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HomeMy WebLinkAboutAGENDA REPORT 2007 0801 CC REG ITEM 10LMOORPARK CITY COUNCIL AGENDA REPORT TO: Honorable City Council FROM: Johnny Ea, Finance Director DATE: July 24, 2007 (HCC Meeting of 08101/07) erpa 10•L. City Council Meeting Of R / —oi oo % T ACTION: O - L aaq- SY-.- SUBJECT: Consider Resolution Amending Resolution No. 2004 -2174 and No. 2005 -2373, the City's ICMA Retirement Corporation Governmental Money Purchase Plan & Trust Adoption Agreement for 401 (a) Plan BACKGROUND In 2004, the City Council approved the establishment of a 401 (a) Money Purchase Plan with ICMA -RC for designated employee groups. The Plan Agreement was subsequently amended in 2005 to provide more flexibility to staff to contribute into the Plan. The proposed amendment to the Plan Agreement will provide eligible Plan participants the ability to borrow funds from their respective plan account balance. DISCUSSION Two of the basic 401 (a) Plan features are as follows: 1) Employees can withdraw their contribution from the 401(a) Plan, however, employees will incur a 10% premature withdrawal penalty unless they withdraw funds over ten (10) years if over age 55 or unless they are at least 59Y2; and ?) Once a participant pre -tax contribution is elected, that percentage of regular wages may not be revised or revoked (with the exceptions being disability leave or termination of employment). Under the current Plan Agreement, only the City Manager, Assistant City Manager, Deputy City Manager and Department Heads are eligible to participate. At the time the plan was offered, there was no consensus from management employees to participate and the represented employees did not request participation as part of the meet and confer discussions. 000150 Honorable City Council Meeting of August 1, 2007 Page 2 The following is a summary of the proposed loan program for the Council's consideration: 1. A "Loans Guidelines Agreement" must be completed and the Plan Agreement must be amended to allow loans. 2. A loan may be taken from participant account balances for all purposes. 3. Participants may only receive one loan per calendar year and only one loan may be outstanding at a time. 4. Generally, all loans must be repaid within five years for the date the loan is made. However, loans for the purpose of buying a principal residence may be repaid up to a maximum of 15 years. 5. Loan repayments will be repaid through payroll deductions. 6. Loans are only available to active plan participants. Former employees, beneficiaries, and alternate payees are not allowed to take a loan. 7. Loans may be submitted by participants through Direct Application (written form) or on Account Access, ICMA -RC's online account program. 8. All loans are due and payable when a participant receives a distribution of part of his /her account balance after separation from service. "A Guide to Implementing a Loan Program" (Attachment 1) provides a summary of the loan program. The "Loan Guidelines Agreement for a Retirement Plan" (Exhibit A of the Resolution) sets specific guidelines for the City and participants to follow prior to establishing a loan. Staff recommends adding the loan program. Current employees as well as future hires could utilize this to assist with buying a principal residence. This could assist with retention and recruitment of employees. In addition, the loan program could also offer employees an option for funding other items such as college tuition. The following summarizes the recommendation of the optional features of the proposed loan program: 1. All purposes. 2. Loans for principal residence capped at 15 years; loan for all other purposes at 5 years. 3. Loans are repaid only through payroll deductions and must be repaid in full when a participant receives a distribution of part of his /her account balance 000151 Honorable City Council Meeting of August 1, 2007 Page 3 after separation from service. The amount of the outstanding loan balance will be reported as a distribution in addition to the amount of cash distributed from the plan. 4. Only one loan at any time. 5. Loans may be from both participant and employer contribution accounts. STAFF RECOMMENDATION Adopt Resolution No. 2007- approving an amendment to Resolutions Nos. 2004- 2174 and 2005 -2373, the City's 401(a) Plan, and authorize the City Manager to sign the "Loan Guidelines Agreement for a Retirement Plan" and the "Amendment to ICMA -RC Governmental Section 401 Plan & Trust Adoption Agreement" for the City of Moorpark. Attachments: 1. "A Guide to Implementing a Loan Program" 2. Resolution No. 2007 - 000152 Attachment 1 A GUIDE TO IMPLEMENTING A LOAN PROGRAM icmARC Building Retirement Security 000153 I C M A A loan pro;,rarn in vour icincrnent plan provides eligible plan participants the ability to borrow, hinds from their plan account balance. Adding loans to ),,out ietirerrient plan is a big step. As the administrator of your loan program, ICMA -RC will at- tempt to minimize the. amount of resources you need to devote to the program. However, there are administrative and fiduciary responsibil- ities associated with offering loans which, as a practical mat- ter, cannot be delegated to ICAfA -RC. For this reason, before you design a program that is tight for you and your employees, there are several issues you may wish to consider. And the deci- sions vou make in designing your loan program will determine The resources VOU, as the plan sponsor, will have to commit to that program. This brochure details the issues you should consider in design- ing yomr retirement plan loan program. LOAN GUIDELINES In order to offer loans front a retirement plan, the Internal Rev- enue Code (the Code) requires that you establish written guide- lines that govern rile granting of loans. Included in this packet is the Loan Guidelines Agreement that you must complete and tot mally adopr to establish your loan program. Along with completing the Loam Guideline, Agreemenr, you must amend your plan docurnerir to allow loans. You .vIII need to send to I0MA RC: a statement executed by a designated official or resolution approved by your governing body, as applicable to your plan. In addition, if you are adding a loan provision to a 401 plan, the adoption agreement applying to that plan must be amended. A sample resolution and an adop rion agreement amendment fi,rrn are included in this package. If you have any questions about amending your plan document to allow for loans, please call our Client Services learn toll free at 1- 800 - 326-- ,2' >.. The Code provides you with some flexibility when establishinc, your Loan Guidelines as lone as the guidelines are consistent with rile plan document provisions on loans and with section 2(p) of the Code. 1. FligiVility- .(Section II in Loan Guidelines - AL,reement) You may allow a loan to be taken frorn f I) vested erriployer cnbn 2j i d participant account balances. You may designate wherher or nor a loan rtay be taken (A) for all purposes or ([3 ) only in the case of hardship or other certain specified financial situations- R C 401 Plat, ender rile Code, only eniploycis can authorize a hardship foi loan purposes. Upon request, ICMA -RC will provide an opinion to you concerning the likely comph- ance. of the hardship within the requirements of the Code and regulations. Nornially, for loan purposes, hardship and other specified situations include, but are nor limited to: unreirnbuised medical expenses, buying or rehabilitating the participants principal residence, and paying for college education for the participant of his /her- dependents. Czar loan, car repairs, and the purchase or repair of a vacation Of rental property 'Would not be included in the hardship definition. The option you choose to define "loan puipose" in the F11- ,d) hty section v; 11 have a significant irnpact on the number Of loans made from vour plan. Obviously, if vou choose "for all purposes," more of your employees will request loans than if you select "hardship or other specified financial situ- ations only.', 4S'Pluri,;. Loans must be coordinated with urtf_,resee- able emergency withdrawals. '[�he emergency withdrawal regulariorts under Section 07 of the Code require that an emergency withdrawal be a resource of the "last resort." If the participant is able to take a loan fiorn your ICMA -RC 45, plan of any other plan you sponsor, the participant has resources available to meet, or pairtally meet, the financial need. Therefore, a participant will be required to take a loan before taking an emergency withdrawal. Many emergency wirhdiawals are not approved because the financial need, while serious, pray not meet the condiriom itemized in the =i57 regulations. The ability to take a loan will allow participants access to money that a not otherwise available. And the repayment provisions for loans ensures that participants replenish their accounts, thereby presety- ing their retirement savings. 2. Frequency of Loans (Section III in Loan Guidelines_ Agreement Participants may receive only one loan per calendar year. I owever, you rtay elect to 11101A' participants to have either 'A! only one loan cxttstanding at a time or (131) no more than five loans outstanding at one time. The option you choose under Frequency of Loans will have an impact on the number of loans made fioni your plan. It may also have a direct impact on your payroll systern if you select Payroll Deduction as a repayment option for your participants. Fay h lo:zrt repayment for each pay period nui+c be accounted for ;eparasell Repayments of' i multiple loans are a much larger burden on vour payroll system land personnel) than a repayment of a single loan. 2 000154 A C ta:de ro Lm� lcrr,rr:r:r; :z Lorin P,.yr m 3. Length of Loan (Section V in_Loan Guidelines. Agreement). Generally, all loans must be repaid within five years frorn the date the loan is made. There is an exception for loans used to bu,v, but trot to improve or repair, a principal re,i- dence. In the case of a loan fi)r buying a principal residence, you may specify the number of years, riot to exceed 30, over which the loan must be repaid. In determining the m.tiYimum repayment period for resi- dential loans, you should be mindful that the loan term may extend beyond the period the participant is employed by you. If you allow employees to continue to pay their loans after they sepaiare frorn set:ice (see Acceleration of Loan Repayment on the next page), repayments would continue by the participant, through you, for the entire term of, [lie loan (c. o, 30 years). Every payroll period, the 1:miticipant ([owner employee) will be required to give yixr a check for the periodic loan repayment amount. You then include this amount with your next contribution submittal to IC,NUL -RC. Loan repayrments may not be made directly to IC;,lti9 RC by t/e parr10pant, nnless you chooseACII debit as a repay rent opt:or!. 4. Doan ReLmynhent Prrocess_(Sectiion V1 in Loan Guidelines A eement� All loans nnrsr be repaid either through payroll deduction or through ACI I debit as long as the employee is activeh employed by you. For payroll deducted payments, ICIMA -RC's media used for iernittin`, conurburion detail ie.g. EZl.ink, magnetic tape, or diskette) allow for the inclusion of loan iepayruent detail. Pairicipants may pay off their loans , acv by requesting that you subrnit a larger icpayrnenr amount from their pay on their n r,ularly sched uled repayment dares through ) -our contribution submittals to IC,tiL•X RC. Please rlore that no payment dare may he skipped" even if the employee has made a large payment or submitted multiple payments. The enclosed Loan Guidelines Agreement form allows your plan ro offer a participant the option of making loan repayrnerrrs via direct debar of the employee's bank account. Direct debit is authorised by the participant and allows IC,MA -R(: to debit loan repayments frorn the participant's Dank account via Automated Clearing House (A(--,f I)- %X'ith this featuie, you are free of the burden of establishing and monitoring payroll deduction and submitting of repav- nle.nts to ICNIA RC. Please note that you will not he notified directly when a participant's bank accourhr has insufficient funds for a complete loan repayment. The LZI..ink loan reports that will he availabie to you online will provide this informa- tion. It is possible that participant loans may default more often for lack of repayment when participants choose ACH repaymlcnt rather than payroll deduction. You may 3 choose to restrict certain participants to payroll deduction for [Ills lcaSon. In implementing a loan piogiarn you should he aware that some employers Who offer loans throughh their retirement plan have had to contend with the inabiliryy of some partici- pants to repay their loan's). You should he aware that you may not stop taking load repayments f.om the erployee's paycheck — even if the cmploy-ee asks that repayments be stopped. Failure to payroll- deduct loan repayments on sched- ule could both jeopardize the eligibility of qualification of the entire plan as well as create a taxable event for the participant. Likewise, if an employee is repaying the loan through ACH debit of his!hei bank account, and the employee fails to make payments, this could jeopardize the eligibility of your tetirernent plan. Employers are ultimately responsible for ensuring that loans ate repaid according u) the loan relms. IC:tiIA RC assists you by notih,ing both you and the em- ployee if a payment has not been received. Your plan may allow terminated employees to continue to repay their loans either through ACI I debir of their bank account, of by giving. /sending you a check each repayment period (refer to Accelciation of'Loan Repayment section on pace three). If you adopt this latter repayment method, you will include the repayment amount given to you by the former employee in your next regular emplryee contribu- tion hemittance to ICNIA -RC. If a participant has mote than one loan outstanding at any uric time, then cash loan repayment must be scparttely reported to ICNIA -R(_'. 5. Lnan Plicadon I?rocedures (Section VIII in Loan.. Guidelines - Agreement) (A) Active Employees Only -- Loans are available only, to ac:nve employees. Former employees, beneficiaries, and alternate payees may not take a loan. (B: Request Submittal — Loan requests may he submitted by participant, through the Direct Application (writ ten form) or on Account Access. ICIMA -RC's online account program.lo offer these features, the employer pre- authorizes ICMA -RC to approve loan requests. Otherwise, all loan requests must be in writing, signed by the participant, and approved by yuu, the enployer. t -finder tlhe Code, rile amount of the loan may not exceed a maximum amount. 7;,e arrzount available for a loan a alf cted by a:.'i ot'ner loam the partic:pant may ha r. e outstanding or ha. reccrr zvPaid of,' frorn your IC.,VA -RC retzremerctPlatt, and an; other retiremenrP,Lni you spon or. Plea%C refer to page ? for a syoiksheet illustrating how maximum loan amounts are calculated. The loan modeling program in Account Access i icuipotares this calculation ouromatically. 000155 I C M A (C) Check Issuance -- Unless you select Direct Application or online (Account Access) application, the participant is required to sign acceptance of a promissory note evidencing the loan and a disclosure statement, which includes an arnoitization schedule. Upon receipt of an approved loan application, 1(= i,%iA -RC will prepare these loan documents and send them, along with the loan check. The loan check may riot be given to the participant until all of these loan documents have been signed by the participant. Once the. loan documents are signed, you return then) to ICjMA -RC. Because the promissory note is considered :I plan asset, all loan documents must be complete and preserved by f(:%IA -RC for at least the life of the loan. With online loans or Direct Application, IC-IAA -RC sends loan documents with the check to the partici- pant. When the participant endorses the check, that signifies acceptance of terms. For payroll - deducted loan repayments, once a loan is issued, your payroll department roust ensure that loan iepayu)ents are withheld from rile employee's paycheck each pay period, in the amount specified or the amor- tization schedule, 1111111 the loan is repaid in full. It is essential that the amortization schedule coincide with ymn payroll m c. IC.'1,IA -RC can help you deterrnine the first pay date on which You should withhold loan repayments. G. Acceleration of Loan Repayment Section.X -in Loan. Guidelines Agreement) You have three options for determining hose outstanding loans are accelerated: A. All loans ate due and payable in full upon the employ ees separation from service. The employee may riot continue to pay off Ilis!hcr loan once he or she sepa- rates fl om service. B. After separation frond service, all Fans are (file and pay- able in full as soon as the participant takes a withdrawal of any amount from the plan. C. after separation from service, all loans are clue and pay- able in full only when the participant withdraws hisiher entire accounr balance. You should consider these options carefully, since each pro Vision could result in a taxable event for the participant. If a participant does not repay the outstanding loan amount at the time it is due., the loan is "foreclosed." This me.trls that the outstanding loan amounr must be reported by the plan adininistiatot (ICIMA -RC) a: a taxable dlStrlbntlrlll in the year of the foreclosure. On the other hand, given the burdens associated with col Iccting 10,411 repayments fioin former employees, you may 4 R C not wish to maintain a potentially long term "relationship" with former employees (especially in the case of residential loans). You should carefully consider the level of responsibility each option entails. 7. Deemed- Distribution of Delinquent Loans. -. Section. XIV in Loan Guidelines Agreement] Internal Revenue Service (IRS) regulations governing participant IoanS issued after December 31, 2001, have provided clarification on requirements for loan processing. The regulations have always established loan criteria such as term and borrowing limitations. However, the regulations now specifically illustrate how plan sponsors should treat delinquent loans, which violate the special rules allowing loans to be made from retirernent plan :users. A loan typically becomes a deemed distribution when scheduled payments are not made in adherence with the granted "cute period." The maxirnurn allowable cwe period is the end of the calendar quarter f01lowing the cal- endar quartet in which the payment was due. For example, if a participant's loan payment is due February Ist, the maximum cure period for the repayment is Lune 30th. If the rotal amount of all delinquent payments is riot received by the end of the cure period, the hlan is deemed a distri- 1,uti0n. The principal balance, in addition to any accrued interest, is reported as a distribution to the IRS. 1- lowevci, the taxable distribution is not the only event in conjunction with a deemed distribution. 1 he following negative conse- quences occur as a result of deemed distnhution. • The deemed distribution is a taxable event. }-however, it is not an actual dlStrlbUtiUn and therefore iernains .in asset of the partic:ipanr s account. The outstanding loan balance and accrued interest are reported on the partICIpalit S aC0)tlllt Stat CITIC.M. • Repayment of a deerned distribution will not change or reverse the taxable event. • The loan continues to he considered outstanding until it is repaid of "offset` using the participant's account balance. An offset can occur only if the participant is eligible to receive a distribution Mom the plan as out- lined in your plan document. • ICMA- RC requires participants to repay any outstand ing deemed distributed loan before they can become eligible for a new loan. The deemed distributed loan and arty interest accreted since the dare it becurre a tax- able event is taken into account when determining the maximum amounr available for a new loan. • A recent IRS rulinti requires that a participant who has had a prior deemed distribution imist make. repaynnenis 000156 A guide .o hr.pleirert:rr:o rt 1_no.n J'rogr ;rrr. to a nc,-v loan through pavioll deduction, or provide proof of adequate secutrty. F.rnployeis, as plan sponsors and fiduciaries, have an obllga- tion to comply with plan document and loan guideline requirements applicable to participant loans. In this regard, loan payments must he made in accordance with the plan document, plan loan guidelines, and as teflected in the promiss01T dote si,ned by the participant. Frriployers retain this obligation if there is a loan program associated with their retirement plan, even if participants apply for loans online, and regardless of the method of repayment - "vhether participants are repaying their loans through ACFf debit of pxnoll deduction. Finployers who do not ensure proper loan tepayrnent practices in nceir retirement load programs risk not only having individual p:uticiparlt loans being deemed dish ibu- tions, bur also porentially jeopardize the tax- favored status of the entire plan. In the extreme, plans with mismanaged loan programs - a high occurrence of deemed distributed loans, and/or program participants in default, fen example — may he disqualified (in the case of 401 plans) of classified as ineligible ifnr _157 plans! by the IRS. Disqualification results in the loss of tax- deferred status for all contributions and a possible increase in the t xable income for participat ing employees. It is a plan sponsol's and plan administrator's fiduciary obli gatron to properly manage the retirement plan and its ben efits. 1lisrnanagernent of a loan program may be considered failure to meet this fiduciary obligation and may expose a plan sponsor io litigation, in addition to being in violation of applicable lxxw and regularions. To assist plan sponsors whose plan options include loans, IC.L1A -RC will provide reports of participants with pay- ments delinquent by 30 to 89 days, 90 or more days but not vet deemed, and those whose loads have been deemed distiibuted. IC:'sfA R(., is committed to supporring employ- ers who tequest assistance with their loan programs in order To reduce the number of delinquent loans and decrease the occurrence of deemed distributions. SPECIAL CIRCUMSTANCES If you have mitre than one retirernent plan, IC:,tifA -RC will ad minister your loan program, but you will have to perform some: loan verification activities. You will also have to perform these activities if loans are available to vow- employees fiorn several like retirement plans, such is two different qualified plans, or if' you have different types of ieritemenr plans (e.g. Section 45; deferred compensation and section 401 qualified plan). The degree of your involvement will depend on your situation. 1. Nfultoe Plans If you offer - everal rerirernerrt plants, each with its own plan doCllrnent and provisions unique to each administrator, ICMA -RC and your other administrators should be able to administer loans because these are distinct plans and the loan provision applies at the p..an level. However, the Code sets a m;ixirnum on the aggregate of all loans from all retirernenr plans in which the employee participates. No provider will be able to calculate, by itself, the maximum amount thar a participant may borrow at any point in erne. Since only you, the employer, can determine the cur- rent outstanding loan balance and the highest outstanding loan balance in the past 12 months from all loans front any retirernent plans, You will have to calculate the maxinlurn amount that may be borrowed. This will involve obtain - inn all loan a1r101.1111S CllrrerilIv out Tandinr and repaid in The last 12 months. For volt convenience, IC.AA -RC has developed a worksheet to illustrate the rna_ximum loan amount available. [See Page 7, "Calculating the amount Available for a Loan."] If you elect online loans, participants are asked to input all outstanding loan balances in Their online worksheet so that the program can properly calculate the rnaxirnum amount. Participants ate on the honor system" when they enter other loan amounts; IC;,11A- RC: is unable to verify any loan amounts associated with plans administered by ocher pro viders. However, if there are any outstanding loans in other plans ad[ninisrcied by ICMA -RC, our online piogiarn syill take them into ac.:ount. 2. Sidle. Retirement Plan /Multivle_ Prcwiders If you have adopted a single retirernent plan with one [Mas(er plan doc unlent under which 1CMA -RC and your other adminisuaror(s) must operate, then you may ulti- mately have to self administcr your loan program, unle:; you require: • that the maximum that may he borrowed from any provider is 50 percent of the balance with that provider and • that the loan must be repaid only to The provider flout which The loan was made. If you do not impose these ie(jimernents, you may have to self administer Your loan program. This is because of: • Problems calculating the loan amount. 1 lie. amount available for a loan is based, in part, on the Total account balance in :he plan. Since employees may have balances with more than one of the admin- istrarors, only you, the employer, c:ui determine the actual account balance by aggregating the baance for each administrator. 5 00015'% I C M A- R C The Code sets a maximum on the aggregate of all loans from all rerirernent plans in which the participant pai ticipates. Since only you can determine the current out- standing Ilan balance and the liiohest outstanding loan balance in the past 12 .Months from all loans from any retirement plans, you will have to calculate the ma-xi MUM amount that may be borrowed. This will involve obtaining al'loan amounts Currently outstanding and repaid in the last 12 months. For your convenience, ICtiIA -RC has developed a worksheet to illustrate the maximum loan amount available. [See Fa(,e ?, `'Calcu- lating the Afflount Available for a Loan. • Problems preparing loan docurne lirs. F,ach loan liar term, and conditions that are reflected in the promissory note, disclosure statement and arnoitiz.a- tion schedule for the loan. Other providers may be able to prepare these documents if given all the pertinent information about the loan by you. I fovever, the other provider may be reluctant to provide documents for a loan to which it is not a party. Arid it may be difficult for the other provider's system to provide documents for a loan in an amount that exceeds what its system shows is available. • Problems keeping accurare loan records. Since loans are generally made aril recoidkept on a plan level basis, theoretically, a participant could take a loan in the amounr of bis /her entire balance with one adrninisnator because the loan is collateralized by the balance -with another administiatot. And the pal'tici- pamtt rnav elect to allocate loan repayments either be- nvicen administrators or to an administrator other than the administrator who made the loan. Unless a loan is unique to one of the adrninistiarois, both in amounr and repayment rerms, only you, the employer, will be able to track loan repayments, especially if' repayments are being made to more than one administrator. 3. Multiple TNI) �f 12etiremcni PI ups /Mutt le Pro.6ders If you make loans available to your employees from all of your retirement plans (e.g. Section 457 deferred compen- sation plan and Section 401 qualified plan), each plan administrator should be able to administer loans because these are distinct plans and the loan provision applies at the plan level. I fowevei, no administrator will be able to calculate, by itself, llte maximum amount that a pat tici- pant may borrow at any point iu rime. This is because the Code sets a maximum on the aggregate of all loans front all 401 and 457 plans in which the participant paitici- pates. Since only you, the employer, can determine the current outstanding loan halance arid the highest out - sranding loan balance in the past 12 months from. all loans from any 401 or 457 plans, you will have to calculate the rnaximurn amount that may be horrowed. This will involve obtaining all loan amounts currently outstanding and repaid in the last 12 months. For your convenience, RC has developed a worksheet to illusu'ate the rnaximuni loan amount available. [See Page 7, "Calculating the Amount Available for a Loan. "] Many 457 plans are what are icfclted to as °co- aelminis- reied" plans. -Fhete are actually two different r%-pes of ar- rangement both of xhicli are referred to as co- administered of co- provider plans: (I) multiple 457 plans offered by all emnployer through two or more administrators, each adrninistraror having its own plan document and featutes. (2) a single 457 plait. with multiple Idmninistrators provid- ing essentially different investment options. In both of these situarions, it will be difficult for an ad- mirikilator to correctly administer a lean provision acuoss multiple plans. Its will also be difficult for you to correctly administer a loans provisions in situations where you make loans available to employees from your 457 plan(".) ,rid another retirement plan (e.g. Section �'i01 money purchase or profit sharing, plan). CONCLUSION Y: A Guide x Irnplerne:::,: a Lour. Prccr,.rr CALCULATING THE AMOUNT AVAILABLE FOR A LOAN The minimum loan amount is 51,000. The rmximum amount of all loans to the participant from the Plan and all other plans sponsored by the 1_.inployei that are qualified employer plans under section 2(p)(4) of the Code is the lesser of (1) 550,000, Lech iced by the highest ourstandirig balance of all loan; horn any 401 of 457 plans for that participant during the one -year period ending on the day before the date a loan is to be made, or (2) 5(Y'io of the participant's vested account balance, reduced by the current outstandin balance of all 401 and 457 loans from all plans tot thar participant. If a participant has any loans outstanding at the time a new loan is requested, the new Flan will be limited to the maxi- mum amount calculated above reduced by the total of the outstanding loans. In addition, each loan must be collateralized, at the time it is made. by one half of the participant's vested account bal- ance in the plan from which the loan is being made. Therefore, the actual amount a participant may take as a loan is the LESSER of the maximum dollar amount described above or 50 percent of the. account balance. To estimate the nixxirnum arnount of a loan for which a participant may he eligible, calculate each step and select the lesser of the total of Step 1 or Step 2. If the participant has had no outstanding 401 or 457 plan loans in the last 12 months, you may enter 550,000 as the total in Step I and proceed to Step 2. Step 1. "$"50,000 A. $50,000 is the inaXrrrlum. I B. Enter the highest outsrandin�" loan balance during the previous 12 months from 457 and 401 Milan loans. i Step 1 Total _ Subtract Line B from Line A. I Step 2. C.;. Enter 50% of the present value of the total account balance Hl the plan from which the loan will be issued, including any outstanding loan balance. — — . -_, -- D. Lnter ih( current outstanding 401 and "or <'57 plan loan balance(s). Step 2 Total T Subtract Line D from Line C. i Step 3. E. Enter the lesser of Step land Step 2 (orals. Maximum Loan Amount = Line F. The actual amount that may be borrowed will be calculated using the participants account balance on the day the loan is made. 7 000159 Attachment 2 RESOLUTION NO. 2007- A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF MOORPARK, CALIFORNIA, AMENDING RESOLUTION NO. 2004 -2174 AND NO. 2005 -2373, BY AMENDING THE CITY OF MOORPARK GOVERNMENTAL MONEY PURCHASE PLAN AND TRUST ADOPTION AGREEMENT FOR THE 401 (a) Plan (Plan No. 108573) WHEREAS, on March 3, 2004 the City Council adopted Resolution No. 2004- 2174 authorizing the establishment of a 401 (a) Money Purchase Plan and Trust with the ICMA Retirement Corporation for designated employee groups; and WHEREAS, on August 31, 2005 the City Council adopted Resolution No. 2005- 2373, amending Resolution No. 2004 -2174; and WHEREAS, a staff report has been presented to said Council recommending an amendment to the City of Moorpark ICMA Retirement Corporation Governmental Money Purchase Plan & Trust Adoption Agreement to allow eligible participants to take loans from the Plan; and WHEREAS, Exhibit A "Loan Guidelines Agreement for a Retirement Plan" and Exhibit B "Amendment to ICMA -RC Governmental Section 401 Plan & Trust Adoption Agreement" describes said amendment. NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF MOORPARK DOES HEREBY RESOLVE AS FOLLOWS: SECTION 1. That Resolution No. 2005 -2373 is hereby amended to incorporate Exhibit A "Loan Guidelines Agreement for a Retirement Plan" and Exhibit B "Amendment to ICMA -RC Governmental Section 401 Plan & Trust Adoption Agreement" for the City of Moorpark. SECTION 2. That the City Manager or his /her designee is authorized to execute the attached Exhibits "A" and "B" to the Plan Agreement . SECTION 3. That the City Clerk shall certify to the adoption of this resolution and shall cause a certified resolution to be filed in the book of original Resolutions. 000160 Resolution No. 2007 - Page 2 PASSED AND ADOPTED this 1st day of August, 2007. Patrick Hunter, Mayor ATTEST: Deborah S. Traffenstedt, City Clerk Attachment: 1. Exhibit A "Loan Guidelines Agreement for a Retirement Plan" 2. Exhibit B "Amendment to ICMA -RC Governmental Section 401 Plan & Trust Adoption Agreement 000161 Exhibit A LOAN GUIDELINES AGREEMENT FOR A RETIREMENT PLAN icmARC Building Retirement ,Security 00016k I C M A- R C INSTRUCTIONS (Please refer to the previous section, "A Guide to Implementing a Loan Program ") These Loan Guidelines must be completed before loans can be made from your retirement plan. You should consider each option carefully before making vour selections because sour selections will apply to all loans made while the selection is in effect. If you later change any provision, the changes will apply only to loans made after the change is adopted. I -oars in existence at the time of anti• ftl[urC changes will continue to operate under [he guidelines that were in effect at the time the loan was originally [glade. 'vote: If loans are available to your employees from other plans (e.g. other Section 45— deferred compensarion plans or other Sec- [toil '301 )1 ins') calculation of [he maximum Iran amount must consider the aggregate of all loans from all A01 and 457 plans III which the employee participates. See the MAX 11uun Loan Amount % orksheer on page 7 of.a Gn:de to Int�,'r,eru:rto r Lo,trt hrogr,7rn, fountf in this packet. 2 000163 Loan Gu:debne, Apeern, -a: Name of Plan (please state the EmploNlers complete name, including state):_- ._ -____ Plan Type: ❑ 401 ,,a) ;Money Pwchase Plan ❑ 401 PtoGt- Sharing Plan ❑ 4�, % Dcferrcd Compensation Plan ICN A -RC Plan Number: Purpose The purpose of these fumdehnes is to establish the terms and conditions under which the Fntplover will granr loan; to participants This is the only official Loan Provision Document of the above named Plan. II. Eligibility Loans arc available ro all active employees. Loans will not be granted to participants who have an eximn. loan in default. Loans- will he pro -sated among all the funds in which the participant is invested at the time the loan is made. for 401 plans only: Loans are available front the following sources: [select one or both] Employer Contribution Account (vested balances only) Participanr Conuihution Account, (pie- and post -tax, if applicable, including, F.rrtployee Miandatory, Employee Voluntarv, l:.ntplover Rollovct, and Portable Benefits Ace0Un1S, but excluding the l.)educ[ible Employee Contribution!Qualified Volun- tary Employee Contribution Account; for all plan types Loans ate available for the following purposes: [select one] All purposes ❑1 Leans shall only br granted in the event of a participant's hardship or for the purpose of enabling a participant to nicer certain specified financial situations. The employer shall approve the participant's loan application afrer determining, based on all relevant facts and circumstances, that the amount of the loan is not in excess of the amowu required to relieve the fi- nancial need. For this Purpose, financial need shall include, but not be limited to. unteirnbursed medical expenses of the par ticipant of members of the parricipant s immediate family, establishing or substaruialli, rehabiliratin (; the principal residence of the participant, or paying for a college. education (including graduate studies) for the participant or his /her depcndenrs. III. Frequency of loans [select one] Participants may receive one loan per calendar year. Moreover, participants may have only one (1 i outstandinC, loan at a time. ❑ Patricipanrs nta) receive one loan per calendar ),ear. ',loieovei, no patlicipanr may have more than five '51 loans outstanding at one unit. 3 000164 I C M A- R C IV. Loan amount The minimum loan amount is $1,000. The maximum antounr Of all loans to the participant front the plan and all other plans sponsored by the Employer that arc qualified employer plans under section 72(.p)(4) of the Code is the lesser of. (I) $50,000, reduced by the highest outstanding; balance of all loans from and- 401 or 45 plans for that participant during the one -year period ending on the day before the date a loan is to be made, or (21 one half of the participant's vested account balance, reduced by the current outstanding balance of all 401 and 457 loans from all [)falls for that participant. If a participant has any loans outstanding at the tulle a new loan is requested, the new loan will be limited to the nraxintum amount calCn- lated above reduced by the total of the out,,tanding loans. A loan cannot be issued foa more than the above amount. "IThe participant :s requested loan amount is subject to downward adjustment W111101-It notice due to market fluctuation between the time of application and the time the loan is made. V. Length of loan A loan must be repaid in substantially equal installments of principal and interes(, at least monthly, over a period that does not exceed five (S) years. Loans for a principal residence must be repaid in substanuall), equal installments of principal and interest, at least monthly, over a period that does not exceed _ (?.. -- --- _ —_ -_- [state number of vearsJ years (maximum 30 years;i. VI. Loan repayment process Loan repayments for active employees must be through (choose one): ❑ Employee rnav choose either payroll deduction or ACH debir. PL642 , = t If payroll deduction repayment is allowed, and the employee wishes to use this method, the employee must notify (fie Employer sn that the Em [)lover c.ut ensure that repayment will begin as soon as practicable on a date determined by the Employers payroll cycle. Failure to begin payroll deduction in a timely w•av could lead to the employees loan entering delinquency status. Pavroil deduction should begin within two payroll cycles following the employee's receipt of the loan. Repayments throrhh payroll deduction will be sent via check or wire by the Employer to ICMA -RC on the following cycle (choose one): ❑ Weekly (72 per year) Pq lii- weekly.;26 per year�i ❑ Semi - monthly (24 per year') ❑ Ivionthly (,12 per ear) If ACTH debit tepayment is allowed, debits frorn the employees designated bank account will begin approxirnat.ely one month fol- lowing the date the employee's signed A(_ H aurhori7ation form is received and processed by ICNfA -RC, or, in the case of online loans, approximately one month following; the date the loan check has been cleared for payment. Debits will nortnally be made on a monthly L'Asis. 4 000165 Payroll deduction only. Pt.64z(,2I _ .. ❑ ACH debit only. P1.642(2) =0 ❑ Employee rnav choose either payroll deduction or ACH debir. PL642 , = t If payroll deduction repayment is allowed, and the employee wishes to use this method, the employee must notify (fie Employer sn that the Em [)lover c.ut ensure that repayment will begin as soon as practicable on a date determined by the Employers payroll cycle. Failure to begin payroll deduction in a timely w•av could lead to the employees loan entering delinquency status. Pavroil deduction should begin within two payroll cycles following the employee's receipt of the loan. Repayments throrhh payroll deduction will be sent via check or wire by the Employer to ICMA -RC on the following cycle (choose one): ❑ Weekly (72 per year) Pq lii- weekly.;26 per year�i ❑ Semi - monthly (24 per year') ❑ Ivionthly (,12 per ear) If ACTH debit tepayment is allowed, debits frorn the employees designated bank account will begin approxirnat.ely one month fol- lowing the date the employee's signed A(_ H aurhori7ation form is received and processed by ICNfA -RC, or, in the case of online loans, approximately one month following; the date the loan check has been cleared for payment. Debits will nortnally be made on a monthly L'Asis. 4 000165 Lour. u:d�lirte, ,Io.ermen' Loans outstanding lot fornret employees or employees oil a leave of absence must be repaid on the same Schedule as dpayroll deductions were still being made unless they rearnortize their loans and establish a new repaymenr schedule that provides that sub- stantially equal payments are inane at least monthly over the remafnin, period of the loan. Loan payments, including loan payments front former employees, are allocated to the participant's current election ofinvestrneur options on file with ICMA -RC:. The participant may pay off all or a portion of rile principal and interest early without penalry or additional fee. Extra pavments are applied forward to both principal and interest as specified in the original iepavment schedule, unless the additional payment is for the balance due. VII. Loan interest rate The rare of interest for loans of five (1>) years or less will be based on prime plus 0.5(.O. The rate of interest for loans fora principal residence will be based on the FH.)'VA rate. Interest cares are determined on the last business day of the month preceding the month the loan is disbursed. The interest rate is locked in at the time a loan is approved and remains constant throughout the life of the loan. The prune interest rate is determined on the last business day of each month using wtislu nfsn.com as the source. The FHA/VA interest rate is also determined on the last business day of each month using www;'barikofamcrica.com as the source. Loan interesr rates for new loans taken in different months may fluctuate upward of downward monthly, dcpending on the move- ment of tyre prune and 1:1 fAPv`A interest rates. I he employer rimy modify rile manner in which loan interest rates will be determined, but only with respect to funrre loans. VIII. Loan application procedure loans must be requested using the following method (check one 1:1 Online only: All loans must he requested online by employees throuC1171 ICtiLN -RC's Account Access site at wV,VW icatarc.org, with Ymployer pre- 3uthorization as oud fled in iralics below. If an employee is married at the tune of application, and spousal comcnt is required by the Plan fur the loan, the employ- ee's spouse must consent, in writing, to the loan and the consent must he witnesse,i by a plan representative of notary public. Sit,h consent must be received in wi rung by IC'N'lA RC: no more than Winery X90; days before the loan request is submitted through account Access. The promissory note, truth in- lending rescission notice and disclosure statement are presented to the employee online throuz.h Account Access at the time• the employee submits the loan request. The employee cor16mis receipt and acceptance of these documents by clicking on the affirmative buttons on the Account Access program. The employer hereby authorize, all, ieture loan, repimed tbrotrsh the onli,ie proce3, viz !ircount Acce;;, a+ well ar any reque.i,; that eY1Yp[Oyee, iutIml Or: paper pending re7aeui oaf'!-he application 14 1C'L-1 -RC A,`ottCe o%loan tj,tiance be prol.ze4, to the Employer viz report ported on the 1:71.ink ,ire The loan amount will generally be redeemed from the ernplovee's account on the same day as the employee's Successful submission of the loan tequeSt through Account Access, if it is submitted prior to 4:00 p.rn. FT on a business day. If riot, the loan amount will be redeemed on the next business day followin; submission. The loan check k generally issued on the next business day following redemption, and will be mailed directly to the employee. The employee's presentment of the loan check for payment constitutes air acknowledgment that the employee has received and read the loan disclosure intorrnation provided by ICI M -RC and agrees to the terms therein. f .oan repayfrrenr will benin M soon as practicable following the employee's presentment of the loan check for pavmeur. 5 000166 ICMA - RC Online and through Direct Loan application: All loans must he requested either online by employees through I NIA RC's account Access site at wv,w.icmarc.org, or through the Direct Loan application, both of which require pre authorization by the Employer as outlined in italics below,. If an employee is married at the time of application, and spousal consent is required by the Plan for the loan, the employ ees spouse trust consent, in writinz,, to the loan and the consenr. must be witnessed by a plan representative or notary public. Suds consent must he received in writing by ICMA RC no more than ninety, (90) days before the loan requesr is submitred through Account Access. In the case of the Direct Loan Application, spousal consent should be sent along with the application. The promissory note, truth -in- lending rescission notice and disclOsUIC statement are mailed to the employee along with the issued loan check. The employee confirms receipt and acceptance of these documents and terms at the rime the en- dorsed check is presented for payment. The 1',YZP10' >Pr %7eY('ri �ZZtIhor1;'t'.� CI�I_fZlillre IoL1Y1.i rP /jt[eiied 1�17oZtg{� LIIt' OrIITI'ICYrIro('e,� 1� :a liCi'OTt72t - gL'Ceii, a, Z( "'eil ili QYl�' rt'Q'Liei :i that employee, +ubrnit on paper four;, pending review of the rrDphcation by IC:'. A RC Aotice of loan i�,(uance wilt' be provided to the £ntplo)er v;.11 repo; t pojted on the F11-171k rise. The loan amount will generally be redeemed from the employee's account on the same day as either ICMA -RC's receipt of a loan application (complete and in good order'), or the employees successful submission of the loan request rhrouoh Account Access, if it is submitted prior to 4:00 p.m. ET on a business day. If not, the loan amount will be redeemed on the next business day following submission. The loan check is generally issued on the next business day following redemption, and will be mailed directly to the employee. The employee's presentment of the loan check for payment constitutes an ac- knowledgment than the employee has received and read the loan disclosure information provided by ICMA -RC and agrees to the rears therein. Loan repaynrenr will hepn as soon as practicable following the employees presentment of the loan check for payment. I] Direct Loan application only: All loans must he requested through the Direct loan application, which requires Irre au thorizaticrn by the F:nnplover as outlined in italics below. If an erployee rs mauled at the time of application, and spousal consent is required by the Plan for the loan, the employ- ee's spouse must concert, in writing, to the loan and the consent must be witnessed by a plan representative or notal-" public. Such consent must be received in w•riong by ICMA -RC along with the Direct Loan Application. The promissory note, truth in - lending rescission notice and disclosure staterent are mailed to the employee along with the issued loan check. The employee confirms receipt and acceptance of these (10CUrnents at the time the endorsed check is presented for payment. The errplo�ver hereby :zutborizer all fu:ure loans redtrr'+ted or: paper forrtr, pending review ofthe application b); 1GL1.4 -RC Notice 0 -Ioan r.;,uance will be pror.•ided to the Enap10ter a,t.z report, ported on the F %kink iu The loan amount will generally be redeemed from the employee's account on the same day as ICNL\ -RC's receipt of a loan application (complete and in good order). The loan check will generally be issued from the employee's account on the next business day following redemption. The loan check will be mailal directly to the employee. The employee's presentment of the loan check for payment constitutes an acknow"ledgmenr that the employee has received and read the loan disclosure informarion provided by IC N,[A -RC and agrees to tine terms therein. Loan repayment will begin as soon as practicable following the employee's presentment of the loan check for payment. ❑ Loan application through the Employer: All loans must be requested In writing on an application approved by the plan adminlsnaror. The application must he signed by the participartr. The Employer must review• and approve each partici- pant's application. 6 00016`% 1.ocnt Co AQre•cners The participant will be required to sign a promissory note evidencing the loan and a disclosure statement that includes an amortization schedule prior to receiving a loan check. Loan checks will gencialk, be issued on the next business day following I(__:L4A -RC's receipt of a complete loan application. The loan check, promissory note, disclosure statement and uuth -m- lending rescission notice will be sear to the employer, who will obtain the necessary sil natures and deliver the check to the participant. All executed documents must be returned to ICNIA -KC within 10 calendar days flour the dace the check is issued. IX. Security /Collateral That portion of a participant's account balance that is equal to the amount of the loan is used as collateral for the loan. The col- lateral amount may not exceed W percent of the participant's account balance at the time the loan is taken. Only the portion of the account- balance that corresponds to the amount of the outstanding loan balance is used as collateral. X. Acceleration [select one) ❑ All loans are clue and payable in full upon separation from service. ❑ All loans are due and payable when a participant receives a distribution of all of hisiher account balance after separa- tion flour service_ The amount of the outstanding loan balane will be reported as a distribution in addition to the amount of cash distributed fiorn the plan. All loans arc due and payable when a participant receives a distribution of part of his /hci account balance after scpara- tion from service. The amount of the outstanding loan balance will be reported as a distribution in addition to the amount of cash disuibuted from the plan. X1. Reamortization any out;randinr, loan may be ieamoitized. Reamoitization means changing the terms of a loan, such as length of repayment pen - od, interest rate, and ticquency of iepayfricnts. A loan may not be icamoitized to extend the length of-the loan repayment period to more than five (Sl� years from the date the loan was originally rnadc, of in the case of a loan to secure a principal residence, beyond the number of vear -; specified by the employer in Section V above. A participant niusr rcquesr the icamorrl.�ation of a loan in %rising on a reamottization application acceptable to the plan adrnints- riatoi. Upon processing the request, a new disclosure statement will be sent ro the employer for endorsement by the participant and approval by the employer- The executed disclosure statement must be returned to the plan administrator within 10 calendar drys from the date it is silrned. Fhe new disclosure statement i.c considered an amendment to the original promissory note, therefore a new prorissory not(, will not be icquirecf. A rearnoitization will not be considered a new lean for purposes of calculating the number of'loaiu ot.rtstandina of the one loan per calendar year limit. XII. Refinancing existing loans If a participant has one outstanding loan, that loan may be refinanced. If a participant has more than one outsrandir.,, loan, no loans may be refinanced. Refinancing means concurrently repaying an exiting loan and borrowing, an additional amount thrntgh A ncv loan. Refinancing includes any situation in which one loan replaces another loan and the teirn of the replacement loan does not exceed the latest peimissable terns of the replaced loan. In order to refinance an existing loan, a paiticipant must request this in writing on an application approved by the plan administra- tor. Such request must be made at a time when the participant is eligible to obtain a loan as defined by the employer in Section III above. The amount of the additional loan amount requested for the purpose of refinancen is subject to the loan limits specified in Section IV above. Because a tcfinancing is corisidcied a new loan, only active employees may refinance an outstanding loan 7 000165 I C M A- R C XIII. Reduction of Loan If a participant dies prior to full repayment of the outstanding loan(s), the ourstanding loan balance;sj will he deducted from the account prior r> distribution to the beneficiaiy,resj. l'he unpaid loan anlOtlnt is a taxable distriburion and may be subject to early I,vithdrav,•al penalties. The participant's estate is responsible for taxes Of penalties on the unpaid loam arnount, it any. A beneficiary is responsible for taxes due on the amount he or she receives. A Forrn 1099 will he issued to both the beneficiary and the estate for these purposes. XIV. Deemed Distribution Loan repayments trust be made irr accordance with the plan document, plan loan guidelines, and as reflected in the plornissoi Here signed by the participanr. If a scheduled payment is not paid within 30, G0, and/or 90 days of the due date a notice will he sent to both dic employee and rile employer. A loan will he deemed dish lbuted when a scheduled paytnent is will unpaid at the end of the calendar quarter following the calen- dar quarter in which the payment was due. If the total arnount of any delinquent payment is not received by ICMA -RC by the end of the calendar quarter following the calendar quarter in which they payment was due, the loan is considered a raxable distribution, and cite principal balance, in addition to any accrued interest, is reported as a distribution to the IRS. I Ioweel, no itlonev is paid III this distribution, because the participant already has the loan proceeds. The loan is deemed distributed for tax purposes, but it is not an actual distribution and therefore rernains an asset of the partici- pant's account- Interest continues CO accrue. The outstanding loan balance and accrued interest are reported on the participant's a�:Cotlnt statCn1C11C. Repayment of a deemed .Distribution will not change or reverse the taxable event. The loan continues to he outstanding, and to acct ue interest, until it is repaid of offset using; the participant's acc(�unr halance- ;1n offset c.:III .)k -cw only if rile particip.rnr is eligible to receive a clisu'ibution from the plan as outlined in the plan docurnent. Participants are requited to tepay any outstanding loan which has been deemed disriibilted before they can he eligible for a new loan. The deemed distribution anti any interest accrued since the date it became a taxable event is taken into account when deter - nuning the rnaxiinurn amount available for a new loan. New loans trust he repaid through pavroll deduction. The ernplover is obligared by federal legulation to comply with the loan guideline requirements applicable to participant loans, and to ensure against deemed disrrlhtrrion by monitoring loan repayments, regardless of the method of repayment, and by advising ern - ployees if loans arc in danger of being deerned distributed. The tax - qualified status or eligibility Of the entire plait may be revoked in cases of fiequent repayment delinquency or dented distribution. XV. Fees Fees tray he char�;cd for various services associated with rite application for art,] issuance of loans. All applicable fees will be debited from the participant's account halance and/or from the participant's loan repayments prior to crediting the repayient of princip.11 and interest to the participant's account. A schedule of fees applicable to this plan is specified in ICAIAAW's current publit-ation of 1luitirr� S��urd irtr.e.;rrrrPr.: D�� zuon.;. A Rerrernrrr Aii.,estmenr Gzeide. s 000169 Lorin c uidehnn Agvee,nen: XVI. Other The employer has the ti.,�ht to set other terms and conditions as it deems necessary fir loans from the plan to ordcr to comply with MI" legal icgmrements. All terms and conditions will be administered in a uniform and non - discriminatory manner. In Witness Whereof, the erriplover hereby cawed these Guidelines to be executed this -.— __... -_- day Of F.11PI.O�Tpl Accepted: ICiv[A RF.TIRF.,11EN–F' CORPOPLkf'ION Bti: Bv: Title: Title: Attwt: Attest: 9 000170 Exhibit B AMENDMENT TO ADOPTION AGREEMENT FOR SECTION 401 PLANS ICMA* Building Retirement Security 0001'71 AMENDMENT ICALA-RCP1,1114 1(-,%fA RF,']-*IfZE,%fEN'I'("ORIIOILA -['JON G0%TP,N-",1F.N1'AL. SECTION 401 ITAN &TRUST ADOPTION AGRE'EMEN'T Bek),.v is an amendment to an existing defi ned contribution 401 qualified plan. Yes No if ties, please specify the narric of the plan to which this aincridmcnr applies: 11. Loans are permitted under the plan, as provided In Article X111 of the Adoption Agreement and In the executed Loan Guidelines Agreement: Z7) Yes No In %Vitness V."hercot', the 1"Imploycr here)}- causes this Agicernerit to be executed on this (lay of 2o EMPLOYER)- ICALA RETIRFINIENT By: Title: Nainc: Paul F. Gallagher ,'\uest: Title: Assistant Secretary 000172.