HomeMy WebLinkAboutRESOLUTION - 27-83 - 4/26/1983 - EMPLOYER PAID/EMPLOYEE CONTRIBUTIONSRESOLUTION NO.. 27-83
A RESOLUTION FOR EMPLOYER PAID (PICK-UP) EMPLOYEE CONTRIBUTIONS
TO THE POLICE PENSION FUND AND FIREMEN'S PENSION FUND
WHEREAS, Section 3-125.1 and 4-124.1 of the Illinois Pension Code provide,
respectively, that the Employer may make payment of Employee Contributions to
both the Police Pension Fund and the Firemen's Pension Fund; and
WHEREAS, Section 414H. of the Internal Revenue Code provides that Employer
paid (pick-up) Employee contributions are excluded in taxable gross income
until distributed as a refund, annuity or death benefit; and
WHEREAS, the Internal Revenue Service has issued a tax decision to the
Village of Elk Grove Village dated March 30, 1983, a copy of which is attached
and made a part of this Resolution; and
WHEREAS, said tax decision authorizes the Village of Elk Grove Village to
make payment of the Employees contribution to both the Police Pension Fund
and the Firemen's Pension Fund on behalf of the employee's; and
WHEREAS, it is desirable that the Employee's contribution to the Police
Pension Fund and the Firemen's Pension Fund be paid by the Employer;
NOW, THEREFORE, BE IT RESOLVED_by the President and Board of Trustees
of the Village of Elk Grove Village, Counties of Cook and DuPage, State of
Illinois, as follows:
Section l: That Employeee contributions to the Police Pension Fund and
the Firemen's Pension Fund shall be paid by the Village of Elk Grove Village
on behalf of all the Employee's enrolled in the fund.
Section 2: That the payment shall be made by reducing the amount of
the contributions and making payment of this amount directly to the fund.
Section 3: That this Resolution supersedes Resolution 69-82 approved on
November 23, 1983 by the President and Board of Trustees.
Section 4: That this Resolution shall be in full force and effect from
and after its passage and approval according to law and that the payment of
Employee contributions provided shall be effective for all compensation paid
to Employees beginning on April 25, 1983.
ATTEST:
PASSED this 26th day of April , 1983.
APPROVED this 26th day of AoriI , 1983.
Patricia S. Smith
Village Clerk
Charles J. Zettek
Village President
Internal Revenue Ser :e
Village of Elk Grove Village
901 Wellington Avenue
Elk Grove Village, IL 60007
Deo ,'ment the 71F-�s
Mr. R. Gertner
p �,
(202)566-4925 D = ',`? 7
I
OP:E:EP:T:1
Legend
State A =
Village M =
Illinois
Elk Grove Village
ELK GROVE
PERSONNEL
VIVA ;E
OFFICE
Plan X
= Policemen's Pension Fund
- Municipalities
500,000 And Under
Plan Y
= Firemen's Pension Fund -
Municipalities
500,00 And Under
Gentlemen:
This is in response to your letter of August 25, 1982, as supplemented
by your letter of November 23, 1982, submitted by your authorized represen-
tative concerning the federal income tax treatment of certain contributions
to Plan X and Plan Y.
State A established Plan X and Plan Y for the benefit of its policemen
and firemen respectively, employed'. by municipalities of a certain population
within the state, including Village M.
You submit that Plan X and Plan Y meet the qualification requirements
of section 401(a) of the Internal Revenue Code.
Under the provisions of the State A statutes establishing Plan X and
Plan Y, policeman and fireman employed by Village M and not otherwise
excluded from Plan X or Plan Y participation, are granted a one-time
election to participate in their respective plans. Plan X and Plan Y pro-
vide for mandatory employee contributions of a stated portion of annual com-
pensation.
Plan X and Plan Y have been amended for the pick up of employee
contributions as follows.
Each employer may pick u.p the [employees'] contributions
required by [the pertinent sections] for all compensation
earned after December 31, 1981. If an employer decides
not to pick up the contributions, the amount that would
have been picked up under [these Acts] shall continue to
be deducted from compensation. If contributions are
picked up they shall be treated as employer contribu-
tions in determining tax treatment under the United
States Internal Revenue Code; however, the employer
shall continue to withhold federal and state income
taxes based upon these contributions until the Internal
Revenue Service or the Federal courts rule that pursuant
-2 -
Village of Elk Grove Village
to Section 414(h) of the United States Internal Revenue
Code, these contributions shall not be included as gross
income of the [employees] until such time as they are
distributed or made available. The employer shall pay
these [employees] contributions from the same source
of funds which is used in paying earnings to the
[employees]. The employer may pick up these contri-
bution by a reduction in the cash salary increase or
by a combination of a reduction in the cash salary of
the [employees] or by an offset against a future salary
increase or by a combination of a reduction in salary
and offset against a future salary increase. If
employee contributions are picked up they shall be
treated for all purposes of [these Articles] in the
same manner and to the same extent as employee
contributions made prior to the date picked up.
By resolution, effective January 1, 1983, Village M will pick up all
the employee contributions of all its Plan X and Plan Y participants.
No option is granted to any Plan X or Plan Y participant to receive these
picked up amounts directly.
Based on the foregoing you request the following rulings:
1. Are the mandatory employee contributions to Plan X which are
picked up by Village M picked up within the meaning of section 414(h)(2)
of the Internal Revenue Code thereby rendering the picked up contri-
butions excludable from the current gross income of Village M's police
employees?
2. Are the picked up contributions to Plan X considered to be wages
of Village M's police employees for federal income tax withholding purposes?
3. Are the mandatory employee contributions to Plan Y which are
picked up by Village M picked up within the meaning of section 414(h)(2)
of the Internal Revenue Code, thereby rendering the picked up contri-
butions excludable from the current gross income of Village M's firemen?
4. Are the picked up contributions to Plan Y considered to be wages
of Village firemen for federal income tax withholding purposes?
Section 414(h)(2) of the Code provides, in part, that contributions,
otherwise designated as employee contributions, shall be treated as
employer contributions if such contributions are made to a plan established
by a state government or a political subdivision thereof, which is described
in section 401(a), and are picked up by the employing unit.
- 3 -
Village of Elk Grove Village
The federal income tax treatment to be accorded contributions
which are picked up by the employer within the meaning of section
414(h)(2) of the Code is specified in Revenue Ruling 77-462, 1977-2
C.B. 358. In that revenue ruling, the employer -school district
agreed to assume and pay the amount's employees were required by
state law to contribute to a state pension plan. Revenue Ruling
77-462 concluded that the school district's picked up contributions
to the plan are excluded from the employee's income until such time
as they are distributed to the employee. The revenue ruling held
further than under the provisions of section 3401(a)(12)(A) of the
Code, the school district's contributions to the plan are excluded
from wages for purposes of the Collection of Income Tax at Source
on Wages; therefore, no withholding is required from the employees'
salaries with respect to such picked up contributions.
The issue of whether contributions have been picked up by an employer
within the meaning of Code section 414(h) is addressed in Revenue Ruling
81-35, 1981-1 C.B. 255 and Revenue Ruling 81-36, 1981-1 C.B. 255. These
revenue rulings established that the following two criteria must be met:
(1) the employer must specify that the contributions, although designated
as employee contributions, are being paid by the employer in lieu of con-
tributions by the employee; and (2i the employee must not be given the
option of choosing to receive the contributed amounts directly instead
of having them paid by the employer, to the pension plan.
Plan X and Plan Y, being established by State A, are governmental
plans within the scope of section 414(h)(2), since, as you submit, they
meet the qualification requirements under section 401(a).
The resolution regarding the pick-up of contributions satisfies the
criteria set forth in Rev. Rul. 81•-35 and Rev. Rul. 81-36 by specifying
that the contributions although designated as employee contributions are
being paid by the employer in lieu of employee contributions and by not
granting an option to the participant to receive such amounts directly.
The election given to employees to participate in Plan X or Plan Y does
not vest in the employees enough control of the employer contributions
to taint the amounts contributed 031 the employee's behalf.
Accordingly, in response to ruling requests 1 and 3, we conclude
that the mandatory employee contributions to Plan X and Plan Y which
are picked up by Village M are done so within the meaning of section
414(h)(2) thereby rendering these amounts excludable from the gross
income of the Village M firemen and policemen until distributed from
their respective plans.
=4=
Village of Elk Grove Village
Stith reference to ruling request 2 and 4, section 414(h)(2) provides
that employee contributions picked up by the employer are to be treated
as employer contributions. In this case, Village M's pick up of employee con—
tributions meets the criteria under section 414(h)(2), consequently we
have determined that the picked up amounts are to be treated as employer
contributions. It follows that such contributions are excepted from the
definition of wages set forth in section 3401 (a)(12)(A) of the Code.
Therefore, in response to ruling requests 2 and 4, we conclude that no
part of the amount of the pick—up by Village M constitutes wages for
federal income tax withholding purposes in the taxable year in which
contributed to Plan X and Plan Y.
These rulings are based on the assumptions that Plan X and Plan Y
will be qualified under Code section 401(a) at the time of the proposed
contributions and distributions.
A copy of these rulings is being sent to your authorized representative
in accordance with a power of attorney on file in this office.
Sincerely yours,
William T. Allen
Chief, Employee Plans
Technical Branch
Department of the Treasury
Internal Revenue Service
Notice of
Intention To
Disclose
Section 6110 of the Internal Revenue Cod: pro-
vides that copies of certain rulings, technical
advice memoranda. and determination letters will
be open to public inspection after deletions are
made. Rulings and technical advice memoranda
will be open to public inspection in the National
Office Reading Room, 1111 Constitution Avenue,
N.W., Washington, D.C. 20224, where they may be
read and copied by anyone interested.
In accordance with section 6110, we intend to
make open to public inspection the enclosed de-
leted copy of your ruling. The deletions Indicated
were made in accordance with section 6110(c).
which requires that the following be deleted.
(1) the Names, addresses, and other identify-
ing details of the person to whom the rul-
ing pertains and of any other person iden-
tified in the ruling (other than a person
making a "third party communication"—
see below);
(2) information specifically authorized under
criteria established by an Executive order
to be kept secret in the interest of national
defense or foreign policy, and which is in
fact properly classified pursuant to such
Executive order;
(3) information specifically exempted from
disclosure by any statute (o!her than the
Internal Revenue Code) which is applica-
ble to the Internal Revenue Service;
(4) trade secrets and commercial or financial
information obtained from a person and
privileged or confidential;
(5) information the disclosure of which would
cons:!tute a clearly unwarranted invasion
of personal privacy;
(6) information contained in or related to ex-
amination, operating, or copdition reports
prepared by, or on behalf of or for use of
an agency responsible for the regulation
or supervision of finar.cial institutions;
and
!7) geological and geophysical information
and data, including maps, concerning
wells.
D
Dale of Mailing
—k.3
of Me Notice
,,,3
Lest Dau to Request
G 1
fervks Revlon.
Lost 021e to Request
�3
Delay
Loft Date to Petition
—
Tax Court
kJ
Oslo Open to Ptdtic
k""tion
These are the only grounds for deletion of ma-
terial. The indicated proposed deletions were
made after consideration of any suggestions for
deletions you may have made prior to issuance of
the ruling.
IF YOU AGREE with the proposed deletions, you
need not take any further action and we will place
the deleted copy in the National Office Reading
Room on the "Date Open to Public Inspection"
shown on this notice.
IF YOU DISAGREE with the proposed deletions,
please return the deleted copy and indicate, In
brackets, any additional information you believe
should be deleted. Include a statement supporting
your position. Only material falling within the seven
categories listed above may be deleted; accord-
ingly, your statement should specify which of these
seven categories is applicable with respect to
each additional deletion you propose. Your sub-
mission should be addressed to:
Commissioner of Internal Revenue
Attention: T:FP
Ben Franklin Station
Post Office Box 7604
Washington, D.C. 20044
It must be postmarked no later than the "Last
Date to Request Service Review" shown on this
notice. Your submission will be given careful cor;-
sideration. If we feel we cannot make any or all of
the additional deletions you suggest, we will so
advise you no later than 20 days after receipt of
your submission, You will then have the right to
file a petition in the United States Tax Court it you
disagree with us. Your petition must be filed no
later than the "Last Date to Petition Tax Court"
shown on this notice, which is 60 days after the
date of mailing of this notice. It a petition is filed
in the Tax Court, the disputed portion(s) of the
ruling will not be placed in the Reading Room
until atter a court decision becomes final.
If no petition is filed in the Tax Court, the de-
leted copy of your ruling will be made open to
public inspection within 75 to 90 days after the
date of mailing of this notice. if the transaction to
which the rul ng relates will not be completed by
then, a request for delay of public inspection may
be made.
Notice 437 (Rai. 8.781
Request for Delay of Public Inspection
A request may be made for a delay of public
inspection of up to 90 days, or 15 days after the
transaction is completed, whichever is earlier.
The request for delay must be received by the
Service no later than the "Last Date to Request
Delay" shown on this notice, which is 60 days
after the date of mailing of this notice. The request
for delay should be sent to:
Commissioner of Internal Revenue
Attention. T:FP
Ben Franklin Station
Post Office Box 7604
Washington, D.C. 20044
A second delay of up to an additional 180 days
(or 15 days after the completion of the transac-
tion, whichever is earlier) may be requested if the
transaction is not completed by the expiration of
the original delay period and if good cause exists
for such additional delay. The request for a second
delay should be sent to the above address and
received by the Service no later than 30 days
before the original delay period expires.
Additional Disclosure
After the deleted copy of your ruling is placed
in our Reading Room, any person may request the
Service to make additional portions of the ruling
open to public inspection. If the Service receives
a request that involves disclosure of names, ad-
dresses, or taxpayer identifying numbers, the
Service will deny the request and you will not be
contacted. If the request involves disclosure of
anything other than names, addresses, or tax-
payer identifying numbers, the Service will contact
you before taking acticn.
Third Party Communications
The enclosed deleted copy of your ruling may
contain the notation 'third party communication."
This indicates the Service has received a commu-
nication (written or oral) regarding your ruling re-
quest from a person outside the Service (other
than you or your authorized representative). The
date of the communication and the category of
the person making the contact (such as "Congres-
sional" or 'Trade Associat on") will be indicated.
In addition, it this person is mentioned in the body
of the ruling, the identity of such person may not
be deleted
If you have any questions about this notice,
please contact:
Chief, Rulings Disclosure Branch, T:FP:R
1111 Constitution Avenue, N.W.
Washington, D.C. 20224
(202) 566-4378 or
(202) 566-6272
Nowt 637 (Rn. 8.781
Internal Revenue Sen.,;e
significant index no. 0414,07-00
Legend
State A
Village M
Plan X
Plan Y =
Gentlemen:
Department the Treasury
Person t, C-nt=.r
T I lin nl h
Refer Reply to
OP:E:EP:T:1
Date.
This is in response to your letter of August 25, 1982, as supplemented
by your letter of November 23, 1982, submitted by your authorized represen-
tative concerning the federal income tax treatment of certain contributions
to Plan X and Plan Y.
State A established Plan X and Plan Y for the benefit of its policemen
and firemen respectively, employed by municipalities of a certain population
within the state, including Village M.
You submit that Plan X and ?tan Y meet the qualification requirements
of section 401(a) of the Internal Revenue Code.
Under the provisions of the State A statutes establishing Plan X and
Plan Y, policeman and fireman employed by Village M and not otherwise
excluded from Plan X or Plan Y participation, are granted a one-time
election to participate in their respective plans. Plan X and Plan Y pro-
vide for mandatory employee contributions of a stated portion of annual com-
pensation.
Plan X and Plan Y have been amended for the pick up of employee
contributions as follows.
Each employer may pick up the [employees'] contributions
required by [the pertinent sections] for all compensation
earned after December 31, 1981. If an employer decides
not to pick up the contributions, the amount that would
have been picked up under [these Acts] shall continue to
be deducted from compensation. If contributions are
picked up they shall be treated as employer contribu-
tions in determining tax treatment under the United
States Internal Revenue Code; however, the employer
shall continue to withhold federal and state income
taxes based upon these contributions until the Internal
Revenue Service or the '.Federal courts rule that pursuant
E:�
- 2 -
to Section 414(h) of the United States Internal Revenue
Code, these contributions shall not be included as gross
income of the [employees] until such time as they are
distributed or made available. The employer shall pay
these [employees] contributions from the same source
of funds which is used in paying earnings to the
[employees]. The employer may pick up these contri-
bution by a reduction in the cash salary increase or
by a combination of a reduction in the cash salary of
the [employees] or by an offset against a future salary
increase or by a combination of a reduction in salary
and offset against a future salary increase. If
employee contributions are picked up they shall be
treated for all purposes of [these Articles] in the
same manner and to the same extent as employee
contributions made prior to the date picked up.
By resolution, effective January 1, 1983, Village M will pick up all
the employee contributions of all its Plan X and Plan Y participants.
No option is granted to any Plan X or Plan Y participant to receive these
picked up amounts directly.
Based on the foregoing you request the following rulings:
1. Are the mandatory employee contributions to Plan X which are
picked up by Village M picked up within the meaning of section 414(h)(2)
of the Internal Revenue Code thereby rendering the picked up contri-
butions excludable from the current gross income of Village M's police
employees?
2. Are the picked up contributions to Plan X considered to be wages
of Village M's police employees for federal income tax withholding purposes?
3. Are the mandatory employee contributions to Plan Y which are
picked up by Village M picked up within the meaning of section 414(h)(2)
of the Internal Revenue Code, thereby rendering the picked up contri-
butions excludable from the current gross income of Village M's firemen?
4. Are the picked up contributions to Plan Y considered to be wages
of Village firemen for federal income tax withholding purposes?
Section 414(h)(2) of the Code provides, in part, that contributions,
otherwise designated as employee contributions, shall be treated as
employer contributions if such contributions are made to a plan established
by a state government or a political subdivision thereof, which is described
in section 401(a), and are picked up by the employing unit.
- 3 -
The federal income tax treatment to be accorded contributions
which are picked up by the employer within the meaning of section
414(h)(2) of the Code is specified. in Revenue Ruling 77-462, 1977-2
C.B. 358. In that revenue ruling, the employer -school district
agreed to assume and pay the amounts employees were required by
state law to contribute to a state pension plan. Revenue Ruling
77-462 concluded that the school district's picked up contributions
to the plan are excluded from the employee's income until such time
as they are distributed to the employee. The revenue ruling held
further than under the provisions of section 3401(a)(12)(A) of the
Code, the school district's contributions to the plan are excluded
from wages for purposes of the Collection of Income Tax at Source
on Wages; therefore, no withholding is required from the employees'
salaries with respect to such picked up contributions.
The issue of whether contributions have been picked up by an employer
within the meaning of Code section 414(h) is addressed in Revenue Ruling
81-35, 1981-1 C.B. 255 and Revenue Ruling 81-36, 1981-1 C.B. 255. These
revenue rulings established that the following two criteria must be met:
(1) the employer must specify that the contributions, although designated
as employee contributions, are being paid by the employer in lieu of con-
tributions by the employee; and (2) the employee must not be given the
option of choosing to receive the contributed amounts directly instead
of having them paid by the employer to the pension plan.
Plan X and Plan Y, being established by State A, are governmental
plans within the scope of section 414(h)(2), since, as you submit, they
meet the qualification requirements under section 401(a).
The resolution regarding the pick-up of contributions satisfies the
criteria set forth in Rev. Rul. 81-35 and Rev. Rul. 81-36 by specifying
that the contributions although 4esignated as employee contributions are
being paid by the employer in lieu of employee contributions and by not
granting an option to the participant to receive such amounts directly.
The election given to employees to participate in Plan X or Plan Y does
not vest in the employees enough control of the employer contributions
to taint the amounts contributed on the employee's behalf.
Accordingly, in response to ruling requests 1 and 3, we conclude
that the giandatory employee contributions to Plan X and Plan Y which
are picked up by Village M are done so within the meaning of section
414(h)(2) thereby rendering these amounts excludable from the gross
income of the Village M firemen and policemen until distributed from
their respective plans.
With reference to ruling request 2 and 4, section 414(h)(2) provides
that employee contributions picked up by the employer are to be treated
as employer contributions. In this case, Village M's pick up of employee con-
tributions meets the criteria under section 414(h)(2), consequently we
have determined that the picked up amounts are to be treated as employer
contributions. It follows that such contributions are excepted from the
definition of wages set forth in section 3401 (a)(12)(A) of the Code.
Therefore, in response to ruling requests 2 and 4, we conclude that no
part of the amount of the pick-up by Village M constitutes wages for
federal income tax withholding purposes in the taxable year in which
contributed to Plan X and Plan Y.
These rulings are based on the assumptions that Plan X and Plan Y
will be qualified under Code section 401(a) at the time of the proposed
contributions and distributions.
A copy of these rulings is being sent to your authorized representative
in accordance with a power of attorney on file in this office.
Sincer(�e�ly1 yours,
William T. Allen
Chief, Employee Plans
Technical Branch