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HomeMy WebLinkAbout13.E.1. Social Security and PERA Options for Elected Officials 13. E, L City of Shakopee Memorandum TO: Mayor and City Council Mark McNeill, City Administrator FROM: Kris Wilson, Assistant City Administrator SUBJECT: Social Security and PERA Options for Elected Officials DATE: December 29,2006 Introduction A new state law provides elected officials of local units of government with new options related to Social Security and PERA. The Council is asked to consider these options and provide further direction to staff. Background Local officials taking office after June 30, 2002 have been required to choose between having Social Security withheld from their wages and contributing to PERA's Defined Contribution Plan. For elected officials in counties and a handful oflarge cities, where officials tend to serve longer periods of time and not hold other employment in addition to their elected office, this was causing a problem in the sense that their Social Security benefits were being reduced as a result of their elected office earnings not being counted. Changes to state law have now made it possible for elected officials to participate in both Social Security and PERA, if their local unit of government elects to provide this option. If the City of Shakopee elects to make it possible for elected officials to participate in both Social Security and PERA, all current elected officials would have an individual choice to stay with their status quo or make the change. However, all future elected officials would automatically fall under the new system. The new system would be that all elected officials pay into Social Security and have the option to participate in PERA's Defined Contribution Plan. Budget Impact As the employer, the City of Shakopee is required to make employer contributions for both Social Security and PERA. Currently, three of our five elected officials are participating in one or the other and the City is making the corresponding employer contribution. (The other two were elected prior to 2002 and are therefore already participating in both.) If the City elects to adopt this new system, the potential exists that the City would have to fund an employer contribution to both Social Security and PERA for all five elected officials. Social PERA Security Dollar Defined Dollar 2007 Salary Withholding Amount Contribution Amount Plan Mayor $7,854.00 6.2% $486.95 5% $392.70 Councilmembers $6,714.96 6.2% $416.33 5% $335.75 Given the employer contributions the City is currently paying for its elected officials, electing to move to the new system has the potential to cost the City a total of approximately $1250 more in 2007. Additionally, current elected officials may see increased withholding from their pay, depending on the individual election they make. However, the rational is that they would see higher Social Security and PERA payments at the time of retirement. Given the relatively modest salaries paid to our elected officials, it is unknown to what extent having these earnings count toward Social Security would impact their ultimate Social Security benefit. Alternatives 1. Make no changes at this time. The City has the option to continue as it has been regarding this issue. Currently, there is no deadline for moving to the new system, so a decision to do so could be made at any time or not at all. 2. Direct staffto proceed with the process of adopting the new system. This will require adoption of a resolution prepared by PERA, which could be done at the next City Council meeting. 3. Direct staff to return with any additional information desired. Relationship to Vision This is a housekeeping item. Requested Action: The Council. is asked to provide staff with further direction regarding which of the above listed alternatives it wishes to pursue at this time. . -- t!J ~ - If((iillw7fllll . . ". 1("""'11 PERft{and ~ Qptions\fgr _9le ~1,,ry,J;--"L;""'''__~_-'___'^"'- January , 2007 . ' , d<;!,:i,'~-"'-----";"(,' ", ,,;pi)*' "'1;", p (Social Sec ,\ ~,:;/ l P "%% '* 0>14;M;. 0 ~W'f'. New state law (MN Statutes Chapter 355) allows local elected officials the option of participating in both Social Security and PERA. Previously, individuals elected after June 30,2002 have been required to choose one or the other. "y;j~A_:_-";';-:II,j.".'"":__~:",_..,, 41(7 " '~, t 'I 4 'f~ -i'. :iJ~ j j} ~ii' cted'L>ffi6(als ~L 411 , T RJ\program open called the Defined Contribution Plan (DCP). The elected official and the City each contribute 5 percent of earnings to PERA's DCP plan. There are seven funds in the DCP plan -- the elected official decides how much of their contribution is deposited into each of these funds. 0'J,~J;:;S<:""""-'(i1;j~"", "./' ,,'^ "^ t\l,L, '$ (' \ I ~ , , I \ J \ I EI d drtrcrcils receive ingl'~"'h1h1p payment from their DCP account at the time they leave elected office. The value of that lump sum is determined by the amount of contributions made by or on behalf of the elected official and the investment earnings of the fund(s) they elect to put their money in. Social Security is not currently withheld from the pay of elected officials who elect to participate in PERA's DCP plan (unless elected prior to June 30, 2002). Therefore, their earnings from their years of elected office are not credited toward their Social Security benefit at the time of retirement. .. y_n ',,", , ',-./-- <;--;"""~ ,e~~';::\:- , ,_ <<-hli~I~!< ",' "q~t:,_ M~~e la~) allows ~} 'ii!,fc:t. [f l iJk \i P " dlviduaJ · \i~';' f \, · jth t t cide'~\+f/th Jurrsr'lc lo'n"'<-ln e s a e want to continue as they are or switch to a new way, in which elected officials do not have to ,choose between Social Security and PERA. If we switch to this "new way" Social Security will be withheld from the pay of all new elected officials and they will have the option of contributing to PERA as well. "'""i1,i:;+,,;,;),~, ,/' ~-,.) )Jl """ !F ~4\ :I :t " ;\ it 0 I p~~ d~iides to tH~, n~yJ all current elected officials WI have tti~oe option stay with what they are currently doing or move to the new way. If Shakopee wants to take advantage of this change in state law, the first step is to adopt a resolution. Sample resolutions are available from PERA and one could be placed on the next Council agenda. < rc"ei' 'c '>";"N '~'!,8;,~ ,;<:", " o~~ ~'1c l I ~'" ~;, "* hi N '$, V M i M ~ ITI ~ ;/ 'I , IV n adopt~ etlll,res"e5lution h "I~Ii8\iII~hjl~IiiW_I,1rml'>" '-:'>-'"'-'"-<':^ -, "' ,~"" second step is for each of our current elected officials to make their individual selection in writing. The change can be retroactive for up to 5 years - but this would require both the City and the elected official to come up with the back contributions for those 5 years. J))'-~- ~-?,y P .. c./ C (the C;ity '\",/ '~ ,'" %)im%iC\",>-;;^"~_!,,wr'I!\'< ' We currently have 2 members elected prior to June 30, 2002 - this does not impact them. Potential cost would be for the other 3 officials - City could go from matching the contribution to either Social Security or PERA to matching the contribution for both. Estimated maximum cost for 2007 would be $1,250. AI . I Do nothing - make no changes at this time. Can reconsider at a later date. Direct staff to proceed with the process of adopting the new system. (Total process, will take approximately 4 months.) Direct staff to return with additional information.