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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: • 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 That Resolution Number 2-89 "The City of McCall Section 125 Plan" is hereby repealed effective May 1, 1993 .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 . 1 p#: Mayo ;) 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Employee is able to purchase $uc benefits is this _ L - -.h its through- this Plah on a pre-Lax basis . 1.2 Prior Plans Superseded.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 1 • 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 ,' 3 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 . 5 • 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 7 • 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 . • • • • 9 i\\ 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. "