M E M O R A N D U M
To: Honorable Mayor and Town Council
From: Rafael G. Casals, Town Manager
Date: June 18, 2014
Re: Employee Contributions to Florida Retirement System
REQUESTTitle
A RESOLUTION OF THE MAYOR AND TOWN COUNCIL OF THE TOWN OF CUTLER BAY, FLORIDA, PROVIDING THAT EMPLOYEE CONTRIBUTIONS TO THE FLORIDA RETIREMENT SYSTEM ARE PICKED UP BY THE TOWN; AND PROVIDING FOR AN EFFECTIVE DATE.
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BACKGROUND AND ANALYSIS
In 2011, the Florida Legislature passed legislation requiring participating employees, except those in DROP, to contribute 3% of their pay into the Florida Retirement System ("FRS") commencing July 1, 2011. FRS notified participating employers, based on an understanding it had with the IRS, that such employee contributions should be treated as "pre-tax" retirement contribution deductions when calculating employees' pay. This was based on the premise that such contributions would be treated as "picked up" and paid by the employer and treated as employer contributions under Section 414(h)(2) of the Internal Revenue Code ("IRC").
Subsequently, the IRS issued a Private Letter Ruling (Attachment "A") confirming this pre-tax treatment of employee contributions as long as (1) the participating employer takes formal action to specify that the employee contributions, although designated as employee contributions, are "picked up" by the Town in lieu of employee contributions and (2) the participating employees may not opt out of the "pick up" arrangement and may not receive the contributed amounts directly instead of having them paid by the Town to FRS, and may not take a cash or deferred election with respect to such contributions.
The purpose of this Resolution is to formalize the Town's treatment of the 3% employee contributions so that it is in accordance with the guidelines set forth in the IRS Private Letter Ruling. By taking such action, the 3% contributions of participating employees required under the ...
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