Article 160 APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE

Title 7. Pensions

Article 160
APPLICABLE PROVISIONS OF THE INTERNAL REVENUE CODE

Sections:

160.01 Explanation.

160.02 Definitions.

160.03 Maximum annual benefit.

160.04 Adjustments to annual benefit and limitations.

160.05 Annual benefit not in excess of $10,000.

160.06 Participation or service reductions.

160.07 Multiple plan reduction.

160.08 Incorporation of Code Section 415 by reference.

160.09 Required distributions.

160.10 Domestic relations order.

160.11 Direct rollover.

160.12 Credit for qualified military service.

160.01 Explanation.

Each of the funds or plans of the city (MMC Title 7, Pensions, hereafter referred to as the "plan") are amended effective January 1, 2002, except to the extent a different effective date is stated or required to incorporate this article.

In recognition of the fact that the plan must comply in form, content, and operation with certain provisions of the Internal Revenue Code of 1986 (the "Code"), and in spite of the limited applicability of such provisions to the normal operation of the plan, this article details the limitations and parameters applicable to maintaining favorable tax treatment of funds contributed to the plan under federal law. (Ord. 3585 § 1, 2002)

160.02 Definitions.

The following words and phrases are hereby introduced and defined for purposes of this article only:

(A) "Accrued benefit" shall mean a participant’s retirement benefit exclusive of vesting.

(B) "Actuarial equivalent" shall mean a form of benefit differing in time, period, or manner of payment from a specific benefit provided under the plan, but having the same value when computed using the plan factors. Effective January 1, 1995, for purposes of Section 415 of the Code, effective the first limitation year beginning after December 31, 1994, the applicable mortality table shall be utilized. This applies to all benefits including benefits accrued before the first limitation year beginning after December 31, 1994. The applicable mortality table is the mortality table described in Revenue Ruling 95-6, 1995-1 C.B. 80.

(1) Employer contributions;

(2) Employee contributions;

(3) Forfeitures;

(4) Amounts allocated after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the employer; and

(5) Amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after such date, which are attributable to post-retirement medical benefits allocated to the separate account of a key employee (as defined in Code Section 419A(d)(3)) under a welfare benefit plan (as defined under Code Section 419(e)) maintained by the employer.

Except, however, the percentage limitation referred to in Code Section 415(c)(1)(B) below shall not apply to:

(1) Any contribution for medical benefits (within the meaning of Code Section 419A(f)(2)) after separation from service which is otherwise treated as an annual addition; or

(2) Any amount otherwise treated as an annual addition under Code Section 415(l)(1). Notwithstanding the foregoing, for limitation years beginning prior to January 1, 1987, only that portion of employee contributions equal to the lesser of employee contributions in excess of six percent of "415 compensation" or one-half of employee contributions shall be considered an annual addition.

(D) "Annual benefit" shall mean the benefit payable under the terms of the plan (exclusive of any benefit not required to be considered for purposes of applying the limitations of Code Section 415 to the plan) payable in the form of a straight life annuity with no ancillary benefits. If the benefit under the plan is payable in any other form, the annual benefit shall be adjusted to the equivalent of a straight life annuity using the greater of the interest rate assumption specified in the definition of "actuarial equivalent" or five percent.

In addition to other applicable limitations set forth in the plan, and notwithstanding any other provision of the plan to the contrary, for plan years beginning on or after January 1, 1996, the annual compensation of each employee who becomes a participant in the plan on or after such date shall not exceed the OBRA ‘93 annual compensation limit. The OBRA ‘93 annual compensation limit is $150,000, as adjusted by the commissioner for increases in the cost of living in accordance with Code Section 401(a)(17)(B). The cost of living adjustment in effect for a calendar year applies to any period, not exceeding 12 months, over which compensation is determined (determination period) beginning in such calendar year. If a determination period consists of fewer than 12 months, the OBRA ‘93 annual compensation limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12.

For plan years beginning on or after January 1, 1996, any reference in this plan to the limitation under Code Section 401(a)(17) shall mean the OBRA ‘93 annual compensation limit set forth in this provision.

With respect only to an employee who becomes a participant in the plan on or after January 1, 1996, if compensation for any prior determination period is taken into account in determining such employee’s benefits accruing in the current plan year, the compensation for that prior determination period is subject to the OBRA ‘93 annual compensation limit in effect for that prior determination period. For this purpose, for determination periods beginning before the first day of the first plan year beginning on or after January 1, 1996, the OBRA ‘93 annual compensation limit is $150,000.

(E) "Employee" shall mean any person who is employed by the employer, but excludes any person who is an independent contractor. Employee shall include leased employees within the meaning of Code Sections 414(n)(2) and (o)(2) unless such leased employees are covered by a plan described in Code Section 414(n)(5) and such leased employees do not constitute more than 20 percent of the recipient’s non-highly compensated work force.

(F) "415 compensation" with respect to any participant shall mean such participant’s wages as defined in Code Section 3401(a) and all other payments of compensation by the employer (in the course of the employer’s business) for a plan year for which the employer is required to furnish the participant with a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. "415 compensation" must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).

(G) "Leased employee" shall mean any person (other than an employee of the recipient) who pursuant to an agreement between the recipient and any other person ("leasing organization") has performed services for the recipient (or for the recipient and related persons determined in accordance with Code Section 414(n)(6)) on a substantially full-time basis for a period of at least one year, and such services are under the primary direction and control of the recipient. Contributions or benefits provided a leased employee by the leasing organization, which are attributable to services performed for the recipient employer, shall be treated as provided by the recipient employer. A leased employee shall not be considered an employee of the recipient:

(1) If such employee is covered by a money purchase pension plan providing:

(a) A nonintegrated employer contribution rate of at least 10 percent of compensation, as defined in Code Section 415(c)(3), but including amounts contributed pursuant to a salary reduction agreement which are excludable from the employee’s gross income under Code Sections 125, 402(a)(8), 402(h) or 403(b); and

(b) Immediate participation; and

(2) If leased employees do not constitute more than 20 percent of the recipient’s non-highly compensated work force.

(H) "Limitation year" shall mean the plan year, for purposes of applying the limitations under the current article.

(I) "Participant’s account" shall mean the account established and maintained by the administrator for each participant with respect to his total interest in the defined contribution plan maintained by the employer resulting from annual additions.

(J) "Plan year" shall mean the 12-month period beginning on January 1st and ending on December 31st of each year.

(K) "Regulation" shall mean the income tax regulations, as amended from time to time, as promulgated by the Secretary of the Treasury or his delegate. (Ord. 3585 § 1, 2002)

160.03 Maximum annual benefit.

(A) Subject to the exceptions below, the maximum annual benefit payable to a participant under this plan in any limitation year shall equal $90,000.

(B) Notwithstanding anything in this article to the contrary, to the extent the plan was in existence on May 6, 1986, and had complied at all times with the requirements of Code Section 415 (including any pertinent elections), the maximum annual benefit for any individual who was a participant as of the first day of the limitation year beginning after December 31, 1986, shall not be less than the "current accrued benefit." "Current accrued benefit" shall mean a participant’s accrued benefit under the plan, determined as if the participant had separated from service as of the close of the last limitation year beginning before January 1, 1987, when expressed as an annual benefit within the meaning of Code Section 415(b)(2). In determining the amount of a participant’s "current accrued benefit," the following shall be disregarded:

(1) Any change in the terms and conditions of the plan after May 5, 1986; and

(2) Any adjustment for cost of living occurring after May 5, 1986.

(C) The dollar limitation under Code Section 415(b)(1)(A) stated in subsection (A) of this section shall be adjusted annually as provided in Code Section 415(d) pursuant to the regulations thereunder. The adjusted limitation is effective as of January 1st of each calendar year and is applicable to limitation years ending with or within that calendar year.

(D) For the purpose of this article, all qualified defined benefit plans (whether terminated or not) ever maintained by the employer shall be treated as one defined benefit plan, and all qualified defined contribution plans (whether terminated or not) ever maintained by the employer shall be treated as one defined contribution plan.

(E) For the purpose of this article, if this plan is a Code Section 413(c) plan, all employers of a participant who maintains this plan will be considered to be a single employer, namely the "employer." (Ord. 3585 § 1, 2002)

160.04 Adjustments to annual benefit and limitations.

(A) If the annual benefit begins before age 62, then the $90,000 limitation shall be reduced so that it is the actuarial equivalent of the $90,000 limitation beginning at age 62. The $90,000 shall not be actuarial reduced, however, to less than: (1) $75,000 if the annual benefit commences on or after age 55, or (2) the amount which is the actuarial equivalent of the $75,000 limitation at age 55 if the annual benefit commences prior to age 55. For purposes of adjusting the $90,000 limitation applicable prior to age 62 or the $75,000 limitation applicable prior to age 55, the adjustment shall be made using the parameters specified in the definition of actuarial equivalent in MMC 160.02, except that the interest rate assumption shall be the greater of five percent or the rate specified in said definition and any mortality decrement shall be ignored to the extent that a forfeiture does not occur at death. In no event, however, shall the aforesaid dollar limitation be reduced to an amount less than $50,000.

(B) If the annual benefit begins after age 65, the $90,000 limitation shall be increased so that it is the actuarial equivalent of the $90,000 limitation at age 65.

(C) For purposes of adjusting the $90,000 limitation applicable after age 65, the adjustment shall be made using the parameters specified in the definition of actuarial equivalent, except that the interest rate assumption shall be the lesser of five percent or the rate specified in said definition, and the mortality decrement shall be ignored to the extent that a forfeiture does not occur at death.

(D) For purposes of the annual benefit and subsections (A) and (B) of this section, no adjustments under Code Section 415(d) shall be taken into account before the limitation year for which such adjustment first takes effect.

(E) For purposes of the annual benefit, no adjustment is required for qualified joint and survivor annuity benefits, pre-retirement death benefits, and post-retirement medical benefits.

(F) To the extent applicable, the above provisions and limitations shall be governed by Code Section 415(b)(2)(F) and (b)(2)(G). (Ord. 3585 § 1, 2002)

160.05 Annual benefit not in excess of $10,000.

Subject to the provisions of any applicable state law, this plan may pay an annual benefit to any participant in excess of his or her maximum annual benefit if the annual benefit derived from employer contributions under this plan and all other defined benefit plans maintained by the employer does not in the aggregate exceed $10,000 for the limitation year or for any prior limitation year, and the employer has not at any time maintained a defined contribution plan in which the participant participated. For purposes of this section, if this plan provides for voluntary or mandatory employee contributions, such contributions will not be considered a separate defined contribution plan maintained by the employer. (Ord. 3585 § 1, 2002)

160.06 Participation or service reductions.

In the case of a member who is not receiving a disability benefit under the plan, if a participant has less than 10 years of participation in the plan at the time he begins to receive benefits thereunder, the limitations of the maximum annual benefit above shall be reduced by multiplying such limitations by a fraction, the numerator of which is the number of years of participation (or part thereof) in the plan, and the denominator of which is 10; provided, however, that said fraction shall in no event be less than one-tenth. Additionally, for plan years beginning after December 31, 1986, the reductions to the limitations described in the maximum annual benefit above shall be applied separately with respect to each change in the benefit structure of the plan. (Ord. 3585 § 1, 2002)

160.07 Multiple plan reduction.

(A) If an employee is (or has been) a participant in one or more defined benefit plans and one or more defined contribution plans maintained by the employer, the sum of the defined benefit plan fraction and the defined contribution plan fraction for any limitation year may not exceed 1.0.

(B) Defined Benefit Fraction. The defined benefit plan fraction for any limitation year is a fraction, the numerator of which is the sum of the participant’s projected annual benefits under all the defined benefit plans (whether or not terminated) maintained by the employer, and the denominator of which is the lesser of 125 percent of the dollar limitation determined for the limitation year under Code Sections 415(b) and (d) or 140 percent of the highest average compensation, including any adjustments under Code Section 415(b).

Notwithstanding the above, if the participant was a participant as of the first day of the first limitation year beginning after December 31, 1986, in one or more defined benefit plans maintained by the employer which were in existence on May 6, 1986, the denominator of this fraction will not be less than 125 percent of the sum of the annual benefits under such plans which the participant had accrued as of the close of the last limitation year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. The preceding sentence applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 (including any applicable elections) for all limitation years beginning before January 1, 1987.

(C) Defined Contribution Fraction. The defined contribution plan fraction for any limitation year is a fraction, the numerator of which is the sum of the annual additions to the participant’s account under all the defined contribution plans (whether or not terminated) maintained by the employer for the current and all prior limitation years (including the annual additions attributable to the participant’s nondeductible employee contributions to all defined benefit plans, whether or not terminated, maintained by the employer, and the annual additions attributable to all welfare benefit funds, as defined in Code Section 419(e), and individual medical accounts, as defined in Code Section 415(l)(2), maintained by the employer), and the denominator of which is the sum of the maximum aggregate amounts for the current and all prior limitation years of service with the employer (regardless of whether a defined contribution plan was maintained by the employer). The maximum aggregate amount in any limitation year is the lesser of 125 percent of the dollar limitation determined under Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or 35 percent of the participant’s compensation for such year.

If the employee was a participant as of the end of the first day of the first limitation year beginning after December 31, 1986, in one or more defined contribution plans maintained by the employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last limitation year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the plan made after May 5, 1986, but using the Code Section 415 limitation applicable to the first limitation year beginning on or after January 1, 1987. The annual addition for any limitation year beginning before January 1, 1987, shall not be recomputed to treat all employee contributions as annual additions.

(D) If the sum of the defined benefit plan fraction and the defined contribution plan fraction shall exceed 1.0 in any limitation year for any participant in this plan, the administrator shall limit, to the extent necessary, the annual additions to such participant’s account for such limitation year. If, after limiting the annual additions to such participant’s account for the limitation year, the sum of the defined benefit plan fraction and the defined contribution plan fraction still exceed 1.0, the administrator shall then adjust the numerator of the defined benefit plan fraction so that the sum of both fractions shall not exceed 1.0 in any limitation year for such participant.

Note: The provisions of this section shall be applicable until limitation years as of December 31, 1999, and after such time the provisions shall no longer apply. (Ord. 3585 § 1, 2002)

160.08 Incorporation of Code Section 415 by reference.

Notwithstanding anything contained in this plan or this article to the contrary, the limitations, adjustments, and other requirements prescribed in this article shall at all times comply with the provisions of Code Section 415 and the regulations thereunder as such apply to governmental plans, the terms of which are specifically incorporated herein by reference. Thus, for the first 415 limitation year beginning after December 31, 1994, the applicable mortality table described in Revenue Ruling 95-6, 1995-1 C.B. 80 shall be utilized, and effective for plan years beginning after December 31, 1997, the term "compensation," for Code Section 415 purposes, in accordance with Section 415(c)(3)(D) of the Code and Treasury Regulation Section 1.415-2(d), shall include (A) an elective deferral (as defined in Code Section 402(g)(3)), and (B) any amount which is contributed or deferred by the employer at the election of the employee and which is includible in gross income of the employee by reason of Code Sections 125 or 457. (Ord. 3585 § 1, 2002)

160.09 Required distributions.

Notwithstanding any provision in this plan to the contrary, the distribution of a participant’s benefits shall be made in accordance with the requirements and conditions and shall otherwise comply with Code Section 401(a)(9) and the regulations thereunder (including Regulation Section (1.401(a)(9)-2):

(A) A participant’s benefits shall be distributed to him not later than April 1st of the calendar year following the later of:

(1) The calendar year in which the participant attains age 70 and one-half; or

(2) The calendar year in which the participant retires.

Alternatively, distributions to a participant must begin no later than the applicable April 1st as determined under this subsection and must be made over a period not exceeding the life of the participant or the life expectancy of the participant in accordance with regulations.

(B) Distributions to a participant and his beneficiaries shall only be made in accordance with the incidental death benefit requirements of Code Section 401(a)(9)(G) and the regulations thereunder.

(C) Distributions made under subsections (A) and (B) of this section shall be subject to the provisions of survivor provisions of the plan. (Ord. 3585 § 1, 2002)

160.10 Domestic relations order.

All rights and benefits, including elections, provided to a participant in this plan may be subject to the rights afforded to any "alternate payee" pursuant to a domestic relations order as provided by applicable state law. In evaluating any such domestic relations order, the plan administrator may use as a guide Code Section 414(p). (Ord. 3585 § 1, 2002)

160.11 Direct rollover.

(A) This section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the plan to the contrary that would otherwise limit a distributee’s election under this section, a distributee may elect, at the time and in the manner prescribed by the plan administrator, to have any portion of an eligible rollover distribution paid directly to an eligible retirement plan specified by the distributee in a direct rollover.

(B) For purposes of this section, the following definitions shall apply:

(1) An "eligible rollover distribution" is any distribution of all or any portion of the balance to the credit of the distributee, except that an eligible rollover distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee’s designated beneficiary, or for a specified period of 10 years or more; any distribution to the extent such distribution is required under Code Section 401(a)(9); and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities).

(2) An "eligible retirement plan" is an individual retirement account described in Code Section 408(a), an individual retirement annuity described in Code Section 408(b), an annuity plan described in Code Section 403(a), or a qualified trust described in Code Section 401(a), that accepts the distributee’s eligible rollover distribution. However, in the case of an eligible rollover distribution to the surviving spouse, an eligible retirement plan is an individual retirement account or individual retirement annuity.

(3) A "distributee" includes an employee or former employee. In addition, the employee’s or former employee’s surviving spouse and the employee’s or former employee’s spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in Code Section 414(p), are distributees with regard to the interest of the spouse or former spouse.

(4) A "direct rollover" is a payment by the plan to the eligible retirement plan specified by the distributee.

This section shall apply to distributions made after December 31, 2001.

(5) Modification of Definition of "Eligible Retirement Plan." For purposes of the direct rollover provisions in this section, an "eligible retirement plan" shall also mean an annuity contract described in Section 403(b) of the Code and an eligible plan under Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or any agency or instrumentality of a state or political subdivision of a state and which agrees to separately account for amounts transferred into such plan from this plan. The definition of eligible retirement plan shall also apply in the case of a distribution to a surviving spouse, or to a spouse or former spouse who is the alternate payee under a qualified domestic relation order, as defined in Section 414(p) of the Code.

(6) Modification of Definition of "Eligible Rollover Distribution" to Include After-Tax Employee Contributions. For purposes of the direct rollover provisions in this section, a portion of a distribution shall not fail to be an eligible rollover distribution merely because the portion consists of after-tax employee contributions that are not includible in gross income. However, such portion may be paid only to an individual retirement account or annuity described in Section 408(a) or (b) of the Code, or to a qualified defined contribution plan described in Section 401(a) or 403(a) of the Code that agrees to separately account for amounts so transferred, including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible. (Ord. 3585 § 1, 2002)

160.12 Credit for qualified military service.

Notwithstanding any provision of this plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. (Ord. 3585 § 1, 2002)