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HomeMy WebLinkAboutAGENDA REPORT 1991 0717 CC REG ITEM 08M ITEM 8 m • 44 70S%05.3 F°P� 9 MOORPARK %Wel 799 Moorpark Avenue Moorpark, California 93021 (805) 529-6864 ,,CORPARK, CALIFORNIA TO: HONORABLE CITY COUNCIL City Coou II Meeting FROM: RICHARD HARE, DEPUTY CITY MAN G I of . //7 199..E ACTION: /,/�Jird DATE: JULY 11, 1991 / SUBJECT: CONSIDER DEFERRED COMPENSATION PLANS ;rte / , Background Staff has requested deferred compensation plan proposals from several organizations. Deferred compensation under Internal Revenue Code Section 457, is a tax deferred supplemental retirement program which allows employees to contribute a portion of their salary to a retirement account. The employee contribution is made before the computation of gross income for taxes. The purpose of these plans is to encourage long term savings for retirement by providing tax advantages today. For an example, if an individual earned an additional $2, 400 and wished to save the money earned they would first pay approximately $672 in taxes on the earnings. This would leave $1,728 for savings. Interest earned on the savings in the first year would be approximately $71 and taxes on the interest earnings would be an estimated $20. The total saved in the first year would therefore be $1, 779. However, in a deferred compensation program the entire $2,400 would be saved. No taxes would be paid on the earnings or the interest earned and the total saved in the first year would be $2, 499. By using a deferred compensation plan the individual saves and earns an additional $720. These figures were based on estimated tax rates and interest rates. Proposals Proposals and information packets have been received from the United States Conference of Mayors, the International City Management Association Retirement Corporation, Lincoln National Life Insurance Company, Great Western Bank and IDS. Each plan offers essentially the same type of administrative services. The plan when implemented would be the City's plan and the City would contract with one or more of the organizations listed above to administer the plan, invest the funds, file the necessary reports with the IRS, and service the employees' accounts. The plans do vary with regard to the portability of the plans from one employer to another, the risk associated with the organization PAUL W. LAWRASON JR. BERNARDO M. PEREZ SCOTT MONTGOMERY ROY E. TALLEY JR. JOHN E. WOZNIAK Mayor Mayor Pro Tern Councilmember Councilmember Councilmember S - The Honorable City Council July 11, 1991 Page 2 administering the plan, and the type of investment alternatives available to the employee. Plan Evaluation The evaluation of the relative qualifications of one plan over another is subjective. Investment preferences, perceptions of risk and the importance of plan portability will vary from individual to individual. The size of the City's employee group makes it necessary to limit the number of plans offered to one or two. Too small of a number of participants would not justify the cost of administering a plan for the City or for the plan administrator. None of the plans require a contribution on the part of the City. The contributions to the deferred compensation plan would come directly from the employee. The employee would also be required to pay a periodic administrative charge. Recommendation Prior to bringing agreements between the City and a plan administrator before the City Council it is recommended that the City Council assign the Budget & Finance Committee to review the information provided by the various organizations and make a recommendation to the full Council.