Fort Walton Beach Council agenda — 02-08-11 regular — reading text

over $ 1, 000 and the rollover rules. member does not elect between a lump sum distribution and a direct rollover, the mandatory distribution must be paid in a direct rollover to an IRA. In such a situation, the plan administrator must designate an IRA into which the funds will be rolled over. By decreasing the mandatory rollover amount to $ 1, 000, the plan avoids the effect of the rule, which can be burdensome. The revision is therefore appropriate. Beneficiaries) Section 11 This section is revised to permit retired members to change their beneficiary. Under the current language a member may designate a beneficiary to receive a death benefit and that designation may be revoked or changed by such Member. The proposed revision would permit retirees to designate and change beneficiaries in the same manner as active members. This revision is not required by federal or state law. Claims Procedures) Section 12 This section has been revised to remove the claims procedures from the plan and grant the pension board the authority to develop administrative claims procedures by rule. It also purports to grant the board the " power to subpoena" witnesses. The board legally has no power to enforce a subpoena, although the refusal of claimants to comply could affect the outcome of their claim before the board. The changes are not required under federal or state law. Reports to Division of Retirement) Section 13 This section has been revised to incorporate by reference reporting requirements under Chapter 175, Florida Statutes. This revision is appropriate. Maximum Pension) Section 15 This section has been entirely rewritten to comply with Section 415 of the Internal Revenue Code and regulations promulgated thereunder. The proposed changes are appropriate. Minimum Distribution of Benefits) Section 18 These sections have been revised in accordance with rules promulgated to implement the Pension Protection Act of 2006, requiring plans to adopt a good faith interpretation of Section 401( a)( 9) of the Internal Revenue Code as well as other Code changes. The changes are September 23, 2010 Page 5 technical in nature, and much of the language conforms to the manner in which the plan has been administered. Although many of the proposed changes could be incorporated by reference, the proposed language is appropriate. Miscellaneous Provisions) Section 19 The proposed changes to Section 19 provide for several technical changes to comply with state and federal law. The proposed language accurately reflects the manner in which the plan is required to operate and is therefore appropriate. Repeal or Termination of System) Section 20 The proposed amendment would incorporate recent revisions to Chapters 175 and 185, Florida Statutes concerning the distribution of plan assets upon plan termination. See sections 175. 351 4th and 185. 37, Florida Statutes ( 2009). These recent changes codify the decision of the District Court of Appeal in the Town of Lake Park case ( 966 So. 2d 448), which held that the employer is responsible for funding any deficiency in a police or firefighter pension plan upon termination of the plan. The proposed revision complies with the current statutes. Domestic relations orders; retiree directed payments; exemption from execution; monassignability) Section 21 0 As a general rule, governmental pension plans in Florida are not required to recognize QDROs that pertain to the division of marital assets, unless the plan specifically provides otherwise. The effect of this amendment would be to place the responsibility on the member to submit a proposed domestic relations order to the pension board so that the board may assess its applicability. Although not required by Florida law, this provision could benefit both the board and plan members b;y providing a process for advance review of proposed domestic relations orders. The proposed revision also permits the withholding of funds from retirement benefits to pay insurance premiums and child support or alimony payments. This change is non -substantive and is permitted by Chapters 175 and 185, Florida Statutes. Military Service Prior to Employment) Section 22 This provision would be revised to eliminate the minimum amount of military service earned prior to employment that could be purchased.Currently the plan allows purchases of one year or more. The proposed revision would permit the purchase of smaller increments of service. This change is not required by state or federal law. Credited Service -Special Provisions) Section 23 This section would be deleted and the topics covered by other sections.  1' lot September 23, 2010 Page 6 Prior Fire Service) ( New) Section 23 Prior Fire Service would be covered under a new section 23. The current language is retained except for two revisions. The first would eliminate the minimum amount of service that could be purchased. Currently the plan allows purchases of one year or more. The proposed revision would permit the purchase of smaller increments of service. It is not required by state or federal law. Another revision would permit the purchase of federal, other state, county or municipal fire service. This provision is permissible under Chapter 175, but is not required. Forfeiture of Pension) Section 24 The proposed amendment includes a recent change to the Florida public pension forfeiture statute. The current provision tracks the language in section 112. 3173, Florida Statutes. Because pension forfeitures under section 112. 3173 are mandatory, regardless of whether the plan provides for forfeitures, it is not necessary to include forfeiture language in the plan. However, to prevent confusion we would recommend either including this provision in the plan language as proposed; incorporating section 112. 3173, Florida Statutes by reference ( as amended from time to time) in lieu of the current language in section 19; or eliminating this section in its entirety. Indemnification) (New) Section 25 The proposed new section would indemnify members of the pension board from personal liability connected with or arising out of their official duty as pension board members. Whether to indemnify individual pension board members is a policy decision by the City and is not required under federal or state law. Direct Transfers of Eligible Rollover Distributions; Elimination of Mandatory Distributions) Section 25 Several changes are proposed for language regarding eligible rollover distributions. Section 25 is revised to permit rollovers of after -tax contributions. This proposed change complies with current Code provisions and Treasury Regulations. The definition of Distributee incorporates a provision of the Pension Protection Act of 2006 allowing the rollover of plan assets of a deceased member to an IRA for a non -spousal beneficiary. Previously, the law had only permitted such rollovers to a spousal IRA. It should be noted that the law does not require the plan to offer rollovers to non -spouse beneficiaries; this change is permissive. See IRS Notice 2007 -7. However, we have no objection to incorporating the non -spousal beneficiary provision. Early Retirement Incentive) Section 26 Section 26 is deleted in its entirety due to outdated language. This change is appropriate. September 23, 2010 Page 7 Maximum Pension) Section 27 Section 27 is deleted in its entirety and the subject matter addressed under new Section 15. Deferred Retirement Option Plan) Section 28 Proposed language under subsection 2. E( 1) would include in a member' s salary, for purposes of determining accrued benefit, lump sum payments that " would have been included" as salary if the member was retiring rather than entering DROP. This revision is not required under federal or state law and is contrary to the language in the plan. " Salary" is defined under Section 1 as excluding unused accumulated sick leave pay and vacation pay received as a lump sum payment upon termination of employment for purposes of determining a member' s accrued benefit. Therefore, we recommend against this proposed revision. Other technical changes are proposed which would have no negative effect on the administration of the DROP and are recommended. Reemployment after retirement) (New) Section 28 A new section is created to provide for the treatment of retirees who are reemployed by the City. Under the proposed new section, the reemployment of retired firefighters would be treated as follows: Retirees may be hired by another employer without affecting their benefits. If a retiree is reemployed as a firefighter, benefits are discontinued and additional credited service is applied towards a second benefit. If a retiree retires under normal retirement and is rehired by the City as a member of another retirement system benefits are discontinued. If a retiree retires under early retirement and is hired by the City in any capacity, benefits are discontinued. The provisions of section 28 would also apply to retirees who participated in DROP and terminated employment at the conclusion of their DROP participation period. The proposed reemployment after retirement provisions in section 28 are not required to be included in the plan by state or federal law. In addition, if the City does not rehire a retired employee, this section has no effect on the plan. However, Internal Revenue Service ( IRS) guidelines prohibit distributions from a qualified pension plan to participants who are actively employed in a position with an employer covered by the plan. This prohibition specifically applies to members under the age of 591/2 years who are re- employed after retirement without a bona fide break in service." The IRS may conclude that a retiree who is reemployed without an appropriate break in service may have never actually retired. In making such a determination, the IRS looks at whether an individual' s retirement is genuine or an attempt to gain favorable tax status.  1I . c September 23, 2010 Page 8 If you have questions concerning any of the proposed changes outlined above, please call. C a C 0 N C a