Employee Relations 01/25/2013
Legislation to Allow Implementation of Orange County’s Hybrid Pension Plan Re-Introduced in Congress
United States Congresswoman Loretta Sanchez (CA-46) last week
re-introduced legislation to revise an Internal Revenue Service
(IRS) Ruling and thereby allow Orange County to fully implement
its hybrid pension plan. That plan, first adopted in 2010, allows
new hires to choose between its current pension formula and a
lower benefit formula that is combined with a 401K-style defined
contribution plan, with the county matching those contributions
up to six percent. Existing employees are currently unable to
opt-in to the hybrid plan due to IRS Ruling 2006-43.
Under IRS ruling 2006 43,Orange County’s optional defined benefit plan tier for current employees could be seen as a cash or deferred arrangement (prohibited under IRC 414(h)(2)) as it changes the amount of the contribution picked up by the employer. As a result, allowing their current employees to elect the lower pension benefit formula may force all of Orange County’s employees to pay taxes on their retirement deductions.
The legislation proposed by Sanchez, H.R. 205, would revise IRS Ruling 2006-43, to allow Orange County and other local jurisdictions, including Contra Costa County, to propose and implement negotiated labor agreements that allow current employees to opt in to alternative pension tiers The legislation is supported by CSAC, as it would remove barriers to counties who wish to negotiate local solutions to responsibly address long-term unfunded public pension liabilities.