Good news! Recent changes to the Internal Revenue Code now provide a waiver of the existing 10% penalty tax on early distributions of Deferred Retirement Option Plan (DROP) funds rolled over to your Deferred Compensation Account.
Currently, after a participant rolls over DROP funds to the City’s Deferred Compensation Plan, there is typically a 10% tax penalty on DROP money you withdraw before age 59 ½, unless you exit DROP in the year in which you turn age 55. This recent legislative change, HR 2146, will allow those who exit DROP at age 50 or older to take distributions of DROP money from their Deferred Compensation accounts before age 59 ½ without being subject to the penalty. Although you will avoid penalties, please keep in mind that you may incur taxes upon distribution.
We recommend that you consult with your tax and/or financial advisor if you have any questions regarding your personal situation.
California pension reform proponents are postponing their efforts to place one of their initiatives on this year’s November ballot. Instead, former San Jose Mayor Chuck Reed and former Councilman Carl DeMaio aim to place a pension reform initiative on the November 2018 ballot. Proponents believe that 2018 will provide a more favorable environment for pension reform. Please review the following timeline of events and summary of the initiatives for more information. The Board of Fire and Police Pension Commissioners, management and staff will continue to monitor this and other legislation that may affect Plan member benefits.
Timeline of Events
June 2015 – Former San Jose Mayor Chuck Reed and a bi-partisan group of current and former local government officials filed a pension reform initiative known as the “Voter Empowerment Act of 2016” that would change how California state and local government employee compensation and retirement benefits are determined.
October 2015 – After the California Attorney General issued the official title and summary which determines the language used to collect signatures, the proponents were not satisfied with the language and proceeded to file a new alternative version of the “Voter Empowerment Act of 2016” and a new initiative entitled, “Government Pension Cap Act of 2016”. The proponents planned to qualify one of the two measures for the November 2016 ballot. The Voter Empowerment Act would require voter approval for new government employees hired on or after January 1, 2019 to participate in defined benefit pension plans (like LAFPP), and limit government employers from paying more than half of the total cost of retirement benefits for new employees, unless voters approve a higher proportion. The Government Pension Cap Act would limit how much government employers could pay for new hires’ retirement benefits to a certain percentage of their salary (13% for new public safety employees).
January 2016 – Proponents decide not to pursue their efforts to place a measure on the November 2016 ballot and will instead focus on the November 2018 ballot.
Summary of Initiatives
PROPONENTS:
The initiative’s proponents are as follows:Chuck Reed – former San Jose MayorCarl DeMaio – former San Diego council memberStephanie Gomes – former Vallejo MayorBill Kampe – Pacific Grove MayorPat Morris – former San Bernardino MayorTom Tait – Anaheim Mayor
Limits government employers from making retirement benefit contributions of more than 13% of base compensation for new public safety employees, and not more than 11% for new general employees. All other costs, including unfunded liability costs, are the responsibility of the new employee, unless voters establish a new limit. New employees are considered those hired on or after 1/1/2019.Limits government employers from paying more than 1/2 of the total cost of retirement benefits for new employees, unless voters approve a higher proportion.The Act shall not alter any current labor agreement in effect, but shall apply to future labor agreements, renewals or extensions entered into after the effective date of the Act.Government employers may continue to offer defined benefit pension plans, defined contribution plans, or a combination of both plans, but the plans are subject to the limitations of the Act.Disability and death benefits are not subject to the limitations outlined in the Act.
Limits government employers that sponsor defined benefit pension plans from providing benefit enhancements, unless approved by voters.New government employees (hired on or after 1/1/2019) may be enrolled in defined benefit pension plans only if approved by voters.Limits government employers from paying more than 1/2 of the total cost of retirement benefits for new employees, unless voters approve a higher proportion.Limits placement of financial conditions upon government employers closing defined benefit plans to new employees.The Act shall not alter any current labor agreement in effect, but shall apply to future labor agreements, renewals or extensions entered into after the effective date of the Act.The Act does not modify or limit any disability or death benefits, or require voter approval for these benefits.
“Voter Empowerment Act of 2016″(Initiative #15-0033 – Public Employees. Pension and Retiree Healthcare Benefits. Initiative Constitutional Amendment”
Eliminates constitutional protections for vested pension and retiree healthcare benefits for current public employees, including those working in K-12 schools, higher education, hospitals, and police and fire protection, for future work performed.Adds initiative/referendum powers to Constitution, for determining public employee compensation and retirement benefits.Bars government employers from enrolling new employees (hired after 1/1/2019) in defined benefit plans, paying more than 1/2 of the cost of new employees’ retirement benefits, or enhancing retirement benefits, unless first approved by voters.This initiative will remain active unless the proponents request that it be withdrawn
Be assured that the Board of Fire and Police Pension Commissioners, management and staff are monitoring this legislation closely and will keep you updated through our website as more information becomes available.
