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Title:
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Addition of Roth Deferrals within the City's 457(b) Record-Keeping Platform and Adoption of SECURE Act 2.0 Amendments
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TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
PREPARED BY: Javier Carcamo, Finance Director
SUBJECT:
title
Addition of Roth Deferrals within the City's 457(b) Record-Keeping Platform and Adoption of SECURE Act 2.0 Amendments
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RECOMMENDATION
recommendation
Adopt Resolution 25-4888 entitled: A Resolution of the City Council of the City of Murrieta, to Adopt and Implement the Roth Deferrals within the Current 457(b) Plan and other SECURE Act 2.0 Amendments; and
Authorize the City Manager to execute all related documents.
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PRIOR ACTION/VOTE
On March 17, 1992, the City Council adopted Resolution No. 92-91, adopting the ICMA Deferred Compensation Plan and Trust Declaration (Vote: 5-0).
On November 21, 1995, the City Council adopted Resolution No. 95-393, authorizing participation in a defined contribution plan under section 401(a) of the Internal Revenue Code (Vote: 5-0).
On November 17, 2020, the City Council adopted Resolution 20-4331 authorizing an Agreement with Fiduciary Experts LLC for deferred compensation plan fiduciary services. (Vote 5-0)
On September 6, 2022, the City Council adopted Resolution No. 22-4614 entitled: A Resolution of the City Council of the City of Murrieta Authorizing Consolidation of the City's 457(b) and 401(a) Record-Keeping Platforms with Two Different Providers to a Single Record-Keeping Platform with Nationwide and Authorize the City Manager to Sign All Required Provider Agreements on behalf of the City (Vote: 5-0)
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
DISCUSSION
Under Sections 457(b) and 401(a) of the Internal Revenue Code (IRC), government entities may sponsor a deferred compensation plan for employees, while meeting fiduciary responsibilities under California law, to allow employees to defer income tax on retirement savings into future years. Since 1992, the City of Murrieta (City) has provided employer-sponsored deferred compensation plans under Section 457(b) of the IRC with two companies, Mission Square (formerly ICMA-RC) and Nationwide.
In December 2020, the City, in conjunction with Fiduciary Experts, LLC, a deferred compensation plan fiduciary, issued a Request for Information for 457 Plan Record-Keeper Services. City staff and the plan fiduciary recommended consolidation of the plans from two record keepers to a single record keeper as a means to gain economies of scale. On September 6, 2022, the City Council adopted Resolution No. 22-4614 authorizing the consolidation of the City's 457(b) and 401(a) record-keeping platforms with two different providers to a single record-keeping platform.
457(b) Plan
In 2022, Congress passed the Setting Every Community Up for Retirement Enhancement 2.0 Act (SECURE Act 2.0). With the enactment of the SECURE Act 2.0, several key enhancements to 457(b) plans have been introduced, including, but not limited to, optional features such as Roth (after-tax) contributions, self-certification for hardship withdrawals, and emergency withdrawal provisions. While these enhancements are not mandatory, plan sponsors may elect to incorporate them either now or at a later date. The City's Deferred Compensation Investment Oversight Committee, which is comprised of City labor group representatives and a retired City employee, as well as the Finance Director and the City's fiduciary representative, recommends implementation of the following key enhancements to the 457(b) plans:
* Roth IRAs Employee Contributions;
* Higher Catch-up Contributions for ages 60-63;
* Emergency distributions; and
* Hardship withdrawal rules simplified.
To implement these provisions and ensure continued legal and operational compliance, it is necessary for the plan to undergo a formal restatement. Updating the plan document allows the sponsor to take advantage of these new flexibilities, ensures adherence to current legislative requirements, and reduces potential fiduciary exposure for the sponsoring entity. This proactive step ultimately enhances the overall integrity and responsiveness of the retirement plan, benefiting both the employer and plan participants.
401(a) Plan
In 1995, the City Council authorized participation in a defined contribution plan under Section 401(a) of the IRC. In 2020, a 401(a) plan was implemented to provide employer contributions as a deferred compensation match. No update to the 401(a) plan is required to implement the provisions above.
FISCAL IMPACT
There is no fiscal impact associated with implementing these provisions other than administratively implementing several key enhancements. Roth Deferrals are after-tax employee-elected contributions handled through payroll deductions.
ATTACHMENTS
1. Resolution No. 25-4888
2. Governmental 457(b) and 401(a) Plan Adoption Agreements