Chapter 3.48

DEFERRED COMPENSATION PLAN

Sections:

• 3.48.010 Name. 3.48.020 Purpose. 3.48.025 Establishment of trust. 3.48.030 Definitions. 3.48.040 Deferral of includable compensation.

• 3.48.050 Participation in the plan. 3.48.055 Inter-plan transfer. 3.48.058 Eligible rollover distributions. 3.48.060 Administration of the plan. 3.48.070 Deferred compensation fund. 3.48.080 City participation. 3.48.090 Relation to retirement system. 3.48.100 Status of participants. 3.48.110 Reserved.

• 3.48.120 Governing law. 3.48.130 Distribution of benefits; election. 3.48.131 Method of payment of benefits upon occurrence of severance event.

• 3.48.132 Postponement of payments of benefits.

• 3.48.133 Date of payment of benefits.

T3:505

SAN JOSÉ CODE

§ 3.48.010

• 3.48.134 Payment of benefits after death.

• 3.48.135 Emergency withdrawals.

• 3.48.136 Other distributions. 3.48.137 De minimus accounts.

• 3.48.140 Loans. 3.48.150 Reserved.

• 3.48.160 Amendment or termination of plan.

• 3.48.170 Limitation on city responsibility.

• 3.48.180 Administrative costs.

• 3.48.181 Conforming domestic relations orders.

• 3.48.185 Repeal.

The name of this plan is the City of San José, California, Deferred Compensation Plan (hereinafter referred to as the Plan). Detailed rules and provisions related to the Plan can be found in the Basic Plan Document.

(Prior code § 2915.1; Ords. 19953, 21404, 26540, 30535.)

The primary purpose of the Plan is to attract and hold personnel by permitting them to enter into agreements with the City of San José which will provide for deferral of payment of a portion of their current compensation until death, retirement, termination of employment, or other event as provided herein, in accordance with the applicable provisions of the Internal Revenue Code.

(Prior code § 2915.2; Ords. 19953, 21404, 26540, 30535.)

• A. There is hereby established the City of San José deferred compensation plan trust.

• B. Notwithstanding any contrary provision of the plan, in accordance with Section 457(g) of the Internal Revenue Code, all amounts of compensation deferred pursuant to the plan, all property and rights purchased with such amounts, and all income attributable to such

amounts, property, or rights shall be held by the city in trust for the exclusive benefit of participants and beneficiaries under the plan.

• C. The trustee shall ensure that all investments, amounts, property, and rights held under the trust are held for the exclusive benefit of participants and their beneficiaries.

• D. All amounts of compensation deferred under the plan shall be transferred to the trust within a period that is not longer than is reasonable for the proper administration of the accounts of participants and beneficiaries.

• E. Prior to the satisfaction of all liabilities with respect to plan participants and their beneficiaries, no part of the assets or income of the trust shall be used for, or diverted to, purposes other than for the exclusive benefits of the plan participants and their beneficiaries and defraying reasonable expenses of the administration of the plan.

(Ords. 25707, 26540, 30535.)

For the purposes of this Plan, certain words or phrases used herein will have the following meanings:

• A. "Account" shall mean a sub-account maintained for a participant to hold and account for the contributions which are the proceeds of deferral of compensation from the City, including any adjustment for earnings and expenses. The sub-account includes a separate account for designated Roth contributions, rollover contributions, Roth rollover contributions, and transferred amounts.

• B. "Alternative normal retirement age" shall mean any age irrevocably designated in writing by the participant which is:

  1. Not earlier than the earliest age at which the participant has the right to retire under a retirement plan of the City and receive immediate retirement benefits without actuarial or similar reduction for early retirement; and

T3:506

PERSONNEL

§ 3.48.030

2. No later than age seventy and one-half (70-1/2).

• C. "Alternate payee" shall mean any person who is recognized by a domestic relations order as having a right to receive all, or a portion of, the benefits payable under the Plan with respect to a participant within the meaning of Internal Revenue Code Section 414(p).

• D. "Basic Plan Document" shall mean the written Basic Plan Document, as amended and restated from time to time, for the City of San José, California Deferred Compensation Plan.

• E. "Beneficiary" shall mean a beneficiary designated by the participant to receive payment of benefits under the Plan, or if no beneficiary is so designated, the participant's estate.

• F. "City" shall mean the City of San José, California.

• G. "City Manager" shall mean the City Manager or the City Manager's designee.

• H. "Committee" or "Advisory Committee" shall mean the Deferred Compensation Advisory Committee.

• I. "Eligible deferred compensation plan" means a plan which meets the requirements of Internal Revenue Code Section 457(b).

• J. "Employee" shall mean any officer or employee of the City of San José, California.

• K. "Includible compensation" shall mean:

  1. Prior to January 1, 2002, "includible compensation" shall mean the compensation for services performed for the City which (taking into account the provisions of Sections 457 and 403(b) of the Internal Revenue Code) is currently includible in gross income. Amounts of compensation shall be determined without regard to any community property laws.

  2. After December 31, 2001, "includible compensation" shall have the meaning given to the term "participant's compensation" by Section 415(c)(3) of the Internal Revenue Code, consistent with the earnings codes established by the City.

Amounts of compensation shall be determined without regard to any community property laws.

3. Effective January 1, 2009, "includible compensation" includes differential wage payments while the participant is performing qualified military service (as defined in Chapter 43 of Title 38, United States Code) to the extent required by Internal Revenue Code Sections 3401(h) and 414(u)(12), the Treasury regulations thereunder and any subsequent guidance issued under Code Section 414(u)(12). A participant receiving differential wage payment from the City shall be treated as employed by the City and the differential wage payment shall be treated as compensation for purposes of applying the maximum amount which may be deferred under Internal Revenue Code Sections 457(b)(2) and 457(b)(3). Furthermore, effective January 1, 2008, "includible compensation" includes amounts paid after the employee's severance event if paid by the later of two and one-half (2-1/2) months after the employee's severance event, or the end of the calendar year that includes the date of the employee's severance event subject to the following requirements:

   • a. The payment is regular compensation for services during the employee's regular working hours, or compensation for services outside the employee's regular working hours (such as overtime or shift differential), commissions, bonuses, or other similar payments and the payment would have been made to the employee prior to a severance event if the employee had continued in employment with the City.

   • b. Includible compensation shall include all payments to an individual who does not currently perform ser-

T3:507

SAN JOSÉ CODE

§ 3.48.030

vices for the City by reason of qualified military service (within the meaning of Internal Revenue Code Section 414(u)(1)) to the extent these payments do not exceed the amounts the individual would have received if the individual had continued to perform services for the City rather than entering qualified military service.

4. Effective April 9, 2021, "includible compensation" shall mean a participant's actual wages for services performed for the employer the year reported in box 1 of form W-2, increased by any compensation reduction election under Sections 125, 132(f), 401(k), 403(b) or 457(b) of the Internal Revenue Code (including an election to defer compensation under this Plan.) Includible compensation is determined without regard to any community property laws.

• L. "Normal retirement age" shall mean age seventy and one-half (70-1/2), or that age as irrevocably selected in writing by the participant as an alternative normal retirement age. For a participant who is a qualified police officer or firefighter as defined under Internal Revenue Code Section 415(b)(2)(H)(ii)(l), normal retirement age shall mean the age designated by the participant that is between age forty (40) and age seventy and one-half (70-1/2).

• M. "Participant" shall mean any eligible employee who fulfills the requirements of enrollment into the Plan, and who is or has enrolled in the Plan and who retains the rights to benefits under the Plan.

• N. "Participation agreement" shall mean the agreement executed and filed by an employee with the City or Plan administrator, pursuant to the Basic Plan Document, in which an employee elects to become a participant in the Plan.

• O. "Payroll period" shall mean a biweekly compensation period.

• P. "Percentage limitation" shall mean:

  1. Prior to January 1, 2002, thirty-three and one-third percent (33-1/3%) of the participant's includible compensation for the taxable year.

  2. After December 31, 2001, one hundred percent (100%) of the participant's includible compensation for the taxable year.

• Q. "Plan administrator" shall mean the City Manager or the person or entity designated by the City Manager to carry out certain administrative functions of the Plan.

• R. "Plan year" shall mean a calendar year.

• S. "Roth account" shall mean a separate account within an account in the Plan established that is composed of after-tax contributions made pursuant to Section 402A of the Internal Revenue Code.

• T. "Severance event" shall mean:

  1. Prior to January 1, 2002, severance of the participant's employment with the City that constitutes a "separation from service" within the meaning of Internal Revenue Code Section 402(e)(4)(D)(iii).

  2. After December 31, 2001, a severance of the participant's employment with the City within the meaning of Internal Revenue Code Section 457(d)(1)(A)(ii).

• U. "Trustee" shall mean the City of San José and Advisory Committee as set forth in Section 3.48.060 of Chapter 3.48 of Title 3 of the San José Municipal Code.

(Prior code § 2915.3; Ords. 19953, 21404, 26540, 26666, 29137, 30535.)

Notwithstanding any provision of the Plan to the contrary, contributions to the Plan and additions to accounts of participants shall be limited to the percentage limitation and as provided in Internal Revenue Code Section 457 and any other relevant Internal Revenue Code Sections, as detailed in the Basic Plan Document.

(Prior code § 2915.5; Ords. 19953, 21404, 25198, 26540, 26666, 27523, 29137, 30535.)

T3:508

PERSONNEL

§ 3.48.060

• A. Each employee may elect to become a participant of the Plan and defer payment of part of his or her includible compensation by executing a participation agreement and filing it with City or Plan administrator before the beginning of the month in which the deferral is to be effective. For deferral elections made in taxable years beginning after December 29, 2022, such elections shall become effective as soon as administratively practicable after the election.

• B. The deferred amount must equal at least twenty-five dollars ($25.00) per payroll period, exclusive of any service charge or such other minimum as the City Manager may determine.

• C. A participation agreement shall be effective for the first payroll period of the next month following its execution and filing with City or Plan administrator, unless a later payroll period is designated by the employee. For participation elections made in taxable years beginning after December 29, 2022, such elections shall become effective as soon as administratively practicable after the election. The participation agreement shall continue from payroll period to payroll period and remain in full force and effect unless terminated as provided in Section 3.48.050 D.

• D. A participant may terminate his or her participation in the Plan, and thereby terminate further deferral of includible compensation, by filing with the City or Plan administrator an executed notice of termination of contributions prior to effective date of termination. Once terminated, a former participant cannot rejoin the Plan during the month in which termination occurred; however, the former participant may elect to become a participant in a subsequent month. No amounts shall be payable to an employee upon terminating his or her participation in the Plan unless otherwise due, pursuant to Section 3.48.130.

• E. Each period served by a person in the uniformed services shall, upon reemployment under the Uniformed Service Employment and Reemployment Act of 1994, as it may be amended from time to time (USERRA), be deemed to constitute service with the employer maintaining the Plan for the purpose of determining the accrual of benefits under the Plan, all to the extent required by and as provided under USERRA. Notwithstanding any provision in the Plan to the contrary, contributions, benefits and service credit with respect to qualified military service will be provided in accordance with Internal Revenue Code Section 414(u) for additional elective deferrals a participant can make upon return from qualified military service.

• (Prior code § 2915.4; Ords. 19953, 21404, 26540, 29137, 30535, 31112.)

• A. Incoming transfers shall be accepted pursuant to the Basic Plan Document.

• B. Outgoing transfers shall be permitted pursuant to the Basic Plan Document.

• C. The City Manager may require such documentation regarding any plan from which a transfer may be accepted or to which a transfer may be made as it deems necessary to effectuate the transfer; to confirm that such plan is an eligible deferred compensation plan of a local government or state or defined benefit governmental plan, as applicable; or to assure that transfers are permitted under such plan.

• (Ords. 22614, 26540, 28995, 29137, 30535.)

• A. Incoming rollovers shall be permitted pursuant to the Basic Plan Document.

• B. Outgoing rollovers shall be permitted pursuant to the Basic Plan Document.

• (Ords. 26540, 28852, 28995, 29137, 30535.)

• A. The Plan and the Trust established by this Chapter shall be administered by the City Man-

2025-Supplement 2

T3:509

SAN JOSÉ CODE

§ 3.48.060

• ager which shall be the sole authority to enforce the Plan and the Trust. To the extent reasonably necessary to effectively administer the Plan in accordance with the requirements of the Internal Revenue Code and any other applicable laws, regulations, or pronouncements, the City Manager may adopt amendments to the Basic Plan Document, provided such amendments do not conflict with any provisions of the San José Municipal Code.

• B. The City Manager shall be responsible for the operation of the Plan in accordance with its terms, and shall determine all the questions arising out of the administration, interpretation, and application of the Plan and the Trust, all such determinations shall be conclusive and binding on all persons.

• C. The City Manager shall have the authority to enter into agreements on behalf of the City for the administration of the Plan, for custodial agreements for funds, and for investments selected by the Advisory Committee under the Plan where the fees under such an agreement are to be paid by the participants of the Plan or where there is no amount to be paid by the City under the agreement.

• D. The Advisory Committee shall have the authority to make decisions on behalf of the City as to the investment policy, the choice and nature of investments to be available under the Plan, and enter into agreements on behalf of the City for investment advice under the Plan where the fees to be paid under such an agreement are to be paid by participants of the Plan or where there is no amount to be paid by the City under the agreement. The Advisory Committee shall have the authority to review and advise the City Manager on annual budgets and proposed changes to the Plan.

• E. The method of selection and the term of office of the members of the Advisory Committee shall be established by resolution of the City Council.

(Prior code § 2915.6; Ords. 19953, 21404, 25707, 26540, 30535.)

• A. The City shall establish a deferred compensation fund to which all deferred compensation shall be credited at such times as the compensation would have been payable to individual employees if not a participant in the Plan, and to which all inter-plan transfer and direct rollover amounts accepted by the Plan shall be credited as received. Separate accounts will be established for each employee participating which will include all amounts of deferred compensation, inter-plan transfer amounts, direct rollover amounts, investments made, shares acquired and earnings and gains on investments. Each account will be valued at least semiannually.

• B. On executing the participation agreement, the employee shall designate his or her investment choice prospectively only. The Advisory Committee shall select funds and investments to be offered for amounts of deferred compensation in the types of investments set forth in Sections 53601 and 53602 of the Government Code of the State of California. Nothing in this Section shall be construed to permit any type of investment prohibited by the Constitution of the State of California.

(Ords. 25707, 26540, 30535.)

Notwithstanding any other provisions of this Plan, the City may make additional deposits in the deferred compensation fund as additional includible compensation for services to be rendered by the employee to the City during an employment period; provided:

• A. The employee has elected, prior to the month in which the additional compensation is paid, to have such additional includible compensation deferred and invested, pursuant to this Plan;

• B. That such additional deposit shall not exceed the maximum deferral permitted

T3:510

2025-Supplement 2

PERSONNEL

§ 3.48.135

in Section 3.48.040 of Chapter 3.48 of Title 3 of the San José Municipal Code and the Basic Plan Document.

(Prior code § 2915.8; Ords. 19953, 21404, 26540, 30535.)

Any reduction in includible compensation of a participant under this Plan shall be included as includible compensation of such participant for purposes of computing the amount of his or her contributions or benefits under any City of San José retirement system.

(Prior code § 2915.13; Ords. 19953, 21404, 26540, 30535.)

Neither the establishment of the Plan nor any modification thereof, nor the establishment of any account, nor the payment of any benefits, shall be construed as giving to any participant or other person any legal or equitable right against City, except as herein provided; and in no event shall the terms of employment of any employee or participant be modified or in any way affected hereby. (Prior code § 2915.11(a); Ords. 19953, 21404, 26540, 30535.)

Editor’s note— Ord. 30535, § 14, adopted March 9, 2021, repealed § 3.48.110, which pertained to the condition of the plan and derived from Prior code § 2915.11(b)and Ords. 19953, 21404, and 26540.

This plan shall be construed, administered, and enforced according to the laws of the State of California.

(Prior code § 2915.11(c); Ords. 19953, 21404, 26540.)

The distribution of benefits shall be made in accordance with the provisions pursuant to the Basic Plan Document.

(Prior code § 2915.7; Ords. 19953, 21404, 22062, 22419, 25198, 26540, 29137, 30535.)

The method of payment of benefits upon the occurrence of termination of employment, or other severance event shall be made in accordance with the provisions pursuant to the Basic Plan Document. To the extent permitted under the Internal Revenue Code and IRS guidance, additional distribution provisions that do not require a severance event may be included under the Basic Plan Document.

(Ords. 22419, 23160, 26540, 29137, 30535, 31112.)

The postponement of payment of benefits shall be allowed as permitted under the requirements of Internal Revenue Code Sections 401(a)(9) and 457(d)(2), as detailed in the Basic Plan Document. (Ords. 22419, 24071, 25991, 26540, 29137, 30535.)

The date of payment of benefits shall be made in accordance with the provisions in the Basic Plan Document.

(Ords. 22419, 26540, 29137, 30535.)

The payment of benefits following the death of the participant shall be made in accordance with the provisions as described in the Basic Plan Document.

(Ords. 22419, 23160, 26540, 29137, 30535.)

If a participant is faced with an unforeseeable emergency, the participant may apply to City Manager for withdrawal of funds from the Plan. Such withdrawals shall be permitted, in the City Manager's discretion, only in circumstances of an unforeseeable emergency. The rules related to the eligibility and requirements relating to an unforeseeable emergency are as described in the Basic Plan Document.

(Ords. 22419, 26540, 28995, 29137, 30535.)

2025-Supplement 2

T3:511

SAN JOSÉ CODE

§ 3.48.136

Notwithstanding any other provisions of this plan, the city may change the time or methods of benefit payments pursuant to this plan. (Ords. 22419, 26540.)

The provisions relating to both voluntary liquidations and mandatory liquidations of account balances are as described in the Basic Plan Document.

(Ords. 22614, 23160, 25198, 25466, 26540, 30535.)

Loans shall be allowed under the Plan as provided for in the Basic Plan Document. (Ords. 28057, 29137, 30264, 30526, 30535.)

Editor’s note— Ord. 30535, § 23, adopted March 9, 2021, repealed § 3.48.150, which pertained to nonassignability and derived from Prior code § 2915.9 and Ords. 19953, 21404, and 26540.

• A. The City may, at any time, terminate this Plan for all participants. Upon such termination, each participant in the Plan will be deemed to have terminated their service as of the date of such termination, and the value of each participant's account, less any taxes required to be withheld, shall be distributed to the participants or their beneficiaries no later than sixty (60) days after the termination of the Plan.

• B. The City may also amend the provisions of this Plan at any time; provided, however, that no amendment shall affect the rights of the participants or their beneficiaries to the receipt of payment of benefits, to the extent of any compensation deferred at the time of the amendment as adjusted for income attributable to such deferred compensation prior to and subsequent to the amendment.

• C. No amendment shall divest any participant of any rights to deferrals prior to the date of any

amendment or amend the Plan so that it is no longer in compliance with the requirements of Internal Revenue Code Section 457.

• D. This Plan is intended to qualify as an eligible state deferred compensation plan under Section 457 of the Internal Revenue Code, and shall be interpreted and administered in a manner consistent with such qualification. The City reserves the right to amend the Plan to the extent that may be necessary to conform the Plan to the requirements of Section 457 and any other applicable law, regulation or ruling, including amendments that are retroactive to the effective date of the Plan. In the event that the Plan is deemed by the Internal Revenue Service to be administered in a manner inconsistent with Section 457, City shall correct such administration within the period provided in Section 457(b). The City reserves the right to take such action and do such things as are required to make the Plan, as administered, consistent with Section 457.

• (Prior code §§ 2915.12, 3.48.170; Ords. 19953, 21404, 26540, 30535.)

• A. The City will invest funds held pursuant to agreements between participants and City in accordance with the requests made by each participant at the time of enrollment or change in enrollment, prospectively only.

• B. Any action by the Advisory Committee in selecting investment funds shall not be considered to be either an endorsement or guarantee of any investment, nor shall it be considered to attest to the financial soundness or the suitability of any investment for the purpose of meeting future obligations. Neither City nor the Advisory Committee shall be liable to any participant, or to any participant's beneficiaries or heirs, or to any other person for any losses resulting from investments under the Plan.

2025-Supplement 2

T3:512

PERSONNEL

§ 3.49.010

• C. The City hereby establishes this Deferred Compensation Plan on the terms and conditions set forth herein.

• (Prior code §§ 2915.14, 3.48.180; Ords. 19953, 21404, 26540, 30535.)