Agenda - Council Work Session - 06/12/2007

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~ ..- CITY COUNCIL WORK SESSION ) Topic Report: PERA's Defined Contribution Plan and Social Security for Elected Officials By: Givonna Reed Kone, Human Resources Manager Background " All public employers are requiredto enroll eligible employees in the Public Employees Retirement Association (PERA) pension plan. PERA also has a pension plan that is available to elected officials, the Defined Contribution Plan (DCP). The Defined Contribution Plan is a voluntary tax-deferred retirement savings program. In the DCP, participants determine how employee and employer contributions are invested. Total contributions plus investment performance determine the ultimate benefit, which is paid in a taxable lump sum upon withdrawal. Elected officials who participate in the Defined Contribution Plan contribute 5% of their salary to the plan and the City matches that contribution. Elected officials whQ do not participate in the Defined Contribution Plan are automatically enrolled in Social Security. Currently, all city of Ramsey elected officials are enrolled in Social Security. The] City and elected officials each contribute 6.20% to Social Security. Section 218 AID"eeutent I I Under federal law, tlie only way that Social Security coverage can be provided to employees or elected officials w~o are eligible for p~cipation in a governmental retirement plan is through a section 218 agreement. In 2006, the Minnesota Legislature amended Minnesota's 218 agreement to all~w individuals elected to office after July 1, 2002 to participate in the DCP and Social Sec~ty at the same time. Individuals who were elected to office prior to July 1, 2002 and ean1ed more than $425 have always been able to participate in both plans. I I I If the city council wi~hes to offer elected officials who took office after July 1, 2002 the opportunity to contribute to both Social Security and DCP, the city council must adopt a resolution to that eff~ct. Upon adoption of the resolution, those individuals who are eligible to vote will be given notice that a divided vote referendum will be taken not less than 90-days from the date of the notice. A divided vote referendum allows eligible elected officials to cast a vote indicating whether they as an individual will participate in both plans or remain with one plan or the other. Because individuals who were elected to office prior to JlIly 1, 2002 and earned more than $425 have always been able to participate in both plans, those individuals are not eligible to participate in the divided vote referendum. The city council could offer participation in both plans retroactively or prospectively.