CC Resolution No. 11-120 ICMA-RC 457 Deferred Compensation Roth Accounts RESOLUTION 11- 120
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CUPERTINO
AUTHORIZING ICMA -RC 45'7 DEFERRED COMPENSATION
ROTH ACCOUNTS
WHEREAS, the City of Cupertino has established and offers 457 deferred compensation
plans for its employees that serves the interest of the City by enabling it to provide reasonable
retirement security for its employees, by providing increased flexibility in its personnel
management system, and by assisting in the attraction and retention of competent personnel; and
WHEREAS, the City of Cupertino has determined that the continuance of the deferred
compensation plan will serve these objectives.
NOW THEREFORE, BE IT RESOLVED that the City of Cupertino hereby amends and
restates the deferred compensation plan offered. by ICMA -RC, in the form of the ICMA
Retirement Corporation 457 Governmental Defened Compensation Plan & Trust (the Plan), to
include the associated Roth amendment.
BE IT FURTHER RESOLVED that the assets of the amended Plan shall be held in trust,
with the City of Cupertino serving as trustee, for the exclusive benefit of Plan participants and
their beneficiaries, and the assets shall not be diverted to any other purpose. The Trustee's
beneficial ownership of Plan assets held in VantageTrust shall be held for the further exclusive
benefit of the Plan participants and their beneficiaries;
BE IT FURTHER RESOLVED that the City hereby agrees to serve as Trustee under the
amended Plan.
PASSED AND ADOPTED at a regular meeting of the City Council of the City of Cupertino
this 2 day of August, 2011 by the following vote:
Vote Members of the City Council
AYES: Wong, Santoro, Chang, Mahoney, Wang
NOES: None
ABSENT: None
ABSTAIN: None
ATTEST: APPROVED:
/
City Clerk - Mayor, City of Cupertino
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457 PLAN ROTH PROVISIONS
ICMATRC QUESTIONS & ANSWERS
Building Retirement Security
NEW ROTH PROVISIONS — THE BASICS 5. How will the addition of the new Roth provisions benefit plan
1. What are Roth deferrals? participants?
The new Roth elective deferral provision allows Adding the Roth provisions to your plan provides
participants to make Roth (after -tax) deferrals to participants with additional options for their retirement
your existing ICMA -RC 457 plan. Roth deferrals savings. Other potential benefits include:
and associated earnings can be withdrawn tax -free if • Higher after -tax contribution limits than Roth IRAs —
certain criteria are met. ICMA -RC will provide separate 457 plans allow for greater after -tax savings.
accounting for Roth assets within participant accounts.
• Eligibility at all income levels — Unlike Roth IRAs, a
2. When can Roth assets (i.e., Roth deferrals and associated participant's eligibility to make Roth contributions to
earnings) be withdrawn tax - free? the 457 plan is not restricted by income.
In order for Roth deferrals and associated earnings to • Tax-free distributions — Qualified distributions of Roth
be withdrawn tax -free, the requirements for a "qualified assets (i.e., contributions and associated earnings) are
distribution" must be met. Distributions of Roth assets not subject to taxes.
are qualified if: • Tax planning— Having both pre -tax assets and Roth
• a period of five taxable years has passed since January 1 assets available in retirement can be a valuable benefit
of the year of the participant's first Roth deferral; and to participants, allowing them to choose the source of
• at least one of the following also applies: funds most advantageous to their situation at the time
of distribution.
o the participant is at least 59Y2 years old;
o the participant is disabled; or ROTH CONTRIBUTIONS
o the funds are being paid to the participant's 6. How do participants elect to make Roth deferrals?
beneficiary. Existing participants can use the deferral change form
and new hires can use the enrollment form to indicate
3. What if the requirements for a qualified distribution of Roth whether they want to make pre - tax deferrals, Roth
assets are not met? deferrals, or a combination of both. If permitted by your
The Roth deferrals can he withdrawn tax free, but the plan, deferral changes can also be done online through
earnings portion of the distribution will be taxable. ICMA -RC's Account Access website or through an
Investor Services representative.
4. What is an "in -plan Roth conversion" and who is eligible to
take advantage of the provision? 7. How do participants know whether Roth or regular pre -tax
This provision permits participants who are eligible to contributions will be more advantageous?
withdraw assets from the plan, as part of an eligible Participants will need to consider both their current
rollover distribution, to convert their pre-tax assets income tax bracket and their expected income tax bracket
to Roth assets through an in -plan rollover (currently, in retirement. Roth deferrals may be most appropriate
participants must roll their assets from the plan to a Roth for participants expecting to be in a higher tax bracket
IRA to perform this type of conversion). Participants will in retirement, allowing them to pay taxes on the
be subject to income taxes on the amount they convert. contributions now, at a lower tax rate, and receive tax -free
However, distributions of Roth assets are tax -free if the distributions in retirement. A Roth Analyzer tool will be
requirements for a qualified distribution are met. available on the ICMA -RC website at www.icmarc.org to
Note: If you wish to make this provision available, your plan help participants evaluate whether making Roth or pre -
must also allow for Roth deferrals. tax contributions will be most beneficial.
8. What is the contribution limit for Roth deferrals to a 457 plan? 14. How do rollovers of Roth assets from other retirement plans
The same annual limitations that currently apply to impact the five -year period used in determining whether or
your 457 plan will apply to the combination of all not withdrawals from the plan are qualified?
The five -year period is calculated using the year of the
contributions to the plan, including Roth deferrals. participant's first Roth deferral to the plan from which
assets are being rolled out of or rolled to, whichever is
9. Can participants make both pre -tax and Roth deferrals? earlier. For example, if a participant rolls over Roth assets
Yes. Participants can make both types of deferrals, up to from a previous employer's retirement plan where the
the annual contribution limit in effect for the year. participant began making Roth deferrals prior to making
Roth deferrals in your plan, the earlier date will be used
DISTRIBUTIONS OF ROTH ASSETS to determine when the participant is eligible to receive
qualified distributions of Roth assets from your plan.
10. When can participants withdraw Roth assets from the 457
plan? 15. How will a rollover to a Roth IRA impact the five -year period
for calculating qualified distributions of Roth assets?
Roth assets can be withdrawn whenever a distribution Regardless of the date of the initial Roth deferral in the
of non -Roth assets is permitted under your plan (e.g., 457 plan, the date of the first Roth IRA contribution is
retirement, termination, emergency situations). Pre -tax used to determine whether distributions from the IRA are
assets will be distributed prior to Roth assets, unless subject to taxes.
otherwise elected by the participant.
16. Can a Roth IRA be rolled over to a 457 plan that allows Roth
contributions?
11. Why are pre -tax assets distributed prior to Roth assets, No. A Roth IRA cannot be rolled over to a 457 plan, even
unless otherwise elected by the participant? if the plan allows for Roth contributions.
This helps to ensure that participants are maximizing the
tax benefits associated with their Roth contributions. IN -PLAN ROTH CONVERSIONS
ICMA -RC wants to make certain that Roth assets are not 17. How do participants request an in -plan Roth conversion?
distributed prior to the time when the distribution will Participants should contact ICMA -RC and request the
be qualified (tax- free), unless specifically requested by the In -Plan Roth Conversion Form.
participant.
18. Will an in -plan Roth conversion impact the five - taxable -year
12. Do required minimum distribution (RMD) rules apply Roth period used to determine if distributions of Roth assets will
q PP y be qualified (i.e., tax free)?
assets in the 457 plan? Yes. If the participant had not previously made Roth
Yes. The same RMD rules that apply to other assets contributions to the plan, January 1 of the year in which
in your plan also apply to Roth assets. Distributions the conversion takes place will be used as the date of his/
from the 457 plan must generally begin in the year the her first Roth contribution.
participant reaches age 701/2 or separates from service, 19. What are the federal income tax implications of converting
whichever occurs later. pre-tax assets to Roth assets?
Participants will be subject to income taxes on the
ROLLOVERS OF ROTH ASSETS taxable amount they convert to the Roth source, and
13. Can Roth assets be rolled over from the 457 plan to the amount of taxes they owe will be calculated based
on a participant's marginal income tax bracket. This can
another plan? result in a significant tax liability (no taxes are withheld
Generally, yes. However, the receiving plan must be able as part of the conversion). ICMA -RC recommends that
to accept and provide recordkeeping for Roth assets participants consult with a qualified tax advisor before
(e.g., a 457 plan with a Roth deferral provision, or a requesting an in -plan Roth conversion.
Roth IRA).
20. Can participants convert pre -tax amounts to Roth amounts GENERAL INFORMATION
through a rollover to a Roth IRA, rather than an in -plan 25. Why is ICMA -RC offering the Roth provisions?
conversion? The new Roth provisions provide 457 plan participants
Yes. 457 plan assets are eligible for a direct rollover to a with additional tax- advantaged retirement savings
Roth IRA. opportunities. Making the provisions available is
consistent with ICMA -RC's mission to assist public sector
21. Are there any advantages to rolling the assets to a Roth IRA employees in building retirement security.
instead of doing an in -plan Roth conversion?
Yes. If participants do a direct rollover to a Roth IRA, 26. When did the Roth provisions become available in 457 plans?
they can change their mind and reverse the conversion by 'Ihe Small Business Jobs Act of 2010, which was signed
moving the assets to a Traditional IRA through a process into law on September 27, 2010, made Roth provisions
known as a recharacterization. This must be done by the available in 457 plans beginning in 2011.
participant prior to the deadline for filing his /her tax
return for the year in which the conversion took place MANAGED ACCOUNTS
(generally, October 15 of the year following the calendar
year in which the conversion took place). 27. Are Roth assets in our 457 plan eligible for management
under Managed Accounts, ICMA -RC's comprehensive ongoing
457 PLANS AND ROTH IRAs professional account management service?
22. How do Roth deferrals to a 457 plan differ from Roth IRA Yes. Provided that your plan has adopted the Roth
contributions? elective deferral provision and Managed Accounts, a
participant's Roth assets are eligible to be included in
While Roth deferrals within a 457 plan and Roth IRA
Managed Accounts.
contributions provide similar benefits, they differ in
certain important ways, such as: ADDING ROTH PROVISIONS TO YOUR 457 PLAN
• Higher contribution limits: 457 plans allow for greater 2'8. How do we add the Roth deferral and in -plan Roth conversion
after -tax savings. provisions to our 457 plan?
• No income limits: All participants are eligible to make Adding the Roth provisions to your 457 plan is easy, and
Roth contributions to a 457 plan, regardless of income. ICMA -RC can help walk you through the process. We
• Distribution rules: While Roth IRA assets can generally be suggest that you review the information in the 457 Plan
withdrawn at any time, participants can only withdraw Roth Provisions Plan Document Implementation Package
funds from your 457 plan when permitted by the plan and follow the instructions in the package.
(e.g., at separation, emergency). Additionally, Roth IRA
assets are not subject to required minimum distributions. 29. Are there any additional fees associated with making Roth
deferrals available?
23. Can participants in our 457 plan who elect to make Roth No. The addition of Roth deferrals to your 457 plan has
deferrals still open and contribute to a Roth IRA? no impact on the plan's fees.
Yes. Making Roth deferrals to a 457 plan does not limit a
participant's eligibility to participate in a Roth IRA in any 30. When will participants be eligible to begin taking advantage
way. Participants can contribute the maximum amount to of the new Roth provisions?
both a Roth IRA and a 457. ICMA -RC anticipates the new Roth provisions first
being operational, in plans that elect to offer them, in
24. Can individuals have a Roth IRA and still make Roth deferrals the second quarter of 2011. You can elect to add the
to a 457 plan? provisions to your plan at that time or any time thereafter.
Yes. Contributions to a Roth IRA do not reduce the
amount of Roth deferrals that a participant can make to a 31. If I want additional information on the Roth provisions or
457 plan. about the adoption process, who should I contact?
Please contact your ICMA -RC Client Services team at
800 - 326 -7272.
1CM/\ C
ICMA RETIREMENT CORPORATION
777 NORTH CAPITOL STREET, NE
WASHINGTON, DC 20002 -4240
800 -669 -7400
PARA ASISTENCIA EN ESPANOL LLAME AL
800 -669 -8216
WWW.ICMARC.ORG
AC: 0111 -4549