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HomeMy WebLinkAboutItem 12 Second Reading of Ordinance Amending the City of Ocoee Municipal General Employees' Retirement Trust Fund City of Ocoee ▪ 1 N. Bluford Avenue ▪ Ocoee, Florida 34761 Phone: (407) 905-3100 ▪ www.ocoee.org STAFF REPORT Meeting Date: April 16, 2024 Item #: 12 Contact Name: Gequita Cowan Department Director: Robert Frank Contact Number: Ext. 6434 City Manager: Robert Frank Subject: Second Reading of Ordinance Amending the City of Ocoee Municipal General Employees' Retirement Trust Fund. (Municipal Pension Board Chair Cowan) Background Summary: First Reading of the Ordinance was held on April 2, 2024. At their meeting held on February 7, 2024, the General Employees' Retirement Board reviewed and approved a proposed ordinance amendment which incorporates new mandatory distribution provision for benefit payments required by tax-qualified entities for compliance with the Internal Revenue Code based on recent changes to the federal law. The amendment also seeks to correct an inadvertent inconsistency by updating the ordinance provision allowing for the purchase of "air time' to reflect the correct vesting schedule for certain plan participants. None of these changes are anticipated to have any financial impact to the City or pension plan. Issue: Should the Honorable Mayor and Commissioners adopt an Ordinance amending Section 6, "Benefit Amounts and Eligibility", amending Section 7, "Pre-retirement Death", amending Section 9 "Optional Forms of Benefits", amending Section 15, "Minimum Distribution of Benefits", to provide for compliance with the SECURE 2.0 Act, amending Section 28, "Purchase of Credited Service for Air Time." Recommendations: The Ocoee General Employees' Retirement Board respectfully recommends that the Honorable Mayor and City Commissioners adopt the attached Ordinance amending the City of Ocoee Municipal General Employees Retirement Trust Fund. Attachments: 1. Special Report - SECURE Act 2.0 2. Explanation of Proposed Ordinance Amendments (SECURE and Air Time) 3. No Impact Letter 4. Ordinance Financial Impacts: None as pointed out in the attached letter dated March 19, 2024, from Douglas Lozen of Foster & Foster, that the change will have no measurable impact on the Plan's funding requirement. SUGARMAN, SUSSKIND, BRASWELL & HERRERA PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW Robert A. Sugarman♦ 150 Alhambra Circle Howard S. Susskind Suite 725 D. Marcus Braswell, Jr. Coral Gables, Florida 33134 Pedro A. Herrera (305) 529-2801 Kenneth R. Harrison, Sr. Toll Free (800) 329-2122 Madison J. Levine Facsimile (305) 447-8115 Jose Javier Rodriguez ♦Board Certified Labor & David E. Robinson Employment Lawyer Of Counsel SPECIAL REPORT February 2023 SECURE ACT 2.0 President Biden signed the Secure 2.0 Act of 2022 (“the Act”) into law on December 29, 2022 as part of the Consolidated Appropriations Act, 2023. The Act makes sweeping changes to provisions of the Internal Revenue Code affecting qualified plans such as your municipal plan. Many of the provisions take effect immediately, while others will become effective in years to come. For governmental plans such as yours amendments required by the Act must be made to the plan by no later than the last day of the first plan year beginning on or after January 1, 2027. Below is a brief summary of the changes enacted. We will provide additional information with regard to each of the new requirements on an on-going basis as corresponding regulations or rules may be issued. I. CHANGES THAT APPLY TO GOVERNMENTAL DEFINED BENEFIT PLANS AND STAND-ALONE SHARE PLANS Increase in Ages for Required Minimum Distributions Participants in tax-qualified pension plans are not taxed on the value of their retirement benefits until they begin to receive benefits under the plan. The deferral of taxes is limited by the Required Minimum Distribution rules in Section 401(a)(9) of the Code, which require that participants begin to receive benefits (and therefore pay taxes) once they reach a certain age after retirement. For many years, retirees were required to begin to receive benefits once they had retired and reached age 70 ½. The first Secure Act, passed in 2019, raised that age to 72. Special Report re: SECURE Act 2.0 February 2023 Page | 2 Section 107 of the Secure 2.0 Act of 2022 has further increased the tax deferral by again raising the age by which retired participants must begin to receive benefits. The new ages are as follows: a) For individuals who attain age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73; b) For individuals who attain age 74 after December 31, 2032, the applicable age is 75; Reduction in penalty for failure to make Required Minimum Distributions (Effective taxable years after December 29, 2022) The Code currently provides for an excise tax for failure to take a required minimum distribution equal to 50% of the amount of the missed distribution. Section 302 of the Act reduces the tax generally to 25%, and provides that the tax shall be further reduced to 10% if the failure is corrected in accordance with certain conditions. Increase in the maximum amount of mandatory distributions (Effective January 1, 2024) Plans may currently provide that benefits of which the lump-sum value does not exceed $5000 will be paid mandatorily in the form of a lump-sum. Section 304 of the Act raises the limit, allowing plans to impose a lump-sum distribution for amounts up $7000. Exclusion from Income of Certain Service-Related Disability Benefits for First Responders (Effective for eligible amounts received after December 31, 2026) Section 309 of the act allows certain first responders (law enforcement officers, firefighters, paramedics, and emergency medical technicians) to exclude from gross income certain service-related disability pension or annuity payments after they reach retirement age. Expansion of 72(t) Age Exemption for Qualified Public Safety Employees (Effective Immediately) Generally, the penalty on early withdrawals under Section 72(t) does not apply to distributions made to an employee after separation from service after attainment of age 55. For qualified public safety employees, Section 72(t) replaces the age 55 exemption with a more favorable, lower age exemption. Prior to the Act, the applicable age for qualified public safety employees was 50, instead of 55. Section 329 of the Act further expands the exemption for qualified public safety officers by adding 25 years of service as a separate qualifying condition for the exemption, which now applies upon the earlier of attainment of age 50 or 25 years of service. Special Report re: SECURE Act 2.0 February 2023 Page | 3 Expansion of Definition of Qualified Public Safety Employee for Purposes of 72(t) Age Exemption (Effective Immediately) Prior to the Act, for purposes of the favorable 72(t) exemption discussed above, the term qualified public safety employee included governmental employees providing police protection, firefighting services, and emergency medical services. Section 330 expands the definition to include corrections officers, as well as forensic security employees providing for the care, custody and control of forensic patients. Repeal of Direct Payment Requirement for Health Insurance Premiums (Effective Immediately) Currently under Section 402(l) of the Code, Retired Public Safety Officers are permitted to exclude from income up to $3,000 per taxable year in distributions from governmental plans that are used to for the payment of qualified health insurance premiums. Prior to the Act, payments were required to be made directly from the pension plan to the insurer. Section 328 of the Act removes the direct payment requirement and now allows payment to come directly from the member. II. CHANGES THAT APPLY TO GOVERNMENTAL STAND-ALONE SHARE PLANS BUT NOT TO GOVERNMENTAL DEFINED BENEFIT PLANS Tax-Favored Withdrawals The Act allows plans to provide for the following types of withdrawals with favorable tax treatment (including exemption from any 72(t) penalty): - Starting in 2024, up to $1,000 for participant-certified personal and family emergencies; - Starting in 2024, withdrawals up to the lesser of $10,000 or 50% of account balance, if a participant has been the victim of domestic abuse; - effective immediately withdrawals by participants who have been diagnosed as terminally ill; - With regard to federal disasters occurring on or after January 26, 2021, withdrawals by participants who live in the disaster up to $22,000 within 180 months of the disaster. Also loans related to federal disasters are allowed to be increased to the lessor of $100,000 or 100% of the account balance, - Plans are already permitted to provide for distributions for qualified birth or adoption expenses. Currently, such distributions may be paid back at any time. For withdrawals after December 29, 2022, the repayment period is limited to Special Report re: SECURE Act 2.0 February 2023 Page | 4 three years. For withdrawals that have already been taken, the repayment period ends December 31, 2025, - beginning on or after December 29, 2025, up to $2500 annually (adjustable for inflation) for long-term care insurance. III. PROVISIONS OF THE ACT WITH REGARD TO PLAN CORRECTIONS Changes to requirements regarding overpayments (effective immediately) The IRS has on an on-going basis provided guidance to trustees regarding requirements for recovering benefit overpayments to participants and beneficiaries. Section 301 of the Act amends the Code to provide clearly defined rules relating to the recovery of overpayments. Principally, the Act provides that a plan is not necessarily obligated to pursue the recovery of an overpayment. We will prepare procedures for the trustees to adopt to ensure that future actions with regard to overpayments comply with the new requirements. Expanded Self-Correction Program (Effective upon guidance issued by IRS within two years of December 29, 2022) The IRS maintains several programs pursuant to which trustees may correct errors in the operation of the plan and/or failures to amend the plan timely. Under certain programs, a flat fee and/or penalties are required to be paid to the IRS to resolve the error or failure. On the other hand, under the IRS’ Self-Correction Program, certain “non-significant” errors may be corrected without any notice or payment of fees or penalties to the IRS. The Act expands the type of errors and failures that may be resolved through Self- Correction. The program is no longer limited to “non-significant” errors, and may be used generally to correct any inadvertent error or failure, except those (1) that were identified by the IRS before any good-faith corrective measures were taken, or (2) with respect to which corrective measures were not timely taken. The Act requires the IRS to issue new guidance in accordance with the expansion of the self-correction program. Special Report re: SECURE Act 2.0 February 2023 Page | 5 IV. FOR INFORMATIONAL PURPOSES (THE FOLLOWING INFORMATION PRESENTS PROVISIONS OF THE ACT THAT DO NOT APPLY TO THIS PLAN BUT THAT MAY BE OF INTEREST TO PUBLIC EMPLOYEES. THE INFORMATION IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INTENTED AND SHALL NOT BE CONSTRUED AS LEGAL ADVICE) Section 308 of the Act extends to private sector firefighters, the favorable 72(t) age exemption (50 or 25 Years of Service) that was previously limited to governmental public safety employees. Section 306 Changes rules relating to elections for 457 plans Some of the tax-favored withdrawals that are permitted under the Act (See Section II above) may also be available under 457 plans. SUGARMAN, SUSSKIND, BRASWELL & HERRERA PROFESSIONAL ASSOCIATION ATTORNEYS AT LAW Robert A. Sugarman♦ 150 Alhambra Circle Howard S. Susskind Suite 725 D. Marcus Braswell, Jr. Coral Gables, Florida 33134 Pedro A. Herrera (305) 529-2801 Kenneth R. Harrison, Sr. Toll Free (800) 329-2122 Madison J. Levine Facsimile (305) 447-8115 Jose Javier Rodriguez ♦Board Certified Labor & David E. Robinson Employment Lawyer Of Counsel March 20, 2024 Via Email: Christine.Stoker@foster-foster.com Board of Trustees City of Ocoee Municipal General Employees’ Retirement Trust Fund c/o Chrissy Stoker, Plan Administrator Foster & Foster 2503 Del Prado Blvd. S., Suite 502 Cape Coral, FL 33904 Re: City of Ocoee Municipal General Employees’ Retirement Trust Fund Proposed Ordinance Amendment Dear Trustees: As previously discussed with the Board, enclosed please find a proposed ordinance amending the City of Ocoee Municipal General Employees’ Retirement Trust Fund (“Trust Fund”). The amendment is intended to clarify the City’s ordinance by correcting an inadvertent inconsistency and updating it to reflect the correct vesting schedule for certain Trust Fund participants seeking to purchase “air time.” The proposed amendment will also serve to update certain sections to comply with the Internal Revenue Code. Specifically, the following amendments to the pension plan are proposed: 1. Section 6, “Benefit Amounts and Eligibility”, subsection 6, “Required Distribution Date;” Section 7, “Pre-retirement Death,” subsection 2, “Deceased Members Vested or Eligible for Retirement with Spouse as Beneficiary;” and Section 9, “Optional Forms of Benefits”, subsection 5.E, are all being amended in accordance with recently enacted amendments to the Internal Revenue Code to satisfy the qualification requirements applicable by providing a mandatory distribution age for Trust Fund benefits paid to its participants and beneficiaries. 2. Section 28, “Purchase of Credited Service for Air Time,” is being amended to provide an updated vesting schedule for those Trust Fund participants who were hired on or after September 18, 2012. Board of Trustees City of Ocoee Municipal General Employees’ Retirement Trust Fund c/o Chrissy Stoker, Plan Administrator March 20, 2024 Page | 2 Please do not hesitate to reach out to us should you require any additional information. Sincerely, PEDRO A. HERRERA PAH/jdv Enclosure 13420 Parker Commons Blvd., Suite 104 Fort Myers, FL 33912 · (239) 433-5500 · Fax (239) 481-0634 · www.foster-foster.com March 19, 2024 VIA EMAIL Board of Trustees City of Ocoee General Employees’ Pension Board c/o Ms. Chrissy Stoker, Plan Administrator 2503 Del Prado Blvd. S. Suite 502 Cape Coral, FL 33904 Re: City of Ocoee General Employees’ Pension board Dear Board: In response to an email dated March 6, 2024, we have reviewed the proposed ordinance amending the plan as follows: - Changing the minimum age that distributions need to begin to the applicable age provided in the Internal Revenue Code to comply with the SECURE 2.0 Act. - Updating Section 28, Purchase of Credited Service for Air Time, to clarify that all Members must be vested in order to purchase Credited Service for periods when there was no performance of service (“airtime”) We have determined that the adoption of the proposed changes will have no impact on the assumptions used in determining the funding requirements of the program. Because the changes do not result in a change in the valuation results, it is our opinion that a formal Actuarial Impact Statement is not required in support of its adoption. However, since the Division of Retirement must be aware of the current provisions of all public pension programs, it is recommended that you send a copy of this letter and a copy of the fully executed ordinance to each of the following office: The undersigned is familiar with the immediate and long-term aspects of pension valuations, and meets the Qualification Standards of the American Academy of Actuaries necessary to render the actuarial opinions contained herein. If you have any questions, please let me know. Sincerely, Douglas H. Lozen, EA, MAAA Mr. Keith Brinkman Bureau of Local Retirement Systems Division of Retirement 3189 S. Blair Stone Rd. Tallahassee, FL 32301 Page | 1 ORDINANCE NO. 2024- AN ORDINANCE OF THE CITY OF OCOEE, FLORIDA, RELATING TO THE CITY OF OCOEE MUNICIPAL GENERAL EMPLOYEES' RETIREMENT TRUST FUND, ADOPTED BY ORDINANCE NUMBER 2009-020; AS SUBSEQUENTLY AMENDED; AMENDING SECTION 6, “BENEFIT AMOUNTS AND ELIGIBILITY”; AMENDING SECTION 7, “PRE-RETIREMENT DEATH”; AMENDING SECTION 9, “OPTIONAL FORMS OF BENEFITS”; AMENDING SECTION 15, “MINIMUM DISTRIBUTION OF BENEFITS”, TO PROVIDE FOR COMPLIANCE WITH THE SECURE 2.0 ACT; AMENDING SECTION 28, “PURCHASE OF CREDITED SERVICE FOR AIR TIME”; PROVIDING FOR SEVERABILITY OF PROVISIONS; SUPERSEDING ALL ORDINANCES IN CONFLICT HEREWITH AND PROVIDING AN EFFECTIVE DATE. WHEREAS, the Setting Every Community Up for Retirement Enhancement (“SECURE”) 2.0 Act, signed into law on December 29, 2022, as part of the Consolidated Appropriations Act, 2023, amended the definition of “Required Beginning Date” under Section 401(a)(9) of the Internal Revenue Code; and WHEREAS, amendments to the Plan are necessary to conform the Retirement Trust Fund to the requirements of the SECURE 2.0 Act; and WHEREAS, the Board of Trustees of the City of Ocoee Municipal General Employees’ Retirement Trust Fund have requested and approved the amendments provided herein as being in the best interests of the participants and beneficiaries and improving the administration of the Fund, and WHEREAS, the City Commission has received and reviewed an actuarial impact statement related to this change and attached as such; and WHEREAS, the City Commission deems it to be in the public interest to provide this change to the Retirement Trust Fund for its general employees; Page | 2 BE IT ORDAINED BY THE CITY COMMISSION OF THE CITY OF OCOEE, FLORIDA; SECTION 1: Authority. The City Commission of the City of Ocoee has the authority to adopt this ordinance pursuant to Article VIII of the Constitution of the State of Florida and Chapter 166, Florida Statutes. SECTION 2: That the City of Ocoee Municipal General Employees' Retirement Trust Fund adopted by Ordinance No. 2009-020, as subsequently amended, is hereby further amended by amending Section 6, “Benefit Amounts and Eligibility”, subsection 6, “Required Distribution Date”, to read as follows: SECTION 6. BENEFIT AMOUNTS AND ELIGIBILITY. * * * * 6. Required Distribution Date. The Member's benefit under this Section must begin to be distributed to the Member no later than April 1 of the calendar year following the later of the calendar year in which the Member attains age seventy and one-half (70½)his or her Required Beginning date as defined in Section 15.2.A. or the calendar year in which the Member terminates employment with the City. SECTION 3.That the City of Ocoee Municipal General Employees' Retirement Trust Fund adopted by Ordinance No. 2009-020, as subsequently amended, is hereby further amended by amending Section 7, “Pre-retirement Death”, subsection 2, “Deceased Members Vested or Eligible for Retirement with Spouse as Beneficiary”, to read as follows: SECTION 7. PRE-RETIREMENT DEATH. * * * * 2.Deceased Members Vested or Eligible for Retirement with Spouse as Beneficiary. This subsection 2. applies only when the Member’s Spouse is the sole designated Beneficiary. The Spouse Beneficiary of any Member who dies and who, at the date of his or her death was vested or eligible for early or normal retirement, shall be entitled to a benefit as follows: * * * * Page | 3 E. Notwithstanding anything contained in this Section to the contrary, in any event, distributions to the Spouse Beneficiary will begin by December 31 of the calendar year immediately following the calendar year in which the Member died, or by a date selected pursuant to the above provisions in this Section that must be on or before December 31 of the calendar year in which the Member would have attained 70½his or her Required beginning date as defined in Section 15.2.A. * * * * SECTION 4.That the City of Ocoee Municipal General Employees' Retirement Trust Fund adopted by Ordinance No. 2009-020, as subsequently amended, is hereby further amended by amending Section 9, “Optional Forms of Benefits”, subsection 5.E, to read as follows: SECTION 9. OPTIONAL FORMS OF BENEFITS. * * * * 5. Retirement income payments shall be made under the option elected in accordance with the provisions of this Section and shall be subject to the following limitations: * * * * E. The Member's benefit under this Section must begin to be distributed to the Member no later than April 1 of the calendar year following the later of the calendar year in which the Member attains age seventy and one-half (70½)his or her Required beginning date as defined in Section 15.2.A, or the calendar year in which the Member terminates employment with the City. * * * * SECTION 5.That the City of Ocoee Municipal General Employees' Retirement Trust Fund adopted by Ordinance No. 2009-020, as subsequently amended, is hereby further amended by amending Section 15, “Minimum Distribution of Benefits”, subsection 2, “Time and Manner of Distribution”, to read as follows: SECTION 15. MINIMUM DISTRIBUTION OF BENEFITS. * * * * * Page | 4 2. Time and manner of distribution. A.Required beginning date. The Member's entire interest will be distributed, or begin to be distributed, to the Member no later than the Member’s required beginning date, which effective January 1, 2023 is defined as the later of (1) and (2) below: (1) With regard to distributions required to be made to a Member who reachesd age 70 ½ beforeprior to January 1, 2020: April 1 of the calendar year following the later ofthat next follows the calendar year in which the Member attainsed the age seventy and one-half (70 ½) years; or With regard to a Member who attained age 70 ½ on or after January 1, 2020, and age 72 prior to January 1, 2023: April 1 of the calendar year that next follows the calendar year in which the Member attained age 72 years; or With regard to a Member who attains age 72 on or after January 1, 2023, in accordance with the SECURE 2.0 Act and any technical corrections thereto; or (2) With regard to distributions required to be made on or after January 1, 2020 to a participant who reaches the age of 70 ½ on or after said date: April 1 of the calendar year that next follows the calendar year in which the participant attains or will attain the age of 72 years, or April 1 of the calendar year that next follows the calendar year in which the participant Member retires, whichever is later. B.Death of Member before Distribution Begins. If the Member dies before distributions begin, the Member's entire interest will be distributed, or begin to be distributed no later than as follows: (1) If the Member's surviving spouse is the Member's sole designated beneficiary, then distributions to the surviving spouse will begin by December 31 of the calendar year immediately following the calendar year in which the Member died, or by a date on or before December 31 of the calendar year in which the Member Page | 5 would have attained age 70 ½,his or her Required beginning date, if later, as the surviving spouse elects. * * * * * SECTION 6: That the City of Ocoee Municipal General Employees' Retirement Trust Fund adopted by Ordinance No. 2009-020, as subsequently amended, is hereby further amended by amending Section 28, “Purchase of Credited Service for Air Time,” to read as follows: SECTION 28. PURCHASE OF CREDITED SERVICE FOR AIR TIME. Unless otherwise prohibited by law, any Member (except a Mayor or Commissioner Member) who has accrued at least five (5) years of Ccredited Sservice prior to September 18, 2012, or for Members hired on or after September 18, 2012 who have accrued at least seven (7) years of Credited Service, under this system shall be permitted to purchase up to five (5) years of additional Ccredited Sservice under this system for periods when there was no performance of service ("airtime") provided that: A. The Member contributes to the fund the sum that he or she would have contributed had he or she been a Member of the system or the years or fractional parts of years for which he or she is requesting credit plus amounts actuarially determined such that the crediting of service does not result in any cost to the fund plus payment of costs for all professional services rendered to the board in connection with the purchase of years of credited service. B. Multiple requests to purchase credited service pursuant to this section maybe made at any time prior to retirement. C. Payment by the Member of the required amount shall be made within six (6) months of his or her request for credit, but, in any event, prior to retirement, and shall be made in one lump sum payment upon receipt of which credited service shall be given. D. Service purchased pursuant to this section shall count for all purposes except vesting. The maximum combined purchase under this section and sections 26 and 27 shall be five (5) years. SECTION 7. Severability. In the event any section, subsection, paragraph, sentence, clause, phrase or word of this ordinance shall be held invalid by a court of competent jurisdiction, then such invalidity shall not affect the remaining portions hereof. Page | 6 SECTION 8. Supersede of Ordinances. All ordinances or parts of ordinances in conflict herewith are hereby superseded. SECTION 9.Effective Date. This ordinance shall be effective on the date of adoption. PASSED AND ADOPTED this day of , 2024. APPROVED: ATTEST: CITY OF OCOEE, FLORIDA By: City Clerk Mayor (SEAL) ADVERTISED , 2024 READ FIRST TIME , 2024 READ SECOND TIME AND ADOPTED , 2024 FOR USE AND RELIANCE ONLY BY THE CITY OF OCOEE, FLORIDA APPROVED AS TO FORM AND LEGALITY THIS day of , 2024. By APPROVED BY THE OCOEE CITY COMMISSION AT A MEETING HELD ON , 2024 UNDER AGENDA ITEM NO. .