10. Resolution 4995 - Amending the City's VALIC PlanCity of Kalispell
Post Office Box 1997 - Kallspoll, Montana 59903-1997 - telephone (406)758--7700 Fax (406)758-7758
REPORT TO: Mayor Kennedy and City Council Members
FROM: Amy Robertson, Finance Director
James H. Patrick, City Manager
SUBJECT: Valic 457 Deferred Compensation Plan
Mandatory Distribution requirements
MEETING DATE: March 21, 2005
BACKGROUND: The City has a 457 Deferred Compensation Plan with Valie utilized
by many of our employees. Recent changes in tax law require that the City designate what
happens to amounts less than $5,000 which are inactive accounts. The new law says that the City
must determine the roll over plan into which the investment would be placed. The staff does not
want to be involved in investment planning for our employees. 457 Plan funds are entirely
employee funds. We recommend that we lower the $5,000 amount for mandatory distributions to
$1,000 which exempts the city from the roll over requirements.
RECOMMENDATION: adopt resolution to lower the amount of mandatory distributions to
$1,000 from $5,000.
Amy H. Robertson
Finance Director
Report compiled: March 17, 2005
mes H. Patrick
City Manager
RESOLUTION NO. 4995
A RESOLUTION BY THE CITY OF KALISPELL APPROVING AN AMENDMENT TO
THE CITY'S DEFERRED COMPENSATION PLAN.
WHEREAS, the City of Kalispell previously adopted a deferred compensation plan within the
context of Section 457(b) of the Internal Revenue Code for the benefit of the
employer's eligible employees; and
WHEREAS, the IRS recently clarified previous legislation enacted by the Economic Growth
and Tax Relief Reconciliation Act of 2001 regarding mandatory distributions
under the plan; and
WHEREAS, the Amendment to the Deferred Compensation Plan attached hereto complies with
the new automatic rollover rules issued by the IRS.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF
KALISPELL AS FOLLOWS:
That the Amendment to the Deferred Compensation Plan (the "Plan"), attached hereto
and hereby incorporated fully herein, which addresses the Plan's compliance with the
"automatic rollover" requirements of Internal Revenue Code Section 401(a)(31)(B), is
hereby approved and adopted, and the City Manager is hereby authorized and directed to
execute and deliver to the Administrator of the Plan, one or more counterparts of the
amendment, the same to be effective March 28, 2005,
PASSED AND APPROVED BY THE CITY COUNCIL AND SIGNED BY THE MAYOR OF
THE CITY OF KALISPELL, THIS 21s` DAY OF MARCH, 2005.
Pamela B. Kennedy
Mayor
ATTEST:
Theresa White
City Clerk
MANDATORY DISTRIBUTION AMENDMENT
(Code Section 401(a)(31)(B))
ARTICLE I
APPLICATION OF AMENDMENT
1.1 Effective Date. Unless a later effective date is specified in Article III of this Amendment,
the provisions of this Amendment will apply with respect to distributions trade on or
after March 28, 2005.
1.2 Precedence. This Amendment supersedes any inconsistent provision of the Plan.
ARTICLE 11
DEFAULT PROVISION: AUTOMATIC ROLLOVER
OF AMOUNTS OVER $1,000
Unless the Employer otherwise elects in Article III of this Amendment, the provisions of
the Plan concerning mandatory distributions of amounts not exceeding $5,000 are amended as
follows:
3.1
3.2
In the event of a mandatory distribution greater than $1,000 that is made in
accordance with the provisions of the Plan providing for an automatic distribution
to a Participant without the Participant's consent, if the Participant does not elect
to have such distribution paid directly to an "eligible retirement plan" specified by
the Participant in a direct rollover (in accordance with the direct rollover
provisions of the Plan) or to receive the distribution directly, then the
Administrator shall pay the distribution in a direct rollover to an individual
retirement plan designated by the Administrator.
ARTICLE III
EMPLOYER'S ALTERNATIVE ELECTIONS
Effective Date of Plan Amendment
This Amendment applies with respect to distributions made on or after March 28, 2005
(may be a date later than March 28, 2005, only if the terms of the Plan already comply
with Code Section 401(a)(31)(13)).
Election to Reduce or Eliminate Mandatory..Distribution Provisions of Plan
In lieu of the default provision in Article 11 of this Amendment, the provisions of the Plan
that provide for the involuntary distribution of vested accrued benefits of $5,000 or less,
are modified as follows:
Reduction of 5 000 threshold to $1,000. The $5,000 threshold in such
provisions is reduced to $1,000 and the value of the Participant's interest
in the Plan for such purpose shall include any rollover contributions (and
earnings thereon) within the meaning of Code Sections 402(c), 403(a)(4),
403(b)(8), 408(d)(3)(A)(ii), and 457(e)(16).
This amendment is executed as follows:
Name of Plan: Deferred Co ensation Plan
Name of Employer:
LON
Employer
Date:
MANDATORY DISTRIBUTION AMENDMENT
(Code Section 401(a)(31)(B))
ARTICLE I
APPLICATION OF AMENDMENT
1.1 Effective Date. Unless a later effective date is specified in Article Ili of this Amendment, the
provisions of this Amendment will apply with respect to distributions made on or after March 28,
2005.
1.2 Precedence. This Amendment supersedes any inconsistent provision of the Plan.
ARTICLE II
DEFAULT PROVISION; AUTOMATIC ROLLOVER
OF AMOUNTS OVER $1,000
Unless the Employer otherwise elects in Article Ill of this Amendment, the provisions of the Plan
concerning mandatory distributions of amounts not exceeding $5,000 are amended as follows:
In the event of a mandatory distribution greater than $1,000 that is made in accordance with the
provisions of the Plan providing for an automatic distribution to a Participant without the Participant's
consent, if the Participant does not elect to have such distribution paid directly to an "eligible retirement
plan" specified by the Participant in a direct rollover (in accordance with the direct rollover provisions of
the Plan) or to receive the distribution directly, then the Administrator shall pay the distribution in a direct
rollover to an individual retirement plan designated by the Administrator.
ARTICLE III
EMPLOYER'S ALTERNATIVE ELECTIONS
3.1 ( ) Effective Date of Plan Amendment
This Amendment applies with respect to distributions made on or after i 2_6
(may be a date later than March 28, 2005, only if the terms of `
the Plan already comply with Code Section 401(a)(31)(13)).
3.2 ( )\_ Election to apply Article It of this Amendment to distributions of $1,000 or less
In Rdbpf the default provision in Article 11 of this Amendment, the provisions of the Plan
that prove or the involuntary distribution of vested accrued benefits of $5,000 or less,
are modified as (lows:
In the event of a mandatZTYdistribution of $1,000 or less that is made in accordance with
the provisions of the Plan prdViding for an automatic distribution to a Participant without
the Participant's consent, if the Pa t does not elect to have such distribution paid
directly to an "eligible retirement plan" specific articipant in a direct rollover (in
accordance with the direct rollover provisions of the Plan) o receive the distribution
directly, then the Administrator shall pay the distribution in a t-rdIover to an
individual retirement plan designated by the Administrator.
3. ( Election to reduce or eliminate mandatory distribution provisions of Plan (may not
be elected if 3.2 above Is elected)
In lieu of the default provision in Article II of this Amendment, the provisions of the Plan
that provide for the involuntary distribution of vested accrued benefits of $5,000 or less,
are modified as follows (choose a, b, or c below):
No mandatory distribution Pam co sent to the distribution now shall be
required bef rm—�ri"may make the distribution.
b. Reduction of 155,000 threshold to $1,000. The $5,000 threshold in such
provisions is reduced to $1,000 and the value of the Participant's interest in the
Plan for such purpose shall include any rollover contributions (and earnings
thereon) within the meaning of Code Sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), and 457(e)(16).
c. ( ) Reduction of $5,000 threshold to amount less than $1,000. T 000 threshold
in such provisions is reduced to $ (enter an
amount less than $1,000) and the val a Participant's interest in the Plan
for such purpose shall includes rollover contributions (and earnings thereon)
within the meanie f Code Sections 402(c), 403(a)(4), 403(b)(8),
408(d)(3)(A)(ii), 457(e)(16).
This amendment is executed as follows:
Name of Plan: Deferred Compensation Plan
Name of Employer:
By:
EMPLOYER
Date: