1991, who is not covered by a public retirement system that meets the requirements discussed above, or the defined benefit system 5