FROM: Amy McInerny, Chief Financial Officer
SUBJECT: Benefits Policy No. 031 (Tax Compliance)
RECOMMENDATION:
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Approve updates to Benefits Policy No. 031 (Tax Compliance) and adopt Resolution 2026-1 (Resolution Adopting Updated Tax Compliance Regulations).
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BACKGROUND:
SBCERA General Policy No. 005 involves the periodic review of Board policies and indicates that the Administrative Committee review Benefits policies every three years.
Aside from the review requirement found in General Policy No. 005, it is important to review and update the SBCERA Tax Compliance policy as the laws changed in order to maintain SBCERA’s status as a tax-qualified defined benefit plan. The Internal Revenue Service requires a pension plan to be administered in accordance with the Code’s tax-qualification requirements. Past updates to the Tax Compliance policy occurred in 2019, where SBCERA’s tax counsel reviewed three policies and consolidated them into the current version of Benefits Policy No. 031 (Tax Compliance). The next update occurred in 2021 to include revised language for PEPRA (Tier 2) Final Average Compensation calculation methodology, as well as updates to the applicability of Internal Revenue Code section 401 (a)(17) limits to all benefit payments, not just Tier 1 benefits.
In December of 2023, staff worked with tax counsel to update the policy to ensure compliance with the updated Requirement Minimum Distribution rules under the law titled Setting Every Community Up for Retirement Act of 2019 (the “SECURE Act”) and the Consolidated Appropriations Act of 2022, including the changes to the County Employees Retirement Law (AB 2101 and SB 885).
In this proposed updated version (attached as Exhibit C (redlined) and Exhibit D (clean)), staff worked with tax counsel to incorporate the following updates:
• Added examples of tax-qualified retirement plans under code section 401(a) from which SBCERA can accept eligible rollover distributions;
• Added language regarding proration of 415(b) limit when a participant dies mid-year;
• Added language regarding special needs trusts as beneficiaries under the RMD rules; and
• Removed language regarding calculation of a lump sum benefit if a benefit is impacted by the minimum incidental death benefit rules.
Separately from the above proposed changes, there are minor changes to the policy as reflected in the redline document to comply with the IRS model tax regulations.
A confidential memorandum from tax counsel is included as Exhibit A.
Staff further recommends that the Board adopt Proposed Resolution 2026-1 (Resolution Adopting Updated Tax Compliance Regulations), which codifies SBCERA’s tax compliance approach and updated plan documentation.
COMMITTEE REVIEW:
The Administrative Committee reviewed this item at its December 18, 2025 meeting, and recommends Board approval with a 4-0 vote.
BUDGET IMPACT:
None.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Amy McInerny
Barbara Hannah
ATTACHMENTS:
Exhibit A: Memo to Board from Tax Counsel (confidential)
Exhibit B: SBCERA Resolution 2026-1
Exhibit C: Benefits Policy No. 031 (Tax Compliance) - Redline
Exhibit D: Benefits Policy No. 031 (Tax Compliance) - Clean