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IRS Filing
An important element of Measure B was the option given to current employees to choose a new tier of benefits. However, Tax Counsel advised that this option could not be offered until it was approved by the IRS. The reason stated by Tax Counsel is that the IRS has a number of applications involving employee choice currently pending, based primarily on the question of whether the election would disqualify the affected plans (thus destroying their current tax exempt status) and whether the employee contributions should all be taxed to the employee as the contributions are made.

Based on the advice of Tax Counsel, the decision was made to seek IRS approval of the implementation of the election process.

The City Council filed a request for private letter ruling with the Internal Revenue Service on June 13, 2012. Most importantly, that request included asking for the following:
  • A ruling that mandatory employee contributions to the plans would be able to continue to be nontaxable until distributed from the plan (rather than being taxed as the contributions go into the plan).
  • A ruling that the mandatory employee contributions to the plans would not be subject to income tax withholding as they go into the plans.
  • A ruling that the plans will not be disqualified, which means those could be taxes payable on the plan earnings.

More information about the IRS Filing can be found here.