HomeMy Public PortalAboutResolution 02-93 Relating to personnel; Repealing resolution 2-89; Adopting a premium payment plan, and providing an effective date RESOLUTION NO. 2-93
A RESOLUTION OF THE CITY OF MC CALL, IDAHO; RELATING
TO PERSONNEL; REPEALING RESOLUTION 2-89; ADOPTING A
PREMIUM PAYMENT PLAN, AND PROVIDING AN EFFECTIVE
DATE.
WHEREAS:
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The City of McCall has employees performing valuable
services .
The City of McCall has provided certain benefits to
employees and made other benefits available for purchase by
Employees and their families.
Section 125 of the Internal Revenue Code provides that upon
adoption of an appropriate plan, employees may choose to
have their salary reduced by the cost of the benefits and
have the City purchase those benefits on their behalf.
Resolution 2-89 "City of McCall Section 125 Plan" was
adopted on March 9, 1989 to provide such an option and the
City now desires to update the plan.
NOW, THEREFORE, BE IT RESOLVED BY THE MAYOR AND COUNCIL, as
follows :
Section 1 . That Resolution Number 2-89 "The City of McCall
Section 125 Plan" is hereby repealed effective May 1, 1993 .
Section 2 . That the "City of McCall Premium Payment Plan, "
a copy of which is annexed to and made a part of this resolution,
is hereby adopted.
Section 3. This resolution shall be in full force and
effect on and after May 1, 1993 .
Section 4. That the City Treasurer be, and he is hereby
authorized and directed to implement and carry out the duties of
the Administrator of the Plan as described therein.
Dated this 25th Day of March 1993 .
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Mayo
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ATTEST:
City C erk
City of McCall
Premium Payment Plan
ARTICLE I. INTRODUCTION
1. 1 Establishment of Plan. The City ' of McCall, (the
"Employer" ) , hereby establishes the City of McCall, Premium Payment
Plan (the "Plan" ) , for its Employees effective May 1, 1993 .
This Plan is designed to provide a participating Employee the
choice to receive certain benefits under the Employer's Health and
Dental Plans as well as Term Life Insurance, in lieu of receiving
a portion of his Compensation in cash. In effect, the Employee is
able to purchase $uc benefits is this _
L - -.h its through- this Plah on a pre-Lax
basis .
1.2 Prior Plans Superseded. This plan supersedes the "City
of McCall Section 125 Plan" adopted by the Mayor and Council as
Resolution 2-89 on March 9, 1989 .
1.3 Legal Status. This Plan is intended to qualify as a
"cafeteria plan" under section 125 of the Internal Revenue Code of
1986, as amended (the "Code" ) , and regulations issued thereunder.
ARTICLE II. DEFINITIONS AND CONSTRUCTION
2 . 1 Definitions :
"Administrator" means the person or persons designated by
Elie Mayor either by name or by office to administer this plan.
"Code" means the Internal Revenue Code of 1986, as
- amended.
"Compensation" means the total Form W-2 cash compensation
for Federal income tax withholding purposes paid by the Employer to
an Employee for services performed, determined prior to any Salary
Reduction election under this Plan, and prior to any salary
deferral contributions under Code section 457 .
"Effective Date" of this Plan means May 1, 1993 .
"Election Form" means the form provided by the
Administrator for the purpose of allowing an eligible Employee to
elect, during an Open Enrollment Period or upon first becoming an
eligible employee, to participate in this Plan..
"Employee" means any person employed on a regular basis
by the Employer.
"Employee Benefit Plan" means the plan or plans the
- Employer maintains for its Employees (and their spouses and
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2 .2 Gender and Number. Except when otherwise indicated by the
context, any masculine terminology used herein shall also include
the feminine and the definition of any term herein in the singular
shall also include the plural.
2 .3 Headings . The headings of the various Articles, Sections
and Subsections are inserted for convenience of reference and not
to be regarded as part of this Plan or as indicating or controlling
the meaning or construction of any provision.
2 . 4 Plan Provision Controlling. In the event the terms or
provisions of any summary or description of this Plan, or any other
instrument, are in any construction interpreted as being in
,.-
confl ; -*l ; r+i-. with t)mo e- provi. �_ tl.. � ._. herein
,
...,.. ��.., r��„���arrs:-z:.�. -its=�-��,��_. a5 set...forth;._.��_e-,.-----
provisions of this Plan shall be controlling.
2 . 5 Severability. In the event any provision of this Plan
shall be held illegal or invalid for any reason, this illegality or
invalidity shall not affect the remaining provisions of this Plan,
and such remaining provisions shall be fully severable and this
Plan shall, to the extent practicable, be construed and enforced as
if the illegal or invalid provision had never been inserted
therein.
2 . 6 Code Compliance. It is intended that his Plan meet all
applicable requirements of the Code and of all regulations issued
thereunder. This Plan shall be construed, operated and
administered accordingly, and in the event of any conflict between
any part, clause or provision of this Plan and. the Code, the
provisions of the Code shall be deemed controlling, and any
conflicting part, clause or provision of this Plan shall be deemed
superseded to the extent of the conflict.
ARTICLE III . PARTICIPATION
3 . 1 Eligibility to Participate. An Employee who is
participating in the Eiployee Benefit Plan on the Effective Date
will become eligible to participate in this Plan on the Effective
Date. Any other Employee- is eligible to participate in this Plan
when he is eligible to participate in the Employee Benefit Plan.
(As of May 1, 1993, an Employee is eligible to participate in most
of the Employee Benefit Plan if he is regularly scheduled to work
at least 20 hours per week for a term of at least five months and
has been employed by the Employer for at least 30 calendar days
after the Employee's Employment Commencement Date. ) However,
different elements of the Employee Benefit Plan have different
eligibility rules .
3 .2 Election to Participate; Commencement of Participation.
(a) Elections During Open Enrollment Period. During
each Open Enrollment Period with respect to a Plan Year, the
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3 .4 Participation Following Termination. After termination
of participation under Section 3 . 3, an Employee's subsequent
participation in this Plan shall occur at the time and in the
manner set forth in Section 3 . 1 as if such Employee were a new
Employee of the Employer. However, if an Employee again becomes
eligible to participate in this Plan during the same Plan Year in
which his participation ceased, he may not resume participation
prior to the first day of the following Plan Year.
3 .5 Special Rule Involving Certain Family Status Changes.
Notwithstanding Section 3 . 3 and 3 .4, a -Participant's participation
will not terminate, and the Participant may suspend and then
re taro
- - --• - - ;..,. z.1 - _is or her Salary Reductions 1. the _s1me Plan Year if the - _
Participant meets all of the following three conditions :
(a) the Participant has taken an unpaid leave of absence
from the Employer or has changed from full-time to part-time
employment with the Employer, and
(b) the Participant elects under section 4 . 4(a) to
reduce his Salary Reduction to $0; and
(c) upon return to employment after a leave of absence
or return to full-time from part-time employment, the Participant
re-elects under Section 4 . 4(a) to increase his Salary Reduction to
the level that existed immediately before it was reduced to $0 (or
to some greater or lesser level if on account of and consistent
with a different change in family status) .
ARTICLE IV. BENEFITS AND ELECTIONS
4. 1 Benefits . An Employee's election to participate in this
Plan is an election to receive Employee Benefit Plan benefits under
this Plan and to have a portion of his Compensation (his Salary
Reductions.) applied by the Employer to cover the Participant's
share of the premium for Health Insurance Plan benefits he elects .
Employees and covered family members must meet all eligibly
criteria set forth in . the City's contract with the various
insurance carriers . This Plan shall in no way be construed as
being binding upon the carrier(s ) to provide coverage to an
otherwise in eligible Employee or Family member. Consequently and
so far as is consistent with the provisions of the various Health
and Life Insurance Plans an employee may elect:
(a) To provide no coverage for his . otherwise eligible
family members . Generally carrier(s ) apply much more stringent
standards for applications that are made more than 30 days after
Employment Commencement Date and may deny coverage based on medical
history. Similarly, the Employee may elect to provide no coverage
under the term life and cancer/critical care arrangements .
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• the birth or adoption of a child of the Participant;
• the termination of employment (or commencement of
employment) of the Participant 's spouse;
■ the switching from part-time to full-time employment
status or from full-time to part-time status by the Participant or
his spouse;
■ the taking of (or return to employment from) an
unpaid leave of absence by the Participant or is spouse; or
• where there has been a significant change in the
ccvcragc of tho Participant y.. Y � 115 SYtJUS�dI:L.t11Jl�LdL7lE' to--
the spouse 's employment.
Any right to revoke coverage and make a new election is
subject to, and may be limited by, the Health Insurance Plan.
(b) Significant Changes to Employee Benefit Plan. To
the extent permitted by the Employee Benefit Plan elected by the
Participant, the Participant may revoke his Employee Benefit Plan
coverage during a Plan Year and, in lieu therefor, elect any other
Employee Benefit Plan coverage available through the Employer for
the remaining portion of the Plan Year, effective as of the first
day of the month following the new election, if the revocation and
new election are on account of a significant increase in the
premium for his original coverage or if such original coverage is
significantly curtailed or ceases .
4. 5 Election Modifications Required by Administrator. The
Administrator may, at any time, require any Participant or class of •
Participants to amend the amount of their Salary Reduction for a.
Plan Year if the Administrator determines such action is necessary
or advisable to (i) satisfy any Code nondiscrimination requirements
applicable.to this Plan, or the Employee Benefit Plan; (ii) prevent
any Employee or class of Employees from having to recognize more
income for federal income tax purposes from the receipt of Health
Insurance Plan benefits hereunder than would otherwise be
recognized; of (iii) maintain the qualified status, of benefits
received under this Plan.
4 . 6 Maximum Salary Reduction Amounts. The maximum Salary
Reduction amount (expressed in terms of dollars ) available to any
Participant for any Plan Year shall be the Participant' s share of
the premium for his Employee Benefit Plan benefits .
ARTICLE V. ADMINISTRATION OF PLAN
5 . 1 Plan Administrator. The administration of this Plan
shall be under the supervision of the Administrator. It is the
principal duty of the Administrator to see that this plan is
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other arrangement between Employee and the Employer to the effect
that he will be employed for any specific period of time. All
Employees, except those City Officers designed in Title I of the
McCall City Code, are considered to be employed at the will of the
Employer. City Officers may be removed in the manner prescribed in
Title 50, Idaho Code.
6.4 Amendment and Termination. This Plan has been
established with the intent of being maintained for an indefinite
period of time. Nonetheless, the Employer may amend or terminate
this Plan at any time by action of the Mayor and City Council.
6.5 Governing Law. This Plan shall be construed, administered
and. .enforced according tr the taws of the--State of -Idaho; -to the- --- -
extent not superseded by the Code or other federal law.
6. 6 No Guarantee of Tax Consequences . Neither the
Administrator nor the Employer makes any commitment or guarantee
that the Participant's Health Insurance Plan benefits will be
excludable from the Participant's gross income for federal or state
income tax purposes .
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REVIEWED &APPROVED
FOR CITY COUNCIL AGENDA
SeA
3.—As="..sr
DATE tr-)A,
STAFF REPORT
DATE: Mtrch 15, 1993
Cafeteria Plan - Section 125, Internal Revenue Code
1 . BACKGROUND. Early in 1988 when the City changed to its
current Health Insurance carrier, Stan Clements of the All Valley
Agency proposed that the City adopt a "Section 125 Plan" as a
means of partially offsetting the additional cost of the new
insurance plan. Based on that recommendation, Bob Remaklus, the
former City Attorney was instructed to draft such a plan. He had
a difficult time finding any information on so-called Section 125
plans but was able to put together a plan which was adopted as
Resolution 2-89 on March 9, 1989 .
2 . CAFETERIA PLANS. On March 3, 1993, I attended a seminar on
cafeteria plans and learned that our interpretation and
administration of the plan does not entirely follow the
requirements of the Code and promulgating regulations .
Generally, a cafeteria plan is a written plan under which
all participants are employees and participants may choose among
2 or more benefits consisting of cash and qualified benefits such
as health insurance.
The plan only applies to benefits that the employee would
purchase himself such as family health insurance as opposed to
insurance 'purchased by the City such as employee health
insurance.
The plan under consideration is one of the simplest type
called a "Salary Reduction Plan. " This means that the employee
opts to take a reduction in salary equal to the cost of the
premium. Instead of paying that amount to the employee, the City
uses the money to pay the premium. In effect, the employee pays
for this insurance with pre-tax dollars. Attachment #1 is an
example of the effect of a cafeteria plan on a hypothetical
employee's take-home pay.
Advantages , Advantages
To Employees To City
No Income tax on cost of No FICA Costs
Health Insurance
Reduced SUTA &
No FICA Tax on cost of Worker' s Comp Costs
Health Insurance
Disadvantages Disadvantages
To Employees To City
Irrevocable election Administrative Costs
No Supplemental Young Child
Earned Income Credit
No Health Insurance Tax Credits
May reduce social security
benefits .
3 . THE EXISTING PLAN. The existing plan does not meet Code
requirements in that: (a) it fails to describe the benefits; (b)
does not prescribe plan year; and, (c) does not describe election
procedures .
4 . THE PROPOSED PLAN. The proposed plan follows a model plan
developed by Thomas P. McCormick (the seminar instructor) . It
contains all of the required elements . It allows for an open
enrollment period from April 1 through April 30 and a short
Plan Year beginning May 1st and ending October 31st. The seminar
instructor recommends that the Plan Year coincide with the Health
Plan Year. Consequently, subsequent Plan Years begin November
1st.
5. RECOMMENDATION. That you adopt the attached plan by
adopting resolution 2-93 and direct staff to notify employees and
otherwise implement the "City of McCall Premium Payment Plan. "