TAX TREATMENT OF EMPLOYEE RETIREMENT CONTRIBUTION

The purpose of this Article is to implement the provisions contained in Section 414(h)(2) of the Internal Revenue Code concerning the tax treatment of employee retirement contributions paid by the State of California on behalf of the employees in the bargaining unit. Pursuant to Section 414(h)(2) contributions to a pension plan, although designated  under the plan as employee contributions, when paid by the employer in lieu of contributions by the employee, under circumstances in which the employee does not have the option of choosing to receive the contributed amounts directly instead of having them paid by the employer, may be excluded from the gross income of the employee until these amounts are distributed or made available to the employee. Implementation of Section 414(h)(2) is accomplished through a reduction in wages pursuant to the provisions of this Article.

A. DEFINITIONS

  1. Unless the context otherwise requires, the definitions in this Article govern the construction of this Article.
  1. Employees.” The term “employees” shall mean those employees of the State of California in Bargaining Unit 9 who make employee contributions to the PERS retirement system.
  1. Employee Contributions.” The term “employee contributions” shall mean those contributions to the PERS retirement system which are deducted from the salary of employees and credited to individual employees’ accounts.
  1. Employer.” The term “employer” shall mean the State of California.
  1. Gross Income.” The term “gross income” shall mean the total compensation paid to employees in Bargaining Unit 9 by the State of California as defined in the Internal Revenue Code and rules and regulations established by the Internal Revenue Code and rules and regulations established by the Internal Revenue Service.
  1. Retirement System.” The term “retirement system” shall mean the PERS retirement system as made applicable to the State of California under the provisions of the Public Employees’ Retirement Law (California Government Code Section 20000, et seq.).
  1. Wages.” The term “wages” shall mean the compensation prescribed in this Agreement.

B. PICK UP OF EMPLOYEE CONTRIBUTIONS

  1. Pursuant to the provisions of this Agreement, the employer shall make employee contributions on behalf of employees, and such contributions shall be treated as employer contributions in determining tax treatment under the Internal Revenue Code of the United States. Such contributions are being made by the employer in lieu of employee contributions.
  1. Employee contributions made under Paragraph A of this Article shall be paid from the same source of funds as used in paying the wages to affected employees.
  1. Employee contributions made by the employer under Paragraph A of this Article shall be treated for all purposes other than taxation in the same manner and to the same extent as employee contributions made prior to the effective date of this Agreement.
  1. “The employee does not have the option to receive the employer contributed amounts paid pursuant to this Agreement directly instead of having them paid to the retirement system.”

C. WAGE ADJUSTMENT

Notwithstanding any provision in this Agreement on the contrary, the wages of employees shall be reduced by the amount of employee contributions made by the employer pursuant to the provisions hereof.

D. LIMITATIONS TO OPERABILITY

This Article shall be operative only as long as the State of California pick up of employee retirement contributions continues to be excludable from gross income of the employee under the provisions of the Internal Revenue Code.

E. NON-ARBITRABILITY

The parties agree that no provisions of this Article shall be deemed to be arbitrable under the grievance and arbitration procedure contained in this Agreement.