TO: Mayor Richard C. Irvin
FROM: Christopher A. Minick, City Financial Officer/City Treasurer
DATE: March 3, 2022
SUBJECT:
A Resolution Authorizing the Execution of an Amendment of the Section 457 Deferred Compensation Plans offered by the City of Aurora.
PURPOSE:
To obtain the City Council’s approval of the attached resolution that would authorize an amendment of the Section 457 deferred compensation plans offered by the City through the providers listed below.
BACKGROUND:
Section 457 of the Internal Revenue Code permits local governments to offer tax-deferred retirement savings plans to their employees. The City of Aurora currently offers four active plans. Those plans are offered through the following vendors:
1. Illinois Public Pension Fund Association (IPPFA).
2. VOYA Financial (formerly known as ING Life Insurance and Annuity).
3. Nationwide Retirement Solutions.
4. LPL Financial (formerly known as Waddell & Reed Financial Services).
In 2003, pursuant to Resolution No. R03-487, the city established its Deferred Compensation Administration Committee. The committee is comprised of:
Chief Financial Officer/City Treasurer (chair)
Director of Human Resources
Corporation Counsel
The committee is charged with evaluating new deferred compensation plans that have been proposed for offering to city employees. In addition, the committee assesses proposed changes to deferred compensation plans already offered to employees.
DISCUSSION:
Section 457 allows for a variety of features and an employer is not required to offer all features as allowed in the IRS Code. Over time as different plans have been adopted and amended, inconsistencies have arisen in the differing plans that the City offers. Staff is recommending a plan amendment that will allow for additional flexibility that could result in further tax deferred savings by public safety personnel pursuant to Section 1.457-4(c)(3)(v)(B).
Currently, employees are allowed to contribute twice the normal annual contribution limit into their 457 plan account when contributed within three years of their normal retirement age as defined by the IRS (the double catch up provision). Normal retirement age varies by the pension fund and the Tier in which an employee is classified as noted in Attachment A.
The proposed amendment to the City’s deferred compensation plans will allow qualified police and fire personnel to designate their individual retirement age within a range of years as allowed by the IRS solely for the purpose of determining their eligibility to participate in the special double catch-up provision. Employees are not required to retire once they reach the retirement age they designate; the designation is solely for eligibility in the double catch up provision.
This is extremely beneficial for the employee and allows for more tax deferred income to be invested for retirement purposes.
IMPACT STATEMENT:
There is no financial impact to the City for this amendment. Employees will have greater flexibility in utilizing the above described provision of the 457 plans, but this change does not increase the benefit. Increases in contributions come from wage withholdings from employees.
RECOMMENDATIONS:
That the City Council approve this amendment to the 457 deferred compensation plans provided by the City of Aurora.
cc: Finance Committee
CITY OF AURORA, ILLINOIS
RESOLUTION NO. _________
DATE OF PASSAGE ________________
title
A Resolution Authorizing an Amendment to the City’s Active Deferred Compensation Plans to Expand the Definition of Normal Retirement Age.
body
WHEREAS, the City of Aurora has a population of more than 25,000 persons and is, therefore, a home rule unit under subsection (a) of Section 6 of Article VII of the Illinois Constitution of 1970; and
WHEREAS, subject to said Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs for the protection of the public health, safety, morals, and welfare; and
WHEREAS, the City offers four active Section 457 deferred compensation plans to its employees; and
WHEREAS, the City has become aware of a provision in the Internal Revenue Code that offers a special rule for defining the normal retirement age for qualified police or firefighters
WHEREAS, the special rule is specific to determining eligibility for participation in the special double catch-up contribution provision
WHEREAS, the City has determined that it is in the best interests of its employees to incorporate the special rule that would expand the definition of normal retirement age in the City’s active 457 deferred compensation plans
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Aurora, Illinois, as follows:
Section 1. The special rule allowing qualified police or firefighters to designate their individual normal retirement age between the ages of 40-70.5 years for the purpose of determining eligibility for participation in the special double catch-up contribution provision pursuant to Section 1.457-4(c)(3)(v)(B) of the Internal Revenue Code is incorporated in the City of Aurora’s deferred compensation plan. This does not preclude qualified police or firefighters from utilizing the double catch-up in the actual year of retirement so long as their actual retirement date is within the 3 years prior to their designated normal retirement age.
Section 2. The Chief Financial Officer/City Treasurer is authorized to take other actions as necessary to implement Section 1 above.