Burbank will be refunding $302,000 to roughly 84 city employees after discovering that $50 deductions from their paychecks over the course of nearly a decade were illegal under federal tax law.

The deductions, which were made to fund retirement medical costs for the non-union city employees and executives, were discontinued this week after, according to the Burbank City Attorneys Assn., the union filed a claim about the practice with the state Department of Labor Standards Enforcement.

A representative from the agency could not immediately be reached on Friday.

The so-called benefit was imposed on the employees a decade ago when the Burbank Employees Retiree Medical Trust was established, with the city also contributing $50 in addition to the paycheck deduction.

City officials said the deduction was allowed until 2005, when the Internal Revenue Service reclassified the trust as a "voluntary employee beneficiary association," meaning that the organization must be an association of employees, and membership must be voluntary.

Since the employees are not represented by a union, they can't collectively bargain for the "voluntary" benefit, officials said.

So the City Council decided behind closed doors this week that the city will no longer make the deductions, and will shell out $302,000 to refund 84 employees for up to three years worth of deductions, depending on how long they've been employed, officials said.

An additional dozen or so executives who also had $50 deducted from their paychecks, however, will not receive a refund, since their contracts mentioned the program, officials said. But moving forward, the executives will no longer have to pay their share.

The city, though, will continue to contribute $50 per paycheck for the retirement medical costs of the entire group of roughly 100 affected employees, said city spokesman Drew Sugars.

"They get to keep the service credits that they've earned, they get a refund, there will be no more deductions, so there's a lot of good things for the employees," said Interim City Manager Ken Pulskamp.

The Burbank City Attorneys Assn. — members of which were non-union employees prior to February — have questioned the forced membership into the program, and last month demanded that the city refund members for the full decade of "wrongful deductions."

The city decided to issue the refund on just three years' worth of deductions based on the advice of its attorneys, Sugars said, although he could not elaborate because the decision occurred in closed session.

Negotiations between the city and the Burbank City Attorneys Assn. — which includes 10 attorneys and a paralegal — reached a stalemate last month, with the union calling for a neutral third party to help reach an agreement. 

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Follow Alene Tchekmedyian on Google+ and on Twitter: @atchek.

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