HomeMy WebLinkAbout12/1/2004 - STAFF REPORTS (20) DATE: December 1, 2004
MEMO TO: City Council
FROM: Director of Finance & Treasurer
RE: Establishment of Retirement Health Savings Plan
RECOMMENDATION:
It is recommended that the City Council approve the establishment of a Retirement Health Savings
(RHS) Plan for City employees administered by ICMA Retirement Corp.
SUMMARY:
The proposed RHS Plan would allow each City employee to contribute on a pre-tax basis to an
account held in their name. The contributions, which are voluntary and not mandatory, are invested
at the direction of the employee, in much the same manner as the City's existing Section 457
Deferred Compensation Plan. Upon retirement, the employee can use the accumulated funds to pay
for medical and dental expenses on a tax-free basis. An employee can contribute to the account in
two ways: annually by converting unused annual leave or vacation hours; or by a one-time, lump
sum payment from the employee's final paycheck. There is no limitation on the amount of the
contribution. However, since all of the contribution is coming from amounts that in any event are
payable to the employee in cash, there is no additional cost to the City for this Plan.
BACKGROUND:
RHS Plans are a fairly recent development in interpretation of the Internal Revenue Code The basic
components of the proposed Plan are:
• allows employees to voluntarily contribute to an individual RHS Plan account on a pre-tax
basis
• provides a fund for paying post-retirement medical and dental costs
• saves the employee money on State and Federal income taxes
• administrative expense are paid by the employee
• costs the City nothing
ICMA Retirement Corp has developed the Vantagecare RHS Plan. The investment of the
contributions is administered by ICMA as part of its deferred compensation operations. Medical
benefit claims processing and payment will be handled by a third party claims administrator, Zenith
Administrators, Inc. The annual fees, paid by the participating employee, are $30 per account plus
.3% of the balance. As an example, an account with $20,000 balance would pay $90 per year
Upon retirement, the amounts accumulated in an employee's RHS Plan account can be used to pay
for medical expenses such as deductibles, co-payments or health insurance premiums The
employee receives the reimbursement tax free.
The proposed plan is the most basic version of the RHS Plan. There is no employer contribution, and
all of the employees' contributions are made on a pre-tax basis.
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However, the Plan is expandable and future versions could incorporate additional benefits It should
be possible to structure an enhanced plan that gives better health insurance benefits to retirees at a
lower cost than the system currently in place.
The attached resolution makes the Plan effective December 2, 2004.
Submitted by Approved
Thomas M. Kanarr David H. Ready
Director of Finance & Treasurer City Manager
Attachments: Resolution
Adoption Agreement
� � V
EMPLOYER VANTAGECARE RETIREMENT HEALTH
SAVINGS (RHS) PLAN ADOPTION AGREEMENT
Plan Number: 8 00957
Employer Retirement Health Savings Plan Name: Palm Springs Retiree Health Savings Plan
I. Employer Name: City of Palm Springs State: CA
IL The Employer hereby attests that it is a unit of a state or local government or an agency or instrumentality of
one or more units of a state or local government.
III. The Effective Date of the Plan: December 2, 2004
IV. The Employer intends to utilize the Trust,to fund only welfare benefits pursuant to the following welfare ben-
efit plan(s) established by the Employer:
V. Eligible Groups and Participant Eligibility Requirements
A. The following group or groups of Employees are eligible to participate in the VantageCare Retirement Health
Savings Plan:
All Employees
All Full-Time Employees
Non-Union Employees
Public Safety Employees -- Police
Public Safety Employees -- Firefighters
General Employees
Collectively-Bargained Employees (Specify unit)
X Other (specify below)
All employees retiring on or after 12/2/04.
The group specified must correspond to a group of the same designation that is defined in the statutes, ordi-
nances, rules, regulations, personnel manuals or other material in effect in the state or locality of the Employer.
-if this box is checked in:lienof mandatory-participation, the Employer provides.for a one time'irrevoca
"ble election 'by eligible Employees to par ticipate`in RHS. Until such,time ast-he election`is made,the
Employee shall not participate in the Plan or receive contributions pursuant to Section:VI.
Newly eligible Employees shall be provided an,election-window of 60 days (no more than'60
calendar days)from the date of initial eligibility'during which,they may make the election to partticipate_
Participation may begin.no earli'erthan the calendar month following the end of the_election window.
If the Employee does not make the election in the year of initial eligibility, the election to participate may
be made,in a lateryear. An annual election window of-- 60 ' days(no more than.60 calendar. _
days) shall be provided during whichthe election may be made.The election window shall run from
to • n (insert your annual,time frame for the election window, e.g. October, 1 to
November 29). Participation may begin no earlier than'the calendar year following,the year of the:elec
tion.
Once made,the election is irrevocable and may not be revoked while the participant is(a member of the
group'covered by the RHS plan. =_
If the Employer's underlying welfare benefit plan or funding under this VantageCare Retirement Health Savings
Plan is in whole or part a non-collectively bargained, self-insured plan, the nondiscrimination requirements of
Internal Revenue Code (IRC) Section 105(h) will apply. These rules may impose taxation on the benefits received
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by highly compensated Employees if the Plan discriminates in favor of highly compensated Employees in terms
of eligibility or benefits. The Employer should discuss these rules with appropriate counsel.
B. Participant Eligibility
1. Minimum period of service required for participation is N/A (write N/A if an Employee is eligible to partici-
pate or to elect to participate immediately upon employment).
2. Minimum age required for eligibility to participate is N/A (write N/A if no minimum age is required).
VI.Contribution Sources and Amounts
A. Mandatory Contributions
❑ 1. Direct Employer Contributions
The Employer shall contribute on behalf of each Participant 0 % of earnings or$ 0 for the Plan
Year.
Definition of earnings:
171 2. Mandatory Leave Contributions N/A
The Employer will make mandatory contributions of leave as follows:
Accrued Sick Leave* ❑ Yes 0 No
Accrued Vacation* Q Yes 171 No
Other* (describe) ❑ Yes 171 No
* Please provide the formula for determining the Accrued Leave contribution:
An Employee shall not have the right to discontinue or vary the rate of annual leave contributions.
171 3. Mandatory Employee Compensation Contributions N/A
The Employer will make mandatory contributions of Employee compensation as follows:
Reduction in Salary - % of earnings (as defined in VI.A.1.) or $ will be
contributed for the Plan Year.
171 Decreased Merit or Pay Plan Adjustment - All or a portion of the Employees' annual merit
or pay plan adjustment will be contributed as follows:
An Employee shall not have the right to discontinue or vary the rate of mandatory contributions of
Employee compensation.
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& Elective Contributions
` 1. Elective Pre-Tax Contributions
The Employer will permit each Employee to make the following elections to make pre-tax
contributions to the Plan:,, '
L� a. Irrevocable Election for Pre-Tax Contributions from Compensation: A one-time, irrevocable election of
N/A the amount of Employer contributionsof compensation made on his or,her behalf.
The Employer limits the amount elected to.either a fixed percentage'or a range of percentages,of an
earnings -Employee's
%'of earnings (as defined in VI A.l.) or up to, % of earnings (as defined In
VLA.1,) fo,r,the, Plan Year.
Newly eligible Employees shall be provided an=election window of days (no more'Xhan 60) �
from the date,of,initial eligibility during which they may make the electionao contribute: Contributions
may begin no earlier than,the.calendar month following','the end of the ele "n window.
If the Employee does not make the election in the.year of initial eligibility, the election to contribute may
be made in'a later year. An annual election window of days (no more-than'60)`shall be
provided during which the, election��may be made: The election window, shall run i om �� � �to
(insert your annual time frame for the election window):' Contributions may begin no ear-
, Mier than the calendar yearfollowing-the year of the .election.
Once made, the election is irrevocable'and maynot be revoked.
Q 'b. Irrevocable Election for Pre-Tax,Contributions of Accrued Leave:-A one-time;irrevocable election of
the amount of employer'contributions'of'Employee accrued
sick U ',vacation other'" -(describe) leave made on his or her behalf.
❑ ,Yes L"J No
The Employer limits the,amount elected as shown below:_
all -eli-gible"accrued leave`at re'ttrement
Newly eligible Employees shall be provided an election window of 60 . days (no more-than 60
calendar days) from.the date of initial eligibility during which they may make the election to contribute:
Contributions may begin no earlier than the calendar month-following the end the election window.
If the Employee does not make the election in the year of initial eligibility, the election to contribute may
be made in a later year,An annual election window of- days (no.more than'60 calendar "
days) shall be,provided'during which the election rfi_be made. T-he election window_'shall"run from '
to (insert yourannual'time frame'for the election:window).=Contributions_may
-begin no earlier than the Calendar year following,the year of the election.
once made,the election is irrevocable and may not be 'revoked.
c. Annual, Prospective.Election for Pre-Tax Contributions of Leave: An,annual,.-irrevocable election to
have his or her sick 17_vacation M other annual l eaye- (describe) leave to be accrued in the next
calendar year contributed to the Plan on his-or.her behalf
N
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The Employer I, y limits the'am ount elected as shown below:
p o
oer current- varet'ion o0 1ic� -
Contributions of future leave accruals"will be .remitted:to the Plan -'
rXII as earned -17 at the end'of the calendar, year.
The election to contribute must be made in the calendar year before y, the year in which contributions are to
begin., Once made, the election shall apply to succeedi ig'calendar,years unless otherwise revised or
revoked by the Employee on an annual basis
An annual election window,of=days: (nomore than 60 calendar days) is provided during which eligible
Employees may make the election to contribute. The election window shall run from to
(insert,your annual'timeframe for the election window).
In adopting section a, b;,and/or c, the Employer.acknowledges that the Interne-I Revenue Service has 'hot
ruled on irrevocable'election'contributions in an integral part truest. ICMA-RC has obtained the advice of
counsel that such,contributions are,allowable under the conditions outlined in this Adoption Agreement. The,
Employer,should discuss this issue with appropriate counsel.
2., After-Tax Contributions r'
Each Employee may contribute up to 70 of
earnings (as defined in VI.A.1.),or$ n for the Plan Year on
avoluntary after-tax basis. In no eventmay aggregate Employee voluntary-after-tax contributions exceed 250/.
of total-contributions'iri,any?Ian Year.` '>
An Employee,shall,have, the right to discontinue or vary the rate of elective after-tax contributions'of Employee,
,
earnings,
,l c ;
n s
By adopting this section, the Employer, acknowledges that the"Internal Revenue Servicehas declined to''r'ule on
Employee after tax contnbutionsln an integral part trust. �ICMA-RChas obtained the-advice of counsel that such" '
cohtributio'ns,.are allowable inan insubstantial amount 6,.e. no morethah'25% of total contribution&in any Plan'
Year). The Employer should discuss this,issue with'appropriate counsel.
C. Limits on Total Contributions
The total contribution on behalf of each Participant (including both Mandatory and Elective
Contributions) for each Plan Year shall not exceed the following limit(s):
❑ % of earnings (as defined in VI.A.1.).
171 $
0 There is no Plan-defined limit on the percentage or dollar amount of earnings that may
be contributed.
Limits on individual contribution types are defined within the appropriate section above.
See Section V.A. for a discussion of nondiscrimination rules that may apply to non-collectively bargained self-
insured Plans.
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VII. Vesting Schedule
A. The account is 100% vested at all times, unless specified otherwise in B. below.
B. The following vesting schedule applies to Direct Employer Contributions outlined in VI.A.1:
Years of Specified
Service Percent
Completed Vesting
0 100 %
a/0
C. The account will become 100% vested upon the death, disability, retirement, or attainment of
benefit eligibility by a Participant.
Definition of retirement: achievement of normal retirement age and separation
from City service
D. Any period of service by a Participant prior to a rehire of the Participant by the Employer shall not
count toward the vesting schedule outlined in B. above.
Vill. Forfeiture Provisions
Upon separation from the service of the Employer or upon reversion to the Trust of a Participant's account
assets remaining upon the participant's death (as outlined in Section XI), a Participant's non-vested funds shall:
171 Remain in the Trust to be reallocated among all Plan Participant's as Direct Employer Contributions for
the next and succeeding contribution cycle(s).
Remain in the Trust to be reallocated on an equal dollar basis among all Plan Participants.
❑ Remain in the Trust to be reallocated among all Plan Participants based upon Participant account bal-
ances.
Revert to the Employer.
In the case of separation from service, the Participant's non-vested funds shall be applied as shown above. In the
case of reversion due to the Participant's death under Section XI, the remaining account assets shall be applied
as shown above.
IX. Eligibility Requirements to Receive Medical Benefit Payments from the VantageCare Retirement Health
Savings Plan
A. A Participant is eligible to receive benefits:
At retirement only (as defined in Section VII.C.)
X At separation from service with the following restrictions
npna
At age only
At retirement and age
At retirement or age
15 "
B. Termination prior to general benefit eligibility: A Participant who separates from the service of the Employer
prior to attaining benefit eligibility as outlined in Section IX.A. or C. will be eligible to receive benefits:
Immediately upon separation from service.
At age
C. A Participant who dies or becomes totally and permanently disabled (as defined by the Social Security
Administration) will become immediately eligible to receive medical benefit payments from his/her VantageCare
Retirement Health Savings Plan account.
X. Permissible Medical Benefit Payments
Benefits eligible for payment consist of:
A. X All Medical Expenses eligible under IRC Section 213* other than direct long-term care
expenses, OR
B. The following Medical Expenses (select only the expenses you wish to cover under the
VantageCare Retirement Health Savings Plan):
Medical Insurance Premiums
Medical Out-of-Pocket Expenses*
Medicare Part B Insurance Premiums
Medicare Supplement Insurance Premiums
COBRA Premiums
Dental Insurance Premiums
Dental Out-of-Pocket Expenses*
Long Term Care Insurance Premiums
Other (Must be eligible under IRC Section 213)*
* See Section V.A. for a discussion of nondiscrimination rules which may apply to non-collectively bargained,
self-insured Plans.
XI. Death Benefit
In the event of a Participant's death, the following shall apply:
Account Transfer: The surviving spouse and/or surviving eligible dependents (as defined in Section XIII.F.) of the
deceased Participant are immediately eligible to maintain the account and utilize it to fund eligible medical bene-
fits specified in Section X above.
Upon notification of a Participant's death, the Participant's account balance will be transferred into the
Vantagepoint Money Market Fund*. The account balance may be reallocated by the surviving spouse or
dependents.
* Please read the current prospectus carefully prior to investing. An investment in this fund is neither insured
nor guaranteed and there can be no assurance that the Fund will be able to maintain a stable net asset value of
$1.00 per share. Vantagepoint Mutual Funds are distributed by ICMA-RC Services, LLC, a controlled affiliate of
ICMA Retirement Corporation. Member NASD/S/PC.
If a Participant's account balance has not been fully utilized upon the death of the eligible spouse, the account
balance may continue to be utilized to pay benefits of eligible dependents. Upon the death of all eligible depend-
ents, the balance will be available for medical benefits for the designated beneficiary of the last dependent or
spouse to die. Assets remaining upon the death of a designated beneficiary shall be available for medical bene-
fits of the beneficiary's designated beneficiary. If there is no living beneficiary(ies), the account will revert to the
Plan to be applied as specified in Section VIII.
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There will be no elective withholding of federal, state, or local taxes for medical benefit payments to the
Participant's spouse's or dependent's designated beneficiary(ies).
If there are no living spouse or dependents at the time of death of the Participant, the account will be available
for medical benefits for the designated beneficiary(ies) of the Participant. Assets remaining upon the death of all
designated beneficiaries shall be available for medical benefits of the beneficiary's beneficiary. If there is no liv-
ing beneficiary(ies), the account will revert to the Plan to be applied as specified in Section VIII.
There will be no elective withholding of federal, state, or local taxes for medical benefit payments to the -_
Participant's beneficiary(ies) or any beneficiary's beneficiary.
XII. De Minimis Accounts
Upon separation from the service of the Employer prior to a Participant becoming eligible for medical benefits
from a VantageCare Retirement Health Savings Plan account, Participant accounts that are considered de min-
imis as specified below will be paid to the Participant.
(71 The de minimis account value shall be $5,000 or less.
171 The de minimis account value shall be $ (insert dollar amount between $0 and
$5,000) or less.
The Plan shall not allow de minimis account distributions.
XIII. The Plan will operate according to the following provisions:
A. Employer Responsibilities
1. The Employer will submit all VantageCare Retirement Health Savings Plan contribution
data via electronic submission.
2. Participant status updates and/or changes or personal information updates and/or changes (Participants'
termination dates, Participants' benefit eligibility dates, etc.) will be provided via electronic submission.
B. Participant account administration fees will be paid through the redemption of Participant account shares,
unless agreed upon otherwise in the Administrative Services Agreement.
C. Employer plan fees will be paid by the Employer as outlined in the Administrative Services Agreement.
D. Assignment of benefits is not permitted.
E. Payments to an alternate payee (payee other than a Participant) are not permitted with the exception of reim-
bursement of health insurance premiums to the Employer.
F. An eligible dependent is the Participant's lawful spouse and any other individual who is a person described in
IRC Section 152(a).
G. The Employer will be responsible for withholding, reporting and remitting any applicable taxes, as outlined
in the VantageCare Retirement Health Savings Plan Employer Manual.
XIV. The Employer hereby acknowledges it understands that failure to properly fill out this Employer
VantageCare Retirement Health Savings Plan Adoption Agreement may result in the loss of tax exemption of the
Trust and/or loss of tax-deferred status for Employer contributions.
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EMPLOYER
By:
Title:
Attest:
Accepted: Vantagepoint Transfer Agents, LLC _
Corporate Treasurer
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RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS, CALIFORNIA,
APPROVING THE ADOPTION OF THE VANTAGECARE RETIREMENT HEALTH
SAVINGS (RHS) PROGRAM, PLAN NUMBER 800957
WHEREAS, the Employer has employees rendering valuable services, and
WHEREAS, the establishment of a retiree health savings plan for such employees serves the
interests of the Employer by enabling it to provide reasonable security regarding such employees'
health needs during retirement, by providing increased flexibility in its personnel management
system, and by assisting in the attraction and retention of competent personnel; and
WHEREAS, the Employer has determined that the establishment of the retiree health savings plan
(the "Plan") serves the above objectives,
NOW THEREFORE BE IT RESOLVED that the assets of the Plan shall be held in trust, with the
Employer serving as trustee, for the exclusive benefit of Plan participants and their beneficiaries, and
the assets of the Plan shall not be diverted to any other purpose prior to the satisfaction of all
liabilities of the Plan. The Employer has executed the Declaration of Trust of the City of Palm
Springs (name of Employer) Integral Part Trust in the form of the model trust made available by the
ICMA Retirement Corporation.
BE IT FURTHER RESOLVED that the City of Palm Springs (use title of Employer's official, not
name) shall be the coordinator and contract for the Plan and shall receive necessary reports,
notices, etc.
ADOPTED this day of 2001
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED & APPROVED as to form
r
RESOLUTION NO.
OF THE CITY COUNCIL OF THE CITY OF PALM SPRINGS,
CALIFORNIA, APPROVING THE AFFIRMATIVE STATEMENT
FOR ADOPTION OF THE VANTAGECARE RETIREMENT
HEALTH SAVINGS (RHS) PROGRAM
WHEREAS, the Employer has employees rendering valuable services, and
WHEREAS, the establishment of a retiree health savings plan serves the interests of the
Employer by enabling it to provide reasonable security regarding such employees' health
needs during retirement, by providing increased flexibility in its personnel management
system, and by assisting in the attraction and retention of competent personnel; and
WHEREAS, the Employer has determined that the establishment of the retiree health
savings plan (the "Plan") serves the above objectives;
NOW THEREFORE, as a duly authorized agent of the Employer, I hereby:
ESTABLISH the Employer's Plan in the form of the ICMA Retirement Corporation's
VantageCare Retirement Health Savings program; and
SPECIFY that the assets of the Plan shall be held in trust, with the Employer serving as
trustee ("Trustee"), for the exclusive benefit of the Plan participants and their
beneficiaries, and the assets of the plan shall not be diverted to any other purpose prior
to the satisfaction of all liabilities of the Plan. The Employer has executed the
Declaration of trust of the City of Palm springs Integral Part Trust in the form of the
model trust made available by the ICMA Retirement Corporation.
SPECIFY that the Director of Finance & Treasurer, shall be the coordinator and contact
for the Plan and shall receive necessary reports, notices, etc.
ADOPTED this day of 2001
AYES:
NOES:
ABSENT:
ATTEST: CITY OF PALM SPRINGS, CALIFORNIA
By
City Clerk City Manager
REVIEWED & APPROVED as to form