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Item No. aa'" Staff Report No.6/7— Z 'c2_ Meeting Date: October 6, 1997 . Type of Business: WK WK: Work Session;PH:Public Hearing; CA: Consent Agenda;CB:Council Business City of Mounds View Staff Report To: Honorable Mayor and members of the City Council From: Bruce Kessel, Finance Director Item Title/Subject: Amendment to Deferred Compensation program Date of Report: September 30, 1997 Last year congress passed a law which modifies the terms and conditions of the deferred compensation plan offered to our employees. As a result of this new law, we need to amend our plan. The following is a summary of the deferred compensation plans we offer, the general terms and conditions of the plan and the recently adopted modifications. General information The City established an Internal Revenue Service Section 457 deferred compensation plan for its employees in 1981. Section 457 plans deal with deferred compensation plans for governmental organizations which were not allowed to participate in other deferred compensation plans. Under • this type of plan, employees could set aside up to 25% of their salary up to $7,500 per year which is not subject to state or federal income tax until it is withdrawn from the plan. Amounts could not be withdrawn until termination of employment, retirement, or upon incurring an undue hardship. Mounds View offered two plans to its employees, one through ICMA(Internal City/County Management Association), and the other through the State of Minnesota. There were several provisions in Section 457 plans that differed from provisions in the laws relating to similar programs for private employers (401K plans) including 457 plans had lower maximum contributions, loans were not allowed, ownership of the plan assets were subject to claims from the employer's creditors during bankruptcy, and several other minor differences. Various groups had been lobbying for several years to modify the laws relating to 457 plans in order that they more closely followed other plans such as 401K plans. In late 1996,they were successful in getting legislation passed and signed into law. Attachment A summarizes the changes in the recently enacted law. Action required The State legislature dealt with the terms and conditions of the plan offered by the State of Minnesota, therefore no action is required for that plan. For the ICMA plan, some of the plan provisions automatically became effective but several required our input prior to being allowed. • To provide for better documentation of the plan changes, the following action is recommended: • Adopt the suggested resolution which will formally document the revised amendments to the ICMA Deferred Compensation Plan and Trust; the City Attorney has reviewed the