FROM: Barbara Hannah, Chief Counsel
SUBJECT: Benefits Policy No. 031 (Tax Compliance)
RECOMMENDATION:
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Approve updates to Benefits Policy No. 031 (Tax Compliance).
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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).
For example, as currently drafted, the Required Beginning Date is defined as "April 1, of the calendar year following the later of the calendar year in which the member attains age 70 1/2 or the calendar year in which the member retires." The updated redline version reflects changes to the RMD age under federal and state law which is now age 72 rather than age 70 1/2. (See Section V(C)(5))....
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