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15-0804_ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM_Memorandum of UnderstandingMEMORANDUM OF UNDERSTANDING BETWEEN THE CITY OF SAN .lUAN CAPISTRANO AND THE ORANGE COUNTY EMPLOYEES'RETIREMENT SYSTEM REGARDING THE CITY OF SAN JUAN CAPISTRANO REPLACEMENT BENEFITS PLAN This MEMORANDUM OF UNDERSTANDING ("MOU") is entered into by and between the Orange County Employees' Retirement OCERS ("OCERS") and the City of San Juan Capistrano ("City") to be effective beginning on August 4,2015, WHEREAS, OCERS provides retirement benefits to retired employees of the City; and WHEREAS, the amount of retirement benefits that can be provided to OCERS members is limited by Sehtidn 415(b) of theTntemai Revenue Code ("Section 415(b)''); and WHEREAS, the Internal Revenue Code allows the City to establish a replacement benefits plan to pay the full benefits earned by OCERS members whose benefits are limited by Section 415(b), and the Government Code requires the City to provide a program to replace benefits that that cannot be paid by the OCERS because of the limits of Section 415(b); 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 the City to ensure that all of its employees receive the entire benefits which they would earn under OCERS but for the limits of Section 415(b); and WHEREAS, it is to the benefit of OCERS to ensure that OCERS is operated in compliance with the terms of the County Employees' Retirement Law of 1937 and Section 415(b); and WHEREAS, the most efficient way for the City to operate a replacement benefits plan is to enter into a memorandum of understanding with OCERS setting out the responsibilities of the City and OCERS with respect to such a plan; and WHEREAS, the City has provided to OCERS the City of San Juan Capistrano Replacement Benefits Flan, a copy of which is attached hereto. THEREFORE, IT IS HEREBY AGREED by and between the City of San Juan Capistrano and the Orange County Employees' Retirement System as follows: 1. Purpose of Agreement. This MOU is entered into by the City and OCERS in order to facilitate the efficient operation by the City of the City of San Juan Capistrano Replacement Benefits Pian ("Plan") which will provide benefits to City employees who are retired OCERS members and their eligible beneficiaries whose retirement benefits are limited by Section 415(b). 61147.01801\12773582.2 2. Payment of Replacement Benefits. (a) In accordance with the Plan, the City shall pay to affected retired members of OCERS who were employees of the City ("Retirees"), and to their eligible surviving beneficiaries (if any), the difference between the benefits that would be payable by OCERS without regard to the limits of Section 415(b) and tihe benefits that may be paid by OCERS without violating Section 415(b), These benefits are called "Replacement Benefits". (b) The City shall pay replacement benefits to Retirees from its general assets. No assets of OCERS shall be used to pay replacement benefits and no assets of OCERS 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 415(b), OCERS shall determine the amount of benefits for any affected Retiree and eligible surviving beneficiaries that would be paid from OCERS 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 is the amount of Replacement Benefits payable by the City under the Plan. • (b) OCERS 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. Annual determinations are necessary because both the amounts of the limits and the amount of OCERS benefits may change annually, (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 Section 415(b), OCERS shall recalculate the benefits payable by the City under the Plan. (d) In accordance with the Plan, the City shall rely on the calculations by OCERS 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, OCERS shall communicate to the City the information determined under this Section 3, 4, Effect of Section 415(b) Limits on City Contributions to OCERS. (a) In accordance with the recommendation of the OCERS actuary. City contributions to OCERS shall be adjusted to take into account the fact that OCERS cannot pay benefits that are greater than the limits provided by Section 415(b), (b) City contributions to OCERS shall be adjusted when, in fact. Replacement Benefits are payable under the Plan. At that time, OCERS shall reduce City contributions in an amount equal to the Replacement Benefits payable under the Plan in accordance with the - -.-2 - - - 61147.O1801\12773582.2 recommendations of the OCERS actuary. 5. Communications Between the City and OCERS. (a) OCERS shall communicate to the City, in writing and as soon as reasonably practicable, all infomiation known to OCERS that is necessary or appropriate for the efficient administration of the Plan. 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 City's contribution to OCERS that will occur under section 4 hereof; and the date that any Replacement Benefits must cease (for example, on tire death of the retired member). The City shall keep confidential all information received from OCERS for the purpose of administering the Plan, to the extent permitted by law. (b) The City shall communicate to OCERS, in writing and as soon as reasonably practicable, all information that is necessary or appropriate for the efficient administration of the Plan. (To the extent required by law, no information shall be provided by the City to OCERS without the prior written consent of the Retiree or eligible suiwiving 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 Section 415(b), OCERS shall be responsible for testing member benefits with respect to the Section 415(b) limits. If the benefits of a Retiree or eligible surviving beneficiary are limited by Section 415(b), OCERS 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 OCERS with respect to the amounts and timing of payment of Replacement Benefits for any Retiree or eligible surviving beneficiary, the City shall inform each affected individual about how the Plan works with respect to him or her, including the amotmts that will be paid under the Plan for the particular year, the tiining of such payments, any tax withholding elections available and all other information that is necessary or appropriate for operation of the Plan as deten-nined by the Plan Administrator in its discretion. 7. Reconciliation of Amounts. (a) Reconciliation of payments between OCERS and the City. The City and OCERS shall take all reasonable steps to reconcile, after the end of each calendar year, the 61147.01801\12773582.2 amounts of Replacement Benefits that have been identified as payable under the Plan by OCERS and the amounts of Replacement Benefits that have actually been paid under the Plan. In the event that the Plan has paid benefits which OCERS determines should have been paid by OCERS within the limits of Section 415(b), OCERS shall reduce the contributions otherwise due to OCERS from the City as soon as reasonably practical in an amoimt equal to such payments. In the event that OCERS has paid benefits which OCERS detennines should have been paid under the Plan, the City shall immediately reimburse OCERS for the payments of such benefits by OCERS plus interest thereon calculated by using the OCERS then current actuarial valuation interest rate assumption, (b) Underpayments or overpayments to Retirees. Underpayments or oveipayments of benefits under this Plan to Retirees and eligible surviving beneficiaries shall be corrected by the City in accordance with the Plan or as required by law. It shall be the City's responsibility to collect any such overpayments (plus interest) and to pay any such underpayments. The City shall not seek any recourse against OCERS relating to such overpayments or underpayments except to the extent that OCERS is required to reimburse the City as provided in section 7(a) above, 8.. Tax Reporting. OCERS and the City 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 City. No costs or expenses (direct or indirect) of administering this Plan (direct or indirect) shall be paid, directly or indirectly, by the OCERS. Further, no assets of the OCERS 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 MOU and the documents referenced herein constitute the entire agreement of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral. (b) Amendment to MOU. This MOU may only be amended pursuant to a written agreement executed by both parties hereto. (c) Notice of Amendment to Plan. The City will provide 30 days' written notice to OCERS of any proposed revision to the Pian. 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 .4... -. either party on 30 days' written notice to the other. Notice shall be addressed to the Director of Finance, for the City, and to the Chief Executive Officer, for OCERS. (e) Review. The City and OCERS wilt meet within one year from the first date that benefits are paid under the Flan to review the operation of this MOU and to make such revisions hereto as are mutually agreeable. (f) Authority to Execute Agreement. The City and OCERS 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. CITY OF SAN JUAN CAPISTRANO ORANGE COUNTY EMPLOYEES' RETIREMENT SYSTEM By: t Derek Reeve, Mayor (\ choAc> -J w C£ <!• I APPROVED AS TO FORM: 5 61147,01801\12773582.2