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SUBJECT:

Amendment to the City of Sunnyvale 457 Deferred Compensation Plan Due to the Effect of the Economic Growth and Tax Relief Reconciliation Act of 2002 (EGTRRA) and other Applicable Legislation.

REPORT IN BRIEF

This report recommends an amendment to the City's Deferred Compensation Plan due to the recent enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 better known as EGTRRA and other applicable legislation that has brought significant changes to the laws that govern Section 457 Deferred Compensation plans. These changes impact public sector employees by offering new opportunities in retirement planning and investment options. State legislation as of May 2002 brought California law into conformance with the federal law and is effective retroactive to January 1, 2002.

BACKGROUND

On September 1982, final regulations under the Section 457 of the Internal Revenue Code established the ability for Public Sector employers to provide a eligible deferred compensation plans for their employees, thus giving public employees an opportunity to set aside pre-tax savings for supplemental retirement purposes. Although there have been a number of changes in legislation since 1982, none have had as much impact as EGTRRA regulations adopted by the Federal Government in late 2001. However, due to delay by the State of California in bringing state law into conformance with the federal law, the Deferred Compensation plan revisions could not be brought before City Council for adoption.

DISCUSSION

This amendment does not include changes for those regulations that require technical corrections or clarification from the Legislation and/or the Internal Revenue Service. A public hearing has been scheduled for August 28, 2002 in Washington D.C. for the purpose of providing comments and requests for assistance in clarifying them. At a later date, after final regulations are issued additional amendments to the City of Sunnyvale's Plan will be proposed and brought back to Council.

FISCAL IMPACT

There is a minimum fiscal impact since these are mostly employee's contributions made from their wages. The only additional impact is $5,000 annually due to the contributions made on the City's behalf to the City Manager and City Attorney's accounts as part of the benefits.

PUBLIC CONTACT

Public Contact was made through posting of the Council agenda on the City's official notice bulletin board, posting of the agenda and report on the City's web page, and the availability of the report in the Library and the City Clerk's Office.

ALTERNATIVES

1. Adopt recommended amendment to the City's Deferred Compensation Plan
2. Do not adopt recommended amendment to the City's Deferred Compensation Plan.

RECOMMENDATION

Alternative #1; adopt the recommended amendment to implement the proposed changes to the City's Deferred Compensation Plan.

Prepared by:
Myriam Castaneda
Human Resources Supervisor

Attachments

1. Deferred Compensation Plan - Amended
2. Resolution

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