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HomeMy WebLinkAboutOCSD 05-19RESOLUTION NO. OCSD 05-19 ESTABLISHMENT OF REPLACEMENT BENEFITS PLAN A RESOLUTION OF THE BOARD OF DIRECTORS OF ORANGE COUNTY SANITATION DISTRICT AUTHORIZING GENERAL MANAGER TO ADOPT A REPLACEMENT BENEFITS PLAN IN COMPLIANCE WITH COUNTY EMPLOYEES RETIREMENT LAW OF 1937. *********** WHEREAS, the Orange County Employees' Retirement System ("System") provides retirement benefits to employees of the Orange County Sanitation District ("District"), and WHEREAS, the amount of benefits that can be provided to System members is limited by Section 41 S(b) of the· Internal Revenue Code ("Code"), and WHEREAS, the Internal Revenue Code provides that the District can establish a replacement benefits plan to pay the full benefits earned by System members whose benefits cannot be paid by System under Section 41 S(b ), and it is the District's responsibility under the County Employees Retirement Law of 1937 ("GERL") to provide a program to replace benefits that cannot be paid by the System because of the limits of section 41 S(b) of the Code, and WHEREAS, such a replacement benefits plan is used by many other entities, in both the private and public sector, to replace benefits limited by section 41 S(b ), and WHEREAS, it would be to the benefit of the District to ensure that all of its employees receive the entire retirement benefit which they would earn under the System but for the limits of the Code, and WHEREAS, the most efficient way for the District to operate a replacement benefits plan is to enter into a memorandum of understanding with System setting out the responsibilities of the District and System with respect to such a plan, NOW THEREFORE, the Board of Directors of the Orange County Sanitation District DOES HEREBY RESOLVE, DETERMINE AND ORDER: 1. That the General Manager be authorized to adopt the Orange County Sanitation District Replacement Benefits Plan ("Plan") in a form that is similar to the draft Plan that is presented to the Board and attached to this Resolution. The effective date of the Plan shall be July 1, 2005. Such action shall be taken as soon as reasonably practical. After adoption, the General Manager shall file a copy of the executed Plan with the Secretary to the Board of Directors. 2. That the General Manager be authorized to delegate the administration of the Plan as he sees fit, including, but not limited to, entering into an agreement with the Orange County Employees' Retirement System for such administration. Such delegation may change at the discretion of the General Manager at the time or times that he determines is necessary or appropriate. 3. That the General Manager be authorized to enter into a memorandum of understanding (MOU) between the District and the Orange County Employees' Retirement System that sets out the respective responsibilities of the District and the System with respect to the Replacement Benefits Plan. Such MOU shall be in a form that is similar to the draft MOU that is presented to the Board and attached to this Resolution. Such action shall be taken as soon as reasonably practical. After execution, the General Manager shall file a copy of the executed MOU with the Secretary to the Board of Directors. PASSED AND ADOPTED at a regular meeting held June 22, 2005. Chair '· ' f ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN Copyright Hanson, Bridgett, Marcus, Vlahos & Rudy LLP 2003-2005 5/15/05 5/15/05 TABLE OF CONTENTS Article 1 -Establishment and Status of Plan ........................................ 1 Article 2 -Definitions ............................................................................ 2 Article 3 -Participation ......................................................................... 3 Article 4 -Retirement Benefits Payable ............................................... 4 Article 5 -Exemption from Process; Assignments Prohibited .............. 7 Article 6 -Administration ...................................................................... 8 Article 7 -Source of Benefits ............................................................... 10 Article 8 -Miscellaneous ...................................................................... 11 Article 9 -Amendment or Termination of Plan ..................................... 12 Copyright Hanson, Bridgett, Marcus, Vlahos & Rudy LLP 2003-2005 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN Article 1 -Establishment and Status of Plan 1.1 Establishment 5/15/05 The Orange County Sanitation District hereby establishes and adopts a retirement plan entitled the "Orange County Sanitation District Replacement Benefits Plan" (the "Plan") to provide the annual retirement benefits otherwise earned by and payable to its employees who are members of the Orange County Employees' Retirement System ("System") but which are limited by the rules of Section 415(b) of the Internal Revenue Code of 1986, as amended ("Code"). System is a tax qualified retirement plan under Section 401 (a) of the Code and is a governmental plan as defined in Section 414(d) of the Code. 1 .2 Effective Date This Plan shall be effective, and benefits shall be payable from this Plan, for periods beginning as of July 1, 2005 or as of such later date on which this plan is made effective by the Board of Directors for retired Members who were employees of the District, as provided herein. 1.3 "Portion of System" This Plan shall be deemed a "portion" of the System solely to the extent required by, and within the meaning of, Section 415(m)(3) of the Code as in effect on January 1, 2005, and not for any other purpose. 1.4 Purpose and Tax Status of this Plan (a) In accordance with Section 415(m) of the Code, this Plan is solely for the purpose of providing to eligible retired Members of the System, and to their Eligible Survivors, that part of the annual benefit otherwise payable by the System that exceeds the limitations on benefits imposed by Section 415(b) of the Code. (b) It is intended that this Plan be treated as an "exempt governmental deferred compensation plan" described in Section 3121 (v)(3) of the Code; therefore, payments under this Plan are not included as wages subject to Social Security and Medicare taxes. (c) No assets directly or indirectly relating to this Plan shall be held in trust, or otherwise held or set aside for the exclusive benefit of participants and their beneficiaries. This Plan shall be unfunded within the meaning of the federal Copyright Hanson, Bridgett, Marcus, Vlahos & Rudy LLP 2003-2005 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN income tax laws. Article 2 -Definitions 2.1 Plan Definitions Terms used in this Plan shall have the meaning set out below. Beginning Date means the first date during a Plan Year with respect to which payment begins under this Plan. Board of Directors means the Board of Directors of the Orange County Sanitation District. GERL means the County Employees Retirement Law of 1937 as set out in the California Government Code, as amended. Code means the Internal Revenue Code of 1986, as amended, and any rules and regulations issued thereunder. Commencement Date means the date of commencement of participation in this Plan as set out in Section 3.2 hereof. District means the Orange County Sanitation District. Effective Date means the first date with respect to which benefits are payable under this Plan as set out in Section 1.2 hereof. Eligible Survivor means the surviving spouse, surviving child or children, surviving parent or parents, or surviving beneficiary designated by the Member, to whom benefits are payable from System on the death of the Member. Member means a member, as defined in the CERL, of the System who was an employee of the District immediately prior to retirement under the System or for whom the District was his/her last employer that was a System participating agency. Participant means a retired Member who participates in this Plan pursuant to Article 3 hereof. An Eligible Survivor is not a Participant in this Plan, but is a beneficiary who receives benefits under this Plan with respect to a Participant or Member. Plan means this Orange County Sanitation District Replacement Benefits Plan. Plan Administrator means the Orange County Sanitation District. 5/15/05 2 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN Plan Year means the 12-month period beginning on January 1 and ending on December 31 . Section 415 means Section 415 of the Code. System means the Orange County Employees' Retirement System. Article 3 -Participation 3.1 System Members With Benefits Limited by Section 415(b) Participation in this Plan is limited solely to retired Members whose benefits payable by the System are limited by Section 415(b) for periods on and after the Effective Date. 3.2 Commencement of Participation Subject to the terms and conditions of this Plan, a retired Member shall commence participation in this Plan on the first date, on or after the Effective Date, for which his or her benefits payable from the System cannot be fully paid because of the limits of Section 415(b ). This date is the Commencement Date. 3.3 Cessation of Participation Participation in this Plan shall cease on the first date for which benefits payable to the retired Member from the System are no longer limited by Section 415(b) and therefore can be fully paid by the System. Participation shall also cease on the retired Member's death or when the retired Member's System benefits cease. 3.4 Recommencement of Participation If a Participant has ceased participation in this Plan but at a later date the full payment of his or her System benefits is again limited by Section 415(b ), he or she shall again commence participation as provided in Section 3.2 hereof and shall cease participation as provided in Section 3.3 hereof. 3.5 Eligible Survivors Any Eligible Survivor of a Member shall receive benefits under this Plan on the first date (on or after the Effective Date) on which benefits payable to him/her from the System cannot be fully paid because of the limits of Section 415(b ). The Eligible Survivor's benefits paid under this Plan shall cease on the first date for which his or her System benefit is no longer limited by Section 415(b) and therefore can be fully paid by the System. The Eligible Survivor's benefits under this Plan shall recommence at a later date if full payment of his/her System 5115105 3 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN benefits is again limited by Section 415(b ), and shall thereafter cease on the next date that full payment of the System benefit is no longer limited by Section 415(b ). An Eligible Survivor's benefit shall also cease on his/her death or when his/her System benefits cease. 3.6 No One Else Shall Receive Benefits No one other than a person described in this Article shall receive any benefits under this Plan, except as required by qualified domestic relations orders or governing law. Article 4-Retirement Benefits Payable 4.1 Amount of Benefit -Initial Determination (a) The benefit paid under this Plan in any Plan Year shall be initially determined for each Participant at the Participant's Commencement Date under the following steps. (1) Determine the Participant's benefits payable at the time of the Commencement Date by the System without regard to the limits of Section 415(b) and after taking into account the form of System benefit selected by the Participant. -(2) Determine the amount of the Participant's System benefits (if any) attributable, at the Commencement Date, to after-tax Member contributions, rollovers and direct transfers which are excluded from the limits of Section 415(b ), after taking into account the form of System benefit selected by the Participant. (3) Subtract the amount determined in (2) from the amount determined under ( 1 ); this is the amount subject to the Section 415(b) limits for the Participant. (4) Determine the maximum benefits payable to the Participant from the System under the then current benefit payment limits of Section 415(b ), ignoring any benefits determined under (2). The determination under this step (4) shall take into account items such as the applicable dollar limits, the form of benefit payment chosen, the date that the Participant first became a Member, and whether he or she qualifies for special limits under Section 415(b) such as those for certain safety members. (5) Subtract the amount determined under (4) from the amount determined under (3). If the amount in (3) is greater than the amount in (4), the difference is the initial benefit paid under this Plan for the Plan Year in which the 5115105 4 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN Commencement Date occurs. If the amount in (4) is equal to or greater than the amount in (3), then no benefits are payable under this Plan. (b) The total retirement benefit that will be paid to a Participant in any year will be the sum of the benefit paid under this Plan and the benefit paid by the System, including amounts attributable to both District and after tax Member contributions. Therefore, the total retirement benefit that will be paid to a Participant under this Plan and the System is the sum of the amounts in (2), (4) and (5) above. However, this Plan and the System shall be separate entities and shall be administered separately. In addition, separate checks will be paid for the benefits under this Plan and the System; the Plan Administrator shall provide separate tax reporting for the benefits paid under this Plan; and no assets of the System shall be used, directly or indirectly, to pay for benefits or administration or any other costs of this Plan. (c) The Plan Administrator shall rely on the determination by the System, for purposes of administering the System in accordance with Section 415(b ), of the amounts set out under each of steps (1) through (5) in paragraph (a) of this Section. 4.2 Amount of Benefit -Redeterminations (a) As of each January 1 following the Participant's Commencement Date (or the date of commencement of benefits under this Plan for any Eligible Survivor), the Participant's, or Eligible Survivor's, benefit under this Plan shall be redetermined by following each of steps (1) through (5) of Section 4.1 (a), but using the then current amounts determined by applying (i) cost of living adjustments and other changes (if any) to the benefits provided under the System, and (ii) cost of living adjustments, and other changes (if any) to the maximum benefit limits established by Section 415(b ). (b) At the Plan Administrator's discretion, the amount of every Participant's and Eligible Survivor's benefits may be redetermined at a date other than January 1 for administrative convenience or if there is a material change in the rules governing the maximum benefit limits established under Section 415(b) or a material change in System benefits. (c) The Plan Administrator shall rely on the redetermination by the System, for purposes of administering the System in accordance with Section 415(b ), of any amounts in this Section. 4.3 Amount of Benefit -Eligible Survivors Eligible Survivors shall be entitled to benefits under this Plan as follows: 5/15/05 5 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN (a) Eligible Survivors shall be entitled to benefits under this Plan only if they are entitled to benefits that are limited by Section 41 S(b) under System after the death of a Member or Participant. (b) The benefit paid to an Eligible Survivor under this Plan shall be determined as if he or she were the Participant, substituting in the calculations under Sections 4.1 or 4.2, as applicable, the amounts due to the Eligible Survivor for the amounts due to the Participant. 4.4 Timing of Payments (a) In any Plan Year, benefits shall only be paid under this Plan to a Participant or Eligible Survivor after the date in the Plan Year that the benefits paid to such person from the System have reached the maximum annual benefit that the System can pay under Section 41 S(b) for that Plan Year. The day after the maximum annual benefit payment from the System is reached is the Beginning Date for the Participant or Eligible Survivor for that Plan Year. The Beginning Date may change from Plan Year to Plan Year as the amount payable under this Plan is redetermined. (b) The amount of benefits provided under this Plan shall be paid monthly starting as of the Beginning Date and continuing through the end of the Plan Year, or (if earlier) the date that Participation ceases (or, for an Eligible Survivor, the date that the benefits would cease if the Eligible Survivor were treated as a Participant) (c) If a retired Participant is reemployed by the District and on reemployment his or her System benefits cease, then his or her benefits under this Plan shall cease at the same time. Benefits shall resume (if at all) under this Plan when the Member again starts to receive benefits under the System. At that time, a recalculation shall be made under Section 4.2 hereof, treating the first month for which System benefits resume as if it were a date of redetermination under Section 4.2. Similar rules shall apply if the benefits of an Eligible Survivor under the System cease (or resume) under the System for any reason, including without limitation ceasing to be an Eligible Survivor. 4.5 Form of Benefit Paid The benefit paid to a Participant or Eligible Survivor under this Plan shall be paid in the same form as benefits are paid to him or her by the System. For example, if the System benefit is paid as a 100% pension to the Member and 60% survivor benefit to his or her surviving spouse, the same benefit form shall be paid under this Plan. 4.6 Taxes 5/15/05 6 • ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN The Plan Administrator shall have full authority to withhold any and all taxes that are or may be due from any and all amounts paid under the Plan (including but not limited to income and payroll taxes), to pay them to the appropriate government agency, and to file and distribute necessary or appropriate tax reports and forms. 4. 7 Determination Solely By Plan Administrator Subject to Sections 4.1 and 4.2 hereof, the Plan Administrator shall have sole authority and discretion to determine the amount of benefits (if any) payable under this Plan. 4.8 Condition For Paying Benefits No amount shall be paid to any person under this Plan unless such person provides, or makes readily available, to the Plan Administrator all information necessary or appropriate to provide such benefits, including but not limited to information concerning his or her benefits provided under the System and the information used by the System for determining those benefits. Article 5 -Exemption from Process; Assignments Prohibited 5.1 Prohibition Against Assignment No benefit payable from the Plan to any Participant or Eligible Survivor or any other person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be void. No such benefit shall in any manner be liable for, or subject to, the debts, contracts, liabilities, engagements, or torts of any such person, nor shall it be subject to execution, attachment or any process whatsoever for or against such person, except to such extent as may be permitted by Section 704.11 O of the Code of Civil Procedure or as required by law. Nothing in this Plan shall prohibit a Participant or Eligible Survivor from voluntarily agreeing to the assignment of benefits payable under this Plan. Such assignment shall be in accordance with rules established by the Plan Administrator and may be by payroll withholding or any other mechanism that is approved by the Plan Administrator, at its sole discretion. 5.2 Payment Upon Marital Dissolution or Legal Separation The provisions of Section 5.1 will not apply in the case of any property settlements upon marital dissolution or legal separation which are made in 5115105 7 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN accordance with a domestic relations order (ORO} issued in accordance with state domestic relations law. The provisions of Section 5.1 will apply in the case of any property settlement upon marital dissolution or legal separation which is made in accordance with a domestic relations order that is not qualified in accordance with this Section. When the Plan Administrator receives a domestic relations order, the Plan Administrator shall: (a} Notify the Participant (or Eligible Survivor} and the former spouse or dependent covered by the domestic relations order of the receipt of the order with a notice which explains the procedures for determining the qualified status of domestic relations orders; and (b} Under procedures established by the Plan Administrator, determine the qualified status of the domestic relations order. For purposes of this Section, "domestic relations order" or "ORO" means any judgment, decree, or order made in accordance with state domestic relations law which relates to the provision of child support, spousal maintenance, or marital property rights of any spouse, former spouse, child, or other dependent of a Participant. A domestic relations order shall not be considered a ORO with respect to this Plan if it is inconsistent with the Plan. To the extent practicable, the rules under the GERL governing the treatment of a qualified domestic relations order shall equally govern payment of benefits under this Plan. Article 6 -Administration 6.1 Powers of the Plan Administrator The District shall administer the Plan, and in such capacity shall be the Plan Administrator. In addition to the powers of the Plan Administrator specified elsewhere in the Plan, the Plan Administrator shall be responsible for the general administration and interpretation of the Plan and for carrying out its provisions, and shall have such powers as may be necessary or appropriate to discharge its duties hereunder, including, without limitation, the following: 5/15/05 8 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN (a) The Plan Administrator may adopt such Plan regulations, interpretations and procedures as it deems are necessary or appropriate for the effective operation of the Plan; (b) The Plan Administrator shall have the right to delegate administrative duties with regard to the management and operation of the Plan. However, no employee or agent of the Plan Administrator shall have the authority to modify this Plan or to make representations, warranties, or inducements that may provide benefits or any other payment other than as set forth in this Plan and any applicable Plan regulations. Any such representations, warranties, or inducements shall be null and void. (c) The Plan Administrator shall act with respect to this Plan separately and apart from any duties that he or she may have with respect to any other retirement plan. (d) The Plan Administrator shall determine all issues relating to the rights of Participants and Eligible Survivors and any other persons, and any legal representatives thereof, under the terms of the Plan, including but not limited to eligibility, the amount and time of payment of the benefit (if any) and the calculation of any benefit under the Plan; (e) The Plan Administrator shall determine any factual questions arising in connection with the Plan's operation or administration after such investigation or hearing as the Plan Administrator deems necessary and appropriate;. (f) The Plan Administrator may engage legal, administrative, actuarial, accounting, consulting or other services as the Plan Administrator deems necessary or appropriate; and (g) The Plan Administrator may request and receive from the District, Members and Participants and any other appropriate persons such information as necessary or appropriate for the proper administration of the Plan, including, without limitation, information to determine each Participant's eligibility to participate in the Plan and the benefits payable to each Participant or his or her Eligible Survivor. 6.2 Absolute Discretion of the Administrator. The Plan Administrator (or any individual acting on its behalf) shall, in its sole and absolute discretion, construe and interpret the terms and conditions of the Plan, and any issue arising out of, relating to, or resulting from the administration and operation of the Plan, which interpretation or construction shall be final and binding on all parties, including, without limitation, District, Member, Participant or Eligible Survivor. When making a determination or calculation, the Plan Administrator shall, in its sole and absolute discretion, be entitled to rely upon 5/15/05 9 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN information furnished by District, Members, Participants and Eligible Survivors or other individuals acting on their behalf. 6.3 Costs of Administration The costs of administration of the Plan shall be paid by the District. Such expenses shall include, but are not limited to, expenses for professional, legal, accounting, and other services and other necessary or appropriate costs of administration. No costs or expenses of administering this Plan shall be paid, directly or indirectly, by the System. Further, no assets of theSystem shall be used, directly or indirectly, to pay for benefits or administration or any other costs (direct or indirect) of this Plan. 6.4 Claims Review Procedure Any person who has a claim for benefits under this Plan and who does not receive such benefits must make a written claim for benefits with the Plan Administrator at the time and in the form and manner determined by the Plan Administrator. The Plan Administrator shall provide notice in writing to any person whose claim for benefits under the Plan is denied, and the Plan Administrator shall review its decision with respect to such claim, if requested in writing by the person who has made the claim. The decision of the Plan Administrator shall be final and binding on all parties. 6.5 Correction of Errors If an error or omission is discovered in the administration of the Plan, the Plan Administrator shall take such necessary or appropriate and equitable action as may be necessary or appropriate to correct the error. Such action shall include, but not be limited to, taking all reasonable or necessary action to recover overpayments of benefits (plus interest) under the Plan. 6.6 Written Communications Mailed All written notices or communications to Participants and Eligible Survivors and any other person who may be entitled to benefits under this Plan shall be effective when sent by first class United States mail, postage prepaid, to the individual's last known address. Any notice or document required to be given to or filed with the Plan Administrator shall be properly given or filed if delivered or sent by first class United States mail, postage prepaid, to the District's Director of Finance. Article 7 -Source of Benefits 7 .1 Unfunded Plan 5115105 10 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN (a) The Plan shall be unfunded within the meaning of the federal tax laws. Ownership of any assets, whether cash or other investments which might be used to pay any amount under the Plan, shall at all times remain solely in the District. Participants and Eligible Survivors and any other persons who might be entitled to amounts under this Plan shall not have any property interest, preferred claims, liens or any other beneficial interest whatsoever in any assets of the District, and shall have only general creditor status with respect to the District. Any rights created under this Plan shall be merely unsecured contractual rights against the District. (b) Benefits due under this Plan shall be paid by the District from its general assets, which are subject to the claims of the District's general creditors. The District shall also pay all costs, charges and expenses relating to this Plan from the same asset sources. 7.2 No Employee Deferrals No employee contributions or deferrals shall be made or allowed under the Plan at any time. In accordance with Section 415(m), no election to defer compensation under this Plan shall be provided, at any time or in any manner, to any person. 7.3 No Use of System Assets District assets used to provide benefits under this Plan shall not be commingled with the monies of the System or any other qualified plans, nor shall this Plan ever receive or use any assets of the System. Article 8 -Miscellaneous 8.1 Applicable Law This Plan shall be governed by the laws of the State of California and applicable federal law. 8.2 No Service Rights Nothing in this Plan or in any resolution or regulation concerning this Plan shall be construed as giving to a Participant any right to be retained in the service of the District. 8.3 Unclaimed Benefits and Accumulations In any situation where benefits are payable under this Plan, a reasonable search, 5115105 11 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN including mailing of a registered letter to the last known address, shall be made to ascertain the whereabouts of the Participant or Eligible Survivor. If the person or persons entitled thereafter come forward and request payment and establish such entitlement, the amounts then due, including appropriate retroactive payments from the Commencement Date (but without payment of any interest thereon), shall be paid accordingly. 8.4 Benefit Limits (a) Nothing in this Plan shall be construed as creating an entitlement to any benefits greater than the difference between the amount of benefits that can be paid by the System without regard to the limitations of Section 415 and what can be provided by the System taking into account the limitations of Section 415. (b) Payment of a benefit under this Plan does not create any eligibility for any additional benefits provided by this Plan, by the System or under any other program maintained by the District. Article 9-Amendment or Termination of Plan 9.1 Right to Amend The District has the right to amend this Plan at any time and in any manner for any reason whatsoever and may do so in its sole discretion, provided that no amendment shall retroactively adversely affect the benefits of any Participant or Eligible Survivor (except to the extent required to meet the requirements of sections 9.2 and 9.3). However, any amendment to this Plan that affects benefits paid shall be commensurate with the purposes of this Plan to provide Participants and Eligible Survivors with retirement benefits that are otherwise earned by and payable to members of the System but which are limited by the rules of Section 415 of the Code. 9.2 Preservation of System Tax Status This Plan shall not in any way jeopardize the tax qualified status of the System. To maintain this qualified status, the District shall take all necessary or appropriate action, including but not limited to amending this Plan and the rules governing this Plan, solely for the purpose of complying with applicable tax laws and regulations. 5/15/05 12 ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN 9.3 Preservation of Section 415(m) Status The District shall have the authority to make appropriate amendments to the Plan in order to accommodate changes in the Internal Revenue Code and United States Treasury Regulations in a manner that will preserve the status of the Plan under Section 415(m) of the Internal Revenue Code. IN WITNESS WHEREOF, THIS PLAN IS EFFECTIVE AS OF July 1, 2005 AND HAS BEEN EXECUTED ON THE DAY OF ___ _ 2005. ORANGE COUNTY SANITATION DISTRICT BY ----------- TITLE __________ _ 5115105 13 5/15/05 MEMORANDUM OF UNDERSTANDING BETWEEN THE ORANGE COUNTY SANITATION DISTRICT AND THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM REGARDING THE ORANGE COUNTY SANITATION DISTRICT REPLACEMENT BENEFITS PLAN This Memorandum of Understanding ("MOU") is entered into by and between the Orange County Employees' Retirement System ("System") and the Orange County Sanitation District ("District") to be effective beginning on July 1, 2005. WHEREAS, System provides retirement benefits to retired employees of the District, and WHEREAS, the amount of retirement benefits that can be provided to System members is limited by Section 415(b) of the Internal Revenue Code ("section 415(b)" and "Code", respectively), and WHEREAS, the Internal Revenue Code allows the District to establish a replacement benefits plan to pay the full benefits earned by System members whose benefits are limited by Section 415(b ), and the Government Code requires the District to provide a program to replace benefits that that cannot be paid by the System because of the limits of section 4 l 5(b) of the Code, and WHEREAS, such a replacement benefits plan is used by many other entities, in both the private and public sector, to replace benefits limited by section 415(b), and WHEREAS, it is to the benefit of System to ensure that all of its members receive the entire retirement benefits which they would earn under System but for the limits of the Code, and WHEREAS, the most efficient way for the District to operate a replacement benefits plan is to enter into a memorandum of understanding with System setting out the responsibilities of the District and System with respect to such a plan, and WHEREAS, the District has provided to System the District's Replacement Benefits Plan, a copy of which is attached hereto. THEREFORE, IT IS HEREBY AGREED BY AND BETWEEN THE ORANGE COUNTY SANITATION DISTRICT ("District") AND THE ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM ("System") AS FOLLOWS: 1. Purpose of Agreement This memorandum of understanding ("MOU") is entered into by the District and System in order to facilitate the efficient operation by the District of a replacement benefits plan ("Plan") that will provide benefits to retired System members and their eligible beneficiaries whose retirement benefits are limited by Section 415(b) of the Internal Revenue Code ("Code"). 5/15/05 2. Payment of Replacement Benefits (a) In accordance with the Plan, the District shall pay to affected retired members of System who were employees of the District immediately prior to their retirement (or for whom the District was his/her last employer that was a System participating agency) ("Retirees"), and to their eligible surviving beneficiaries (if any), the difference between the benefits that would be payable by System without regard to the limits of Section 415(b) of the Code and the benefits that may be paid by System without violating Section 415(b). These benefits are called "replacement benefits". (b) The District shall pay replacement benefits to Retirees from its general assets. No assets of System shall be used to pay replacement benefits and no assets of System shall be used to pay the cost of administration or any other costs regarding the operation of the Plan. 3. Determination of Amount of Replacement Benefits (a) In accordance with its responsibilities under Section 31899 et seq of the Government Code and Section 415(b), System shall determine the amount of benefits for any affected Retiree and eligible surviving beneficiaries that would be paid from System without the limits of Section 415(b ), and shall determine the amount of the benefits that can be paid to such persons in accordance with the limits of Section 415(b ). The difference between these two amounts (if any) is the amount of replacement benefits payable by the District under the Plan. (b) System shall make this determination for the first year that the benefits of any affected Retiree or eligible surviving beneficiary are limited by Section 415(b) and for each relevant year thereafter. (c) To the extent that the amount of benefits that are limited by Section 415(b) change during the year, and in accordance with its responsibilities under the Government Code and Section 415(b), System shall recalculate the benefits payable by the District under the Plan. ( d) Because System has the expertise, experience and data needed to make these calculations, because System must make these calculations in any event to maintain its tax qualified status, and to ensure coordination between the System and the District, the District shall rely on the calculations by System set out in paragraphs (a), (b), and (c) of this section for purposes of determining the replacement benefits payable under the Plan. (e) As provided in Section 5 of this MOU, System shall communicate to the District the information determined under this Section 3. 4. Effect on District Contributions To System of Section 4 l 5(b) Limits Upon recommendation of System's actuary and in accordance with its obligation to recommend District contribution rates under Sections 31453 and 31453.1 of the 5115105 2 Government Code, System shall adjust the contributions required to be contributed by the District to take account of the limits of section 415(b ). 5. Communications Between District and System (a) System shall communicate to the District, in writing and as soon as reasonably practicable, all information known to System that is necessary or appropriate for the efficient administration of the Plan. (To the extent required by law, no information shall be provided by System to District without the prior written consent of the Retiree or eligible surviving beneficiary.) This information may include, but is not limited to, the following: the names and identifying numbers of the Retirees and eligible surviving beneficiaries whose benefits are limited by Section 415(b) in any year; the amounts of their replacement benefits (if any) and the calculations that support these amounts; the date as of which the replacement benefits will become payable during each year (if any); the amount by which the replacement benefits change during the year (if at all); the amount of reduction in the District's contribution to System that will occur under section 4 hereof; and the date that any replacement benefits must cease (for example, on the death of the retired member). The District shall keep confidential all information received from System for the purpose of administering the Plan, to the extent permitted by law. (b) The District shall communicate to System, in writing and as soon as reasonably practicable, all information that is necessary or appropriate for the efficient administration of the System. (To the extent required by law, no information shall be provided by the District to System without the prior written consent of the Retiree or eligible surviving beneficiary.) This information may include, but is not limited to, the following: the names and identifying numbers of the Plan participants and eligible surviving beneficiaries who are paid replacement benefits; the amount of such payments; and the dates on which such payments occurred during the year. 6. Communications With Members (a) In accordance with its responsibilities under the Government Code and Section 415(b), System shall be responsible for testing member benefits with respect to the Section 4 l 5(b) limits. If the benefits of a Retiree or eligible surviving beneficiary are limited by Section 4 l 5(b ), System will so inform the affected individual in writing, and will generally inform him or her that the Plan will provide replacement benefits. (b) Upon receiving the needed information from System with respect to the amounts and timing of payment of replacement benefits for any Retiree or eligible surviving beneficiary, the District shall inform each affected individual about how the Plan works with respect to him or her, including the amounts that will be paid under the Plan for the particular year, the timing of such payments, any tax withholding elections available and all other information that is necessary or appropriate for operation of the Plan as determined by the Plan Administrator in its discretion. 7. Reconciliation of Amounts (a) Reconciliation of payments between System and the District 5115105 3 The District and System shall take all reasonable steps to reconcile, after the end of each calendar year, the amounts of replacement benefits that have been identified as payable under the Plan by System and the amounts of replacement benefits that have actually been paid under the Plan. In the event that the Plan has paid benefits which System determines should have been paid by System within the limits of section 415(b ), System shall reduce the contributions otherwise due to System from the District as soon as reasonably practical in an amount equal to such payments. In the event that System has paid benefits which System determines should have been paid under the Plan, the District shall immediately reimburse System for the payments of such benefits by System plus interest thereon calculated by using the System's then current actuarial valuation interest rate assumption. (b) Underpayments or overpayments to Retirees Underpayments or overpayments of benefits under this Plan to Retirees and eligible surviving beneficiaries shall be corrected by the District in accordance with the Plan or as required by law. It shall be the District's responsibility to collect any such overpayments (plus interest) and to pay any such underpayments. The District shall not seek any recourse against System relating to such overpayments or underpayments except to the extent that System is required to reimburse the District as provided in section 7(a) above. 8. Tax Reporting System and the District shall be separately responsible for their required reporting to the tax authorities, and neither shall be responsible for the other's reporting. 9. Costs of Administration and Payment of Benefits The costs of administration of the Plan shall be paid by the District. No costs or expenses (direct or indirect) of administering this Plan (direct or indirect) shall be paid, directly or indirectly, by the System. Further, no assets of the System shall be used, directly or indirectly, to pay for benefits or any other costs (direct or indirect) of this Plan. 10. Indemnification and Hold Harmless To the extent allowed by applicable law, each party to this MOU shall indemnify and hold the other harmless for any costs, damages, or other liabilities incurred hereunder on account of its own negligence or willful misconduct. 11. Miscellaneous (a) Integration. This Memorandum of Understanding and the documents referenced herein constitute the entire agreement of the parties with respect to the subject matter hereof and supercede all prior agreements and understandings, both written and oral. 5115105 4 (b) Amendment to MOU This Memorandum of Understanding may only be amended pursuant to a written agreement executed by both parties hereto. (c) Notice of Amendment to Plan The District will provide 30 days' written notice to System of any proposed revision to the Plan. Notice shall be addressed to the Chief Executive Officer. (d) Termination of MOU This MOU shall be effective beginning on the date set out on the first page hereof and shall continue in effect unless and until terminated by either party on 30 days written notice to the other. Notice shall be addressed to the Director of Finance, for the District, and to the Chief Executive Officer, for System. ( e) One year review The District and System will meet within one year from the first date that benefits are paid under the Plan to review the operations of this MOU and to make such revisions hereto as are mutually agreeable. (f) Authority to execute agreement The District and System each represent and warrant that the person executing this Agreement on its behalf as indicated below has full power and authority to do so. IN WITNESS WHEREOF, THIS MEMORANDUM OF UNDERSTANDING HAS BEEN ENTERED INTO AS OF THE DATE SET FORTH ON THE FIRST PAGE HEREOF. ORANGE COUNTY SANITATION DISTRICT -------' 2005 5/15/05 ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM -------' 2005 5