DATE: March 5, 2024
TO: Board of Supervisors
SUBMITTED BY: Hollis Magill, Director of Human Resources
SUBJECT: Amend and Restate the County of Fresno 401(a) Defined Contribution Plan
RECOMMENDED ACTION(S):
TITLE
1. Adopt a Resolution amending and restating the County of Fresno 401(a) Defined Contribution Plan.
2. Approve and authorize the Chairman to execute the amended Adoption Agreement for Nationwide Financial Services, Inc. Non-Standardized Governmental 401(a) Pre-Approved Plan amending and restating the County of Fresno 401(a) Defined Contribution Plan.
REPORT
There is no Net County Cost associated with the recommended actions.
Collectively, the recommended actions will amend the County of Fresno 401(a) Defined Contribution Plan (the “401(a) Plan”) to 1) allow the County the flexibility to offer an employer matching contribution amount, which the County, in its sole discretion, elects to make to the 401(a) Plan on behalf of employees who are actively contributing to their County of Fresno 457(b) Deferred Compensation Plan (the “457(b) Plan”) account; 2) allow the County to offer non-matching contributions and leave conversion contributions to the 401(a) Plan on behalf of employees in its sole discretion; and 3) update certain elections in order to confirm the treatment of various bargaining groups under the 401(a) Plan and to facilitate the overall administration of the 401(a) Plan.
This item is countywide.
ALTERNATIVE ACTION(S):
The alternative to the recommended actions is to direct staff to revise the proposed amended Adoption Agreement to remove any elections related to employer 457(b) Plan non-matching contributions and/or leave conversion contributions to the 401(a) Plan and bring an item to the Board of Supervisors at a later date for the revised amended Adoption Agreement.
However, there is no alternative to the changes related to the employer 457(b) Plan matching contributions, as changes need to be made in order to effectuate prior Board direction increasing the employer 457(b) Plan matching contributions for certain bargaining units.
There are also no viable alternatives to the various changes made in order to confirm the treatment of various bargaining groups under the 401(a) Plan and to facilitate the overall administration of the 401(a) Plan as these language changes are necessary to best conform the 401(a) Plan with County practices.
FISCAL IMPACT:
There is no Net County Cost associated with the recommended actions. All costs associated with the administration of the 401(a) Plan will be borne by 401(a) Plan participants.
DISCUSSION:
1. County of Fresno 401(a) Defined Contribution Plan
On April 5, 2022, the Board of Supervisors adopted Resolution No. 22-114, which established the 401(a) Plan and approved Agreement No. 22-130, which allowed the County to customize the Non-Standardized Governmental 401(a) Pre-Approved Plan in certain aspects, such as which employees may participate in the 401(a) Plan and what the matching amount will be. The 401(a) Plan Document is prepared and maintained by Nationwide Financial Services, Inc., and has been pre-approved by the IRS; Nationwide Financial Services, Inc., will continue to update the 401(a) Plan Document on a regular basis and notify the County of any required changes.
The purpose of the 401(a) Plan is to receive employer matching contributions of employees’ contributions to their 457(b) Plan accounts. Adoption of the 401(a) Plan allowed the County to effectuate the Board of Supervisors’ direction to match certain employees’ 457(b) Plan contributions, up to $25.00 per pay period, with the least administration and without limiting employees’ maximum contribution amount or additional taxation to employees.
The Deferred Compensation Management Council provides oversight to the 401(a) Plan and the Director of Human Resources is the 401(a) Plan Administrator, mirroring the oversight of the 457(b) Plan. The 401(a) Plan and the 457(b) Plan use the same investment lineup and service providers.
Currently, only employees who are in Retirement Tiers 4 and 5 (General and Safety) are eligible to receive an employer matching contribution to their 457(b) Plan contributions. Bargaining units 01, 10, 14, and 38, as well as the Sheriff’s Lieutenant classification (bargaining unit 35), have not agreed to receive the matching contribution, so employees in Retirement Tiers 4 and 5 from those units/classifications are not eligible to participate in the 401(a) Plan.
As of January 30, 2024, there are 3,490 participants in the 401(a) Plan with an average account balance of $794. The 401(a) Plan has $2,896,646 in assets. Approximately 62% of match-eligible employees are currently contributing to their 457(b) Plan account, with approximately 83% of those employees contributing enough to get the full employer match of $25.
2. Employer Matching Contributions.
Paragraph 26 of Agreement No. 22-130 limits the County to a fixed employer matching contribution formula of “100% of salary deferrals made to the 457(b) Plan up to a maximum of $25 per pay period.” On November 28, 2023, the Board of Supervisors approved an increase to the employer 457(b) Plan matching contribution from $25 to $50 per paycheck for Bargaining Unit 19 employees who are enrolled in Retirement Tiers 4 and 5. Therefore, it is necessary to update the 401(a) Plan to provide the County with the flexibility to offer different matching contributions to different employee groups/bargaining units.
Approval of the recommended actions will update the language in Paragraph 26.B.j of the proposed amended Adoption Agreement to allow the County to set the employer matching contribution amounts in its sole discretion, pursuant to a resolution or formal written action by the Board of Supervisors.
3. Optional Employer Non-Matching Contributions.
Under Agreement No 22-130, the County may not make contributions to its employees’ 401(a) Plan accounts, other than matching contributions. An employer non-matching contribution is made by an employer regardless of whether an employee makes any contributions to their 457(b) Plan account.
Approval of the recommended actions will -
1. Allow the County to make employer non-matching contributions to employees’ 401(a) Plan accounts;
2. Indicate that such non-matching contributions will be 100% vested upon entering the 401(a) Plan, which is consistent with current County practice related to employer matching contributions;
3. Allow the County to implement a leave conversion option where the value of unpaid leave, which the Employee has no right to receive in cash, may be contributed to employees’ 401(a) Plan accounts;
4. State that the amount of a hypothetical employer non-matching contribution will be determined by the County; and
5. State that there are no service time conditions placed on employees’ eligibility to receive employer non-matching contributions.
The proposed amendments, described above, would allow the County the option to make employer non-matching contributions and/or leave balance conversion contributions to employees’ 401(a) Plan accounts. Approval of the recommended actions would not obligate the County to provide such contributions. However, should the County choose to offer these options in the future, adding these options under the 401(a) Plan at this time will avoid an additional 401(a) Plan amendment and restatement process.
4. Necessary Language Updates.
Staff is recommending changes in order to confirm the treatment of various bargaining groups under the 401(a) Plan and to facilitate the overall administration of the 401(a) Plan.
Under Agreement No 22-130, union employees are listed as exempt from participating in the 401(a) Plan unless language in their Memorandum of Understanding (MOU) allows for participation. While the 457(b) Plan Document defines an eligible employee as “an individual who is employed by the County of Fresno as a common law employee of the County of Fresno and does not include independent contractors,” the MOUs do not contain language specifically allowing employees to participate in the 401(a) Plan. Therefore, union employees should not be listed as exempt; only specific excluded employee groups and/or positions must be listed. Therefore, the proposed amended Adoption Agreement defines the excluded employees as -
1. All employees who are not in Retirement Tiers 4 and 5; and
2. All employees in bargaining units 01, 10, 14, and 38; and
3. All employees in the Sheriff's Lieutenant position (County of Fresno Job Classification Number 4080).
Should the Board of Supervisors and any of the excluded employee groups agree to employer contributions in the future, staff will bring an item to the Board of Supervisors to amend this language in the Adoption Agreement accordingly.
Agreement No 22-130 states employees are eligible to participate in the 401(a) Plan on “the same date the Board of Supervisors adopts the Plan Document resulting in no participation prior to that date and contributions beginning administratively feasible after that Entry Date.” The County’s current practice is to make employees eligible to participate in the 401(a) Plan as soon as they elect to begin making contributions to their 457(b) Plan account. Therefore, the proposed amended Adoption Agreement states that employees may begin participation in the 401(a) Plan “No later than the first day of the second pay period after the person’s date of hire.”
Agreement No 22-130 states that the employer matching contributions would begin after the Board of Supervisors adopted the 401(a) Plan, which at that time was correct, as the County would have been obligated to provide matching contributions for periods prior to the adoption of the 401(a) Plan. The County’s current practice, which is to provide the employer matching contributions immediately upon the employee’s election to participate in the 457(b) Plan and without regard to the employee’s service time throughout the 401(a) Plan Year, is now reflected in the proposed amended Adoption Agreement.
Agreement No 22-130 provides a formula to determine forfeitures, which is defined in the 401(a) Plan Document as “that portion of a Participant's Account that is not Vested and is disposed of in accordance with the provisions of the 401(a) Plan.” The proposed amended Adoption Agreement confirms that 401(a) Plan contributions are not subject to vesting. This recommended change will not prevent the County from withdrawing any contributions that are made in error.
5. Summary of Proposed Changes to the 401(a) Plan.
A “redline” document, comparing the changes between Agreement No. 22-130 and the proposed amended Adoption Agreement, is included as Exhibit A.
6. Next Steps.
Assuming your Board’s approval of the recommended actions, the amended and restated 401(a) Plan and amended Adoption Agreement will become effective as of March 5, 2024. Staff will send the amended Adoption Agreement to Nationwide Financial Services, Inc., and ensure that the new provisions are implemented prior to March 29, 2024, the date the new matching contributions are provided on behalf of employees.
OTHER REVIEWING AGENCIES:
Best Best & Krieger, a law firm specializing in legal issues relating to defined contribution plans, assisted in reviewing the proposed amended Adoption Agreement and Resolution.
REFERENCE MATERIAL:
BAI #55, November 28, 2023
BAI #39, April 5, 2022
ATTACHMENTS INCLUDED AND/OR ON FILE:
On file with Clerk - Resolution
On file with Clerk - Proposed Amended Adoption Agreement
On file with Clerk - Exhibit A
CAO ANALYST:
Salvador Espino