June 17, 2019

When a Section 115 Pension Stabilization Trust is “Too Good To Be True”

By Jeff Chang

To prepare for and manage significantly increased CalPERS employer contribution rates in the coming years, California public agencies  approved the establishment and funding of so-called “pension rate stabilization trusts.” Clients have asked for evaluations of the various turn-key programs being offered for this purpose. In doing so, we have found that many, if not most, agencies are setting aside funds on an “irrevocable” basis. They are doing so exclusively for pension funding purposes, but with an “understanding” that they can gain access to these monies for general agency purposes if needed later. Unfortunately, they can’t — and should not — use these trusts in this way.

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May 20, 2019

Money Purchase Pension Plans with an “Opt-in” Feature

By Jeff Chang

Almost 4 years ago, we discussed an IRS private letter ruling that raised serious concerns about public agency money purchase pension plans. The ruling allowed employees to “opt-in” to, or elect, their own rate of employee contribution. It was expected that the employee contributions would be treated as pre-tax contributions because they were being “picked-up” by the sponsoring agency. Of course, to be picked-up, the contributions also needed to be “mandatory” employee contributions.

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April 16, 2019

“It Just Keeps On Going:” The Problem with a Money Purchase Pension Plan that a Public Agency Just Sets Aside

By Jeff Chang

Like the Energizer Bunny, some retirement plans continue to “run,” even though the employer believes they are “no longer in use.” This problem is particularly prevalent with public agencies that have a tendency to switch from one provider to another without merging the prior provider’s plan into the new one. This frequently occurs in the context of public agency 457(b) plans, where it is common to see an agency with two or three 457(b) plans – all operating at the same time with different providers.

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April 1, 2019

What Plan Documents Should You Be Keeping?

By Jeff Chang

Despite the insane popularity of Marie Kondo and her tidying methodology, when it comes to your agency’s retirement (and welfare) plan documents: more is better. But, not just more of the same thing — such as unexecuted plan documents. Your plan documents tell a story and must be collected and kept together like an invaluable manuscript. Here are a few best practices for plan document retention and organization:

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March 11, 2019

California Supreme Court Rules in Cal Fire Case – Round One Goes to the Legislature, But It Ain’t Over

By Jeff Chang

The California Supreme Court recently issued its decision in the Cal Fire Local 2881 v. CalPERS case – the first of six so-called “California Rule” (“Vested Pension Rights”) cases pending before the Court. The California Rule, in essence, states that: “A public employee’s pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity.” (Betts v. Board of Administration). In what many might characterize as a significant disappointment, there was no “knockout” of the California Rule. In fact, the Court, decided that it could resolve the matter without specifically addressing the California Rule. Nonetheless, the Court ruled in favor of the California Legislature and CalPERS in holding that employees’ right to purchase nonqualified service credit, or “airtime,” was not a right protected by the contract clause of the California Constitution and, therefore, could be altered or eliminated at the discretion of the Legislature. Round one to the Legislature.

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