REPORT TO THE CITY COUNCIL October 9, 2014 FROM: DEFERRED COMPENSATION BOARD BY: STANLEY L. MCDIVITT, Retirement Administrator SUBJECT ..Title Adopt amendments to The City Of Fresno Deferred Compensation Plan document to allow for Roth Contributions and Roth In-Plan Rollover Conversions, update limits on deferrals, and Section concerning qualified military service ..Body RECOMMENDATION The City of Fresno Deferred Compensation Board recommends that the City Council approve the attached City of Fresno Deferred Compensation Plan Document adding the Roth provisions allowed by the American Taxpayer Relief Act (ATRA) of 2012, qualified military service provisions of Pension Protection Act (PPA) of 2006 and updating deferral limits. EXECUTIVE SUMMARY The City of Fresno Deferred Compensation Plan document has been modified to incorporate the necessary language to 1) add Roth Contributions as a deferral type, including provisions for the Roth In-Plan Conversion enabling Fidelity, the plan's current record keeper custodian, to implement these provisions approximately 12-weeks following receipt of the amended Plan document; 2) update deferral limits, and 3) add a section on Qualified Military Service. BACKGROUND ATRA contains an important provision that offers a new opportunity to convert assets in defined contribution plans (such as Section 401(k) plans, Section 403(b) plans, and governmental 457(b) plans) into Roth amounts within the plan, regardless of whether the amounts are currently distributable, as long as the plan permits regular non-rollover Roth contributions. The amount converted is currently taxable but subsequent qualified distributions from the plan Roth account are, of course, completely nontaxable. Plans are permitted to offer this new conversion election but are, of course, not required to do so. This opens up a potential source of assets for conversion to Roth. The new provision would allow all vested assets in a plan to be eligible for conversion. This provision is effective for transfers to Roth accounts after adoption by Council; and it is important to note that plan conversions are irrevocable. At its meeting on July 25, 2014, the Deferred Compensation Board reviewed, discussed and ultimately concluded that it was in favor of adopting modifications to the City of Fresno Deferred Compensation Plan document to allow Roth Contributions and Roth In-Plan Conversion features recently allowed in 457 Government sponsored deferred compensation plans. Once the City Council approves the Plan document modifications, Retirement Office staff will work with Personnel/Payroll and ISD to program, test, and implement 457 Roth deferral contributions to the City's PeopleSoft payroll system. Fidelity has provided the Fidelity Roth Deferral Feedback File/Tape Specifications which have been reviewed by the City's Personnel/Payroll and ISD departments. The City Attorney's Office has thoroughly reviewed the attached proposed revisions to the Plan Document. ENVIRONMENTAL FINDINGS N/A LOCAL PREFERENCE N/A FISCAL IMPACT The costs of implementing new provisions to the 457 Plan are borne by the City. It is estimated that up to approximately ninety (90) hours of staff work may be required to program, test and implement 457 Roth deferral type (after-tax) contributions to the City's PeopleSoft payroll system. There are no other costs for the City associated with the implementation of the Roth In-Plan Rollover conversion provisions. Attachments: City of Fresno Deferred Compensation Plan Document Redlined and Final