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HomeMy WebLinkAboutCC RES 99-060RESOLUTION NO. 99-60 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, ESTABLISHING AN EMPLOYEES' CAFETERIA BENEFIT PROGRAM WHEREAS, the cafeteria plan allows employees to select to have health benefit options on a pre -taxed basis. WHEREAS, Section 125 of the Internal Revenue Code allows employees to choose among two or more appropriate levels of health benefits for themselves and their families. WHEREAS, the cafeteria plan offers optional pre -taxed spending options including child/dependent care, medical reimbursement account and other future options. WHEREAS, the cafeteria plan allows the City of Palm Desert to participate in CALPERS Health Benefit Services for active and retired employees. WHEREAS, the cafeteria plan will help control future costs of health benefits for active and retired employees. WHEREAS, the cafeteria plan is not considered discriminatory to collective bargaining units. NOW, THEREFORE, BE IT RESOLVED that the City Council of the City of Palm Desert, California, adopt the attached cafeteria plan document in accordance with the Internal Revenue Code Section 125. PASSED, APPROVED AND ADOPTED at a regular meeting of the Palm Desert City Council, held on this 24th , day of June , 1999, by the following vote, to wit: AYES: Benson, Crites, Ferguson, Kelly, Spiegel NOES: None ABSENT: None ABSTAIN: None litTgST: // 4" .Ji SHEILA R. LLIGAN, VJY CLERK City of Palm Desert, California [This page has intentionally been left blank.] CITY OF PALM DESERT CAFETERIA PLAN PLAN DOCUMENT Effective: July 1, 1999 Contract Administrator. SMA SHARED MEDICAL ALTERNATIVES SPONSORED MARKETING INSURANCE ADMINISTRATORS, INC. TABLE OF CONTENTS Page ADOPTION OF THE DOCUMENT 1 INTRODUCTION and Special Notices 2 ELIGIBILITY AND EFFECTIVE DATES 4 TERMINNATION OF PARTICIPATION 5 ELECTION OF BENEFITS 7 BENEFITS 9 Coverage ("Premium") Costs 9 Health Care Expense Reimbursement 9 Dependent Care Assistance 9 ADDITIONAL PROVISIONS 11 SECTION 457 DEFERRED COMPENSATION PLAN 12 CLAIMS PROCEDURES 13 DEFINITIONS 15 GENERAL PLAN INFORMATION 17 CONTINUATION OF COVERAGE OPTION (COBRA) 21 ADOPTION OF THE DOCUMENT Adoption and Purpose of the Plan Plan Sponsor hereby adopts and creates by this document a plan to provide certain benefits for eligible Employees of the Employer. The benefits provided by the Plan include the following: Coverage ("Premium") Costs Health Care Expense Reimbursement Dependent Care Assistance Section 457 Deferred Compensation Plan Governing Laws It is intended that the Plan Document will serve to describe the nature, funding and benefits o f the Plan. It is also intended that the Plan will conform to the requirements found in Section 125 of the Internal Revenue Code. If any portion of the Plan does now, or in the future, conflict with any IRS or Federal regulations which apply to this Plan, such regulations will govern. Acceptance of the Plan Document IN WITNESS WHEREOF, the Plan Sponsor has caused this instrument (pages 1-22 inclusive) to be executed, effective as of July 1, 1999. Document Accepted By: City of Desert (Plan Ad nistrator) • a e of Authorized Representative /610A_ Title of Authorized Represtbtative City of Palm Desert Cafeteria Plan / page 1 INTRODUCTION The purpose of the City of Palm Desert Cafeteria Plan is to provide eligible Employees with a means of selecting benefits from a "cafeteria" which are best suited to his/her family's needs and paying for certain types of expenses with PRE-TAX Cafeteria Credits, thus minimizing taxable income and maximizing net take-home pay. In accordance with the requirements of Section 125 of the Internal Revenue Code, a "cafeteria plan" must offer at least one benefit option that is taxable (i.e., cash or a "cash equivalent") and at least one qualifying nontaxable benefit. Thus, the benefits being offered under this Plan include: Taxable Benefits - The taxable benefit option offered by this Plan is the cash equivalent of the Plan's nontaxable benefits. That is, an Employee may choose not to participate in one or more optional nontaxable benefits offered by the Plan and receive applicable Cafeteria Credits on an after-tax basis. NOTE: Cafeteria credits applied to the City's Section 457 Optional Deferred Compensation Plan are always taxable after the Employee reaches the maximum deferral amount of 25% or $8,000, whichever is less. Nontaxable Benefits - Subject to the provisions contained herein and the Cafeteria Plan Schedule Of Monthly Credits By Family Size forms which will be completed by the Plan Sponsor for each new Plan Year and which are incorporated herein by reference, an Employee will be allowed to choose among the following nontaxable benefits: • Coverage ("Premium") Costs - within the meaning of Code Sections 106 and 79. This benefit allows an Employee to pay all or a share of the coverage costs for Employer - sponsored accident, health and life coverages with Cafeteria Credits. Certain coverages or levels of coverage are mandatory as shown in the City's "Cafeteria Plan Schedule Of Mandatory And Optional Benefits." • Health Care Expense Reimbursement - within the meaning of Code Sections 105 & 106. This benefit allows an Employee to allocate Cafeteria Credits for reimbursement o f health plan deductibles, his coinsurance share and other health -related expenses. • Dependent Care Assistance - within the meaning of Code Section 129. This benefit allows an Employee to allocate Cafeteria Credits for reimbursement of dependent care expenses (i.e., child care, etc.). SPECIAL NOTICES Social Security - Because certain Plan benefits are paid with pre-tax dollars, amounts paid toward Social Security taxes may be reduced and Social Security benefits may also be reduced. Other benefits which are based upon taxable compensation could also be affected - such as worker's compensation, unemployment, etc. The Employer's personnel office or the office o f the Plan Sponsor, if different, may be able to provide additional information as to the impact of these reductions in an individual situation. Forfeitures - Cafeteria Credits which are allocated to Reserve Accounts during a Plan Year and are not utilized for benefits during the year, must be forfeited by the Employee to the Plan and cannot be carried forward by the Employee, in any manner, to a subsequent Plan Year. Dependent Care Credit Under Federal Income Tax - Employees will not be permitted to claim a Federal income tax credit for any dependent care expenses which are reimbursed under the Plan. City of Palm Desert Cafeteria Plan / page 2 Introduction, continued Tax Treatment Not Guaranteed - While it is the intention of the Plan Sponsor that nontaxable benefits will be eligible for exclusion from the gross income of the Employee, neither the Plan Sponsor, the Employer, the Fiduciaries nor the Councilmembers in any way guarantee or insure that any of the benefits provided under the Plan will not be subject to income or other taxes. Furthermore, neither the Plan Sponsor, the Employer, the Fiduciaries or the Councilmembers will be liable for any income or other taxes imposed upon an Employee, spouse, dependent, or any other person by reason of any benefits received under the Plan. City of Palm Desert Cafeteria Plan / page 3 ELIGIBILITY AND EFFECTIVE DATES Eligibility To be eligible to participate in the Plan, an individual must be a City Councilmember or an active an employee of the Employer who is eligible for the Plan Sponsor's health care coverages and who is receiving compensation from the Employer. Election to Participate Each Employee may elect to participate by completing and delivering to the Employer a Cafeteria Plan Credit Allocation Worksheet and any ancillary forms provided by the Employer, Plan Sponsor or Contract Administrator. Enrollment must be made prior to the beginning of a Plan Year, or within 30 days of Employee's becoming eligible, if initial eligibility occurs mid -year. Participation does not commence until enrollment is completed. In general, if an Employee fails to enroll or elects not to enroll in the Plan when initially eligible, he may not participate in the Plan until the beginning of a new Plan Year. NOTE: If an Employee has a spouse with employer -sponsored health coverage and the Employee is eligible to participate in the spouse's plan, Employee may elect not to participate in the Plan's Sponsor's medical coverage. Credits equal to the "core premium" cost for the medical coverage (i.e., the lowest HMO premium) will be made available to the Employee for other benefits Employee may elect under this Plan. Effective Date Coverages under the Plan will become effective on the first day of the month coinciding with or next following commencement of active employment and upon completion of the necessary enrollment forms, but not earlier than the effective date of the Plan. Changes in Election If an Employee has a qualified change in family status due to his spouse losing or gaining employment, addition or deletion of a dependent, divorce, marriage or legal separation of the Employee, or such other events as may be permitted by the Plan Sponsor and under regulations issued by the IRS, he may change his Cafeteria Plan Credit Allocation Worksheet with respect to the Plan Year. See "Change in Family Status" in the Election of Benefits section for additional information. Annual Default Re -Enrollment Each Employee must complete a new enrollment form prior to the beginning of each new Plan Year if he wishes to change his prior benefit elections or if he wishes to discontinue his participation in the Plan. If an Employee is eligible to participate in the Plan but fails to re - enroll, his prior elections will be deemed to continue without change. City of Palm Desert Cafeteria Plan / page 4 TERMINATION OF PARTICIPATION An Employee will cease to participate on the earliest of the following dates: the date the Plan is terminated; or the date the eligibility requirements are no longer met, except as participation may be extended below (see "Extension(s) of Coverage During Absence From Work"). An Employee's Reserve Account(s) will remain open for the remainder of the Plan Year in which termination occurs. Any eligible expenses which are incurred through the end of the Plan Year may be submitted for payment from the appropriate account. Revocation and Rehire If an Employee terminates employment and revokes his elections at the time of termination and then is rehired within the same Plan Year, he may not participate in the Plan until the beginning of the next Plan Year. However, this rule will not apply to an Employee whose absence is due to an FMLA leave (a leave taken in accordance with the Family and Medical Leave Act). Following return from an FMLA leave, the Employee must be reinstated in the Coverage ("Premium") Costs and/or the Health Care Expense Reimbursement benefits, if any. Extension of Coverage During Absence From Work With Pay If an Employee fails to continue in active employment due to vacation, sick leave, temporary layoff, or approved leave of absence, the Employee will be permitted to continue Flexible Dollar contributions while receiving a regular paycheck from the Employer. Extension of Coverage During Absence From Work Without Pay If an Employee is away from work on an approved leave taken in accordance with the Family and Medical Leave Act of 1993 (FMLA) or during a period of duty in the Uniformed Services (see NOTE), the following options may be available with regard to the Coverage ("Premium") Costs and/or the Health Care Expense Reimbursement benefits. Actual available options are determined by the Plan Sponsor, subject to the RULES, below: pre -payment option - an Employee may be permitted to pre -pay his or her contribution amounts before ceasing active work (i.e., he can have his Plan contributions deducted pre- tax from his final paycheck or paychecks) but such prepayment cannot extend beyond the end of the Plan Year in which the leave begins; or pay-as-you-go option - an Employee may be permitted to continue to contribute to the Plan during his leave with after-tax dollars; or catch up option - a "catch up" method may be permitted where the Employer and Employee agree in advance of the absence that this method will be used. The Employer then pays all contributions during the FMLA leave and these amounts are, in turn, paid by the Employee on a pre-tax basis when he returns from FMLA leave; or waiver option - the Employer may waive (suspend) Employee contribution requirements during the period of absence. If an Employee is away from work during an approved non-FMLA absence without pay, any of the above options may also be allowed, subject to the RULES, below. RULES: The following rules will apply to the options offered to an Employee with regard to continuing the Plan's Coverage ("Premium") Costs and/or the Health Care Expense Reimbursement benefits: the pre -pay option may not be the sole option offered to an Employee; City of Palm Desert Cafeteria Plan / page 5 Termination of Participation, continued the catch-up option can be the sole option for an FMLA or active duty leave ONLY if the catch up option is the sole option offered to Employees on a non-FMLA leave; if the Employer offers either the pre -pay or the catch-up option during an FMLA leave, it must also offer the pay-as-you-go option if it offers the pay-as-you-go option to Employees on a non-FMLA leave. NOTE: The "Uniformed Services" means the Armed Forces, the Army National Guard, and the Air National Guard when engaged in active duty for training, in active duty training, or full- time National Guard duty, the commissioned corps of the Public Health Service, and any other category of persons designated by the President of the United States in time of war or emergency. City of Palm Desert Cafeteria Plan / page 6 ELECTION OF BENEFITS Benefits and Benefit Maximums The benefits available under the Plan for a given Plan Year are as listed on the Plan Sponsor's "Cafeteria Plan Schedule Of Mandatory And Optional Benefits" form which is prepared by the Plan Sponsor prior to the beginning of each Plan Year. Each Employee who elects to participate completes his elections for a Plan Year on a Cafeteria Plan Credit Allocation Worksheet form. The maximum Cafeteria Credits will be determined at the discretion of the Plan Sponsor prior to the commencement of each Plan Year and will be uniformly applicable to all Employees. A 11 such amounts will be subject to review and final approval by the City's Councilmembers. The Employer reserves the right to reduce the amount of the Employee's Cafeteria Plan Credit Allocation Worksheet in order to assure compliance with the requirements of the Internal Revenue Code for favorable tax treatment. NOTE: If an Employee enrolls other than at the beginning of a new Plan Year, his Cafeteria Plan Credit Allocation Worksheet election maximums will be prorated based on the number of months he is actually participating in the Plan. Irrevocable Election and Revocation of Election All Employee elections are irrevocable for the Plan Year in which made and must be made before the benefits become currently available; provided, however, that an election may be revoked during the Plan Year if there is a qualified Change in Family Status (see below), but only to the extent of the unused benefits, only to elect new benefits consistent with the change, and only with the approval of the Plan Sponsor which need not be granted. Change in Family Status Changes in family status include: Employee's marriage or divorce; death of the Employee's spouse or a dependent child; birth of a child of the Employee or adoption of a child by the Employee; termination or commencement of employment by the Employee's spouse; Employee or Employee's spouse switching from part-time to full-time employment or vice versa; Employee or Employee's spouse taking an unpaid leave or absence; significant changes in the health coverage of the Employee or Employee's spouse attributable to the spouse's employment; other similar changes including status changes which would permit an Employee to make mid -year changes in his employer -sponsored health coverages in accordance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA: P.L. 104-191). An Employee who experiences a change in family status must complete a new Cafeteria Plan Credit Allocation Worksheet and submit it to the Plan Sponsor within 31 days of the status change (i.e., within 31 days of the birth of a child, etc.). If the request is not made within 31 days, new elections will not be permitted until the beginning of the next Plan Year. NOTE: Any change in the Cafeteria Plan Credit Allocation Worksheet must be consistent with the family status change. City of Palm Desert Cafeteria Plan / page 7 Election of Benefits, continued Annual Modification of Election of Benefits An Employee may change his benefits elected for a subsequent Plan Year by completing a new Cafeteria Plan Credit Allocation Worksheet prior to the first day of the Plan Year for which such new election is to become effective. The Plan Sponsor will hold an open enrollment period late in each Plan Year for the subsequent Plan Year to assist Employees in making any changes. auk 1 City of Palm Desert Cafeteria Plan / page 8 BENEFITS To the extent allowed by the Plan Sponsor's "Cafeteria Plan Schedule Of Monthly Credits By Family Size" for a given Plan Year, an Employee may apply his Cafeteria Credits toward any of the following benefits: Coverage ("Premium'? Costs Cafeteria Credits will be used for premium payments for coverage during the Plan Year under the Employer's welfare benefit plans (i.e., medical, dental and vision coverages). Premium payments will be made directly by the Employer to the plan(s). Benefits will be payable pursuant to the terms of the respective coverages (policies, etc.). NOTE: Only the costs of coverages of such type which the Plan Sponsor offers pursuant to this Plan will be eligible for this benefit. Health Care Expense Reimbursement Cafeteria Credits may be used for reimbursement of those expenses of the Employee or an eligible Dependent which would be reimbursed under the Employer's health care coverage(s) but for the effect of a deductible amount requirement, a coinsurance provision, or a dollar limitation on the amount of the reimbursement allowable. In addition, other health -related expenses, as defined in Code Section 213, may be reimbursed to the extent that they are not otherwise reimbursable. To be eligible for reimbursement, the expenses must be incurred (but not necessarily billed or paid) during the Plan Year and the period of Employee's participation in the Plan. NOTE: Any expense which is claimed as a Federal income tax deduction is NOT eligible for reimbursement with Cafeteria Credits. Dependent Care Assistance Cafeteria Credits may be used for the reimbursement of Dependent Care Assistance Expenses which are actually incurred during the Plan Year to care for a Qualifying Child Dependent or a Qualifying Individual AND which enable the Employee to be gainfully. employed. If the Employee is married, the spouse must also work, must be a full-time student at a qualified educational institution during each of five calendar months during the taxable year, or must be physically or mentally handicapped (Le., unable to be self-sufficient as the result of a condition such as mental retardation, cerebral palsy, epilepsy or another neurological disorder which has been diagnosed by a physician as a permanent and continuing condition). If Dependent Care Assistance Expenses are incurred for services provided outside the Employee's household by a Dependent Care Center (as defined in Code Section 21(b)(2)(d)), they will be deemed to meet the requirements hereunder only if the care is provided to a Qualifying Child Dependent or a Qualifying Individual who regularly spends at least eight hours in the Employee's home and such center meets all applicable laws and regulations of the appropriate state or unit of local government. Amounts paid or incurred by an Employee will not be Dependent Care Assistance Expenses within the meaning of this subsection if such amounts are paid to an individual with respect to whom, for the Plan Year, a deduction is allowable under Code Section 151(c) to such Employee or the spouse of such Employee, or a person who is a child of such Employee (within the meaning of Code Section 151(c)(3)) and who is under the age of 19 at the close of the Calendar Year. In the case of an Employee who is married, no benefits will be payable for Dependent Care Assistance Expenses unless the Employee has provided the Plan Sponsor with a statement o f the Earned Income of the Employee's spouse. The Plan Sponsor may also require Employees to submit such other information which the Plan Sponsor deems necessary or desirable to implement the Dependent Care Assistance program. City of Palm Desert Cafeteria Plan / page 9 Benefits, continued The Plan Sponsor will furnish to each Employee, annually on or before January 31, a written statement showing the amounts reimbursed from his/her Dependent Care Assistance Reserve Account during the preceding Calendar Year. NOTE: An Employee may not receive Dependent Care Assistance in any Plan Year in excess of the lesser of (1) Employee's Earned Income for the Plan Year or (ii) the Earned Income of Employee's spouse for the Plan Year, with marital status determined at the close of the taxable year. For purposes of this subsection, an Employee's spouse who is either a Student or incapable of caring for himself, will be deemed to have Earned Income as provided for in Code Section 21(d)(2). For the purposes of this benefit, the following terms will have the meanings shown below: Dependent Care Assistance - The provisions of the Plan which constitute a dependent care assistance program within the meaning of Code Section 129. Dependent Care Assistance Expenses - Household services and expenses for the care of a Qualifying Individual within the meaning of Code Section 21(b)(2) which are performed to enable an Employee to remain gainfully employed and which are performed (1) in the home of the Employee; (ii) outside the home of the Employee for the care of a Dependent of the Employee under the age of 13; (iii) outside the home of the Employee for a Qualifying Individual who regularly spends at least eight (8) hours a day in the Employee's home; or (iv) outside the home of an Employee for the care of a Qualifying Individual in a Dependent Care Center. Services may not be rendered by (i) a dependent of the Employee or (ii) a dependent o f Employee's spouse or (iii) a child, within the meaning of Code Section 151(c)(3), under the age of 19 at the close of the taxable year. Dependent Care Center - As provided by Code Section 21(b)(2)(C) and (D): a facility which (i) complies with all applicable laws and regulations of the state and town, city or village in which it is located; (ii) provides care for more than six (6) individuals (other than individuals who reside at the facility); and (iii) receives a fee, payment or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit). Qualifying Child Dependent - A dependent of the Employee who is under age 13 and with respect to whom the Employee is entitled to a deduction under Code Section 151(c). Qualifying Individual - (1) Any relative or household member supported by the Employee (receiving over 50% of support) who is physically or mentally incapable of self-support; and, (2) a spouse who is physically or mentally incapable of self-support. City -of Palm Desert Cafeteria Plan / page 10 ADDITIONAL PROVISIONS Beneficiary Designation Each Employee shall designate upon such forms as may be provided for that purpose by the Plan Sponsor or Contract Administrator, a beneficiary or beneficiaries who are to receive, in the event of his death, payment of a reimbursement to which he is entitled under the Plan. The designation of a beneficiary will not be effective for any purpose unless and until it has been filed with the Plan Sponsor. In the event that an Employee fails to designate a beneficiary in the specified manner, or if for any reason such designation is legally ineffective or if such beneficiary predeceases the Employee or dies simultaneously with him, then, for the purposes of the Plan, distribution will be made by the Plan to the Employee's spouse (if any). If there is no spouse, at the discretion of the Plan the benefits will be paid to either (1) any one or more of the persons comprising the group consisting of the Employee's descendants, the Employee's parents, or the Employee's heirs -at -law, and the Plan may pay the entire benefit to any member of such group or apportion such benefit among any two or more of them in such shares as the Fiduciaries, in their sole discretion, shall determine, or (2) the estate of such deceased Employee. In the event the Fiduciaries do not so direct any such payments, the Fiduciaries may elect to have a court of applicable jurisdiction determine to whom a payment or payments will be paid. In the event that an Employee is survived by a spouse, payment will be made to another beneficiary only in the event the surviving spouse consents in writing to the payment to the other beneficiary and such election is witnessed by either a notary public or a Plan Fiduciary. Non -Discrimination It is intended that the Plan will comply with all Federal tax law requirements necessary to obtain the tax benefits of a cafeteria (Section 125) plan, including the requirements that the Plan not discriminate in favor of certain "key employees" or "highly compensated employees" as those terms apply to Section 125 cafeteria plans. Therefore, the salary reduction amounts available to "key employees" and "highly compensated employees" may be limited or reduced to assure compliance and non-discrimination. See also "Exclusion from Income" below. Effect of Mistake In the event of a mistake as to the eligibility or participation of an Employee, or the allocations made to the account(s) of any Employee, or the amount of distributions made or to be made to an Employee or other person, the Plan Sponsor will, to the extent it deems possible. cause to be allocated or cause to be withheld or accelerated, or otherwise make adjustment of, such amounts as will in its judgment accord to such Employee or other person the credits to the account or distributions to which he is properly entitled under the Plan. Exclusion from Income It is the intention of the Plan Sponsor that nontaxable benefits will be eligible for exclusion from the gross income of the Employee, as provided in Code Section 125. and all provisions of the Plan will be construed in a manner consistent with that intent. HOWEVER neither the Plan Sponsor, the Employer, the Fiduciaries nor the Councilmembers in any way guarantee or insure that any of the benefits provided under the Plan will not be subject to income or other taxes. Furthermore, neither the Plan Sponsor, the Employer, the Fiduciaries nor the Councilmembers will be liable for any income or other taxes imposed upon an Employee, spouse, dependent, or any other person by reason of any benefits received under the Plan. City of Palm Desert Cafeteria Plan / page 11 SECTION 457 DEFERRED COMPENSATION PLAN Unused Section 125 Cafeteria credits may be contributed to the Section 457 Deferred Compensation Plan. Employees will receive unused Section 125 Cafeteria credits as cash, which in turn is encouraged to be contributed to the City's Section 457 Deferred Compensation Plan. Further, Employees may increase or decrease the amount of their elective contributions in accordance with the provisions of the deferred compensation plan and, to the extent the plan allows such changes, the Employee will not be subject to the Change in Family Status requirements. City of Palm Desert Cafeteria Plan / page 12 AIM CLAIMS PROCEDURES Filing a Claim To file a claim for reimbursement from his Reserve Account(s), an Employee must complete a claim form. Claims forms are available from the Employer, Plan Sponsor or Contract Administrator. The Employee will also be required to furnish such documents, evidence, data or information in support of his claim (bills, the Employee's cancelled check, or other proof of payment, etc.) as the Plan Sponsor or Contract Administrator considers necessary or desirable. Claims for reimbursement for Health Care Expenses MUST be accompanied by a written statement from an independent third party stating that the health care expense was incurred and its amount. Usually, the provider's itemized bill will suffice. Additionally. the Employee must provide a written statement that the health care expense has not been reimbursed and is not reimbursable under any other health plan and will not be claimed as a Federal income tax deduction. Claims for expenses related to a Plan Year must be submitted not later than the 90th day after the end of the Plan Year. Claims should be forwarded to: Sponsored Marketing Insurance Administrators, Inc. P. O. Box 51098 Riverside, CA 92517 Failure to submit claims during the period established by this section will deprive an Employee of benefits to which he might otherwise be entitled. Payment of Claims Payment of covered claims will be made directly to the Employee, or to the designated beneficiary in the case of the Employee's death. All Plan reimbursements will be subject to the following limitations: the maximum amount of reimbursement will not exceed the lesser of: (i) the amount of benefit allowed by the appropriate section of the Code, or (ii) the amount elected by the Employee on the Cafeteria Plan Credit Allocation Worksheet; reimbursement will be made only in the event and to the extent that such reimbursement or payment (i) is not provided for under any insurance policy. whether the premium on such policy is paid by the Employer or the individual Employee, (ii) is not provided for or reimbursable under any other plan or policy, and (iii) will not be claimed as a deduction for Federal income tax purposes. reimbursement for Dependent Care Expenses will not exceed the amount available in the Reserve Account at the time of reimbursement. Claims Denials and Appeal Procedures If the Contract Administrator or the Plan Sponsor determines that a claim should be wholly or partially denied, the Claimant will be given written notification of such denial. This notice will include: the reason(s) for the denial; T specific reference to the Plan provision(s) on which the denial is based. A Claimant may request a review of his claim, provided such request is filed in writing to the %yr Contract Administrator (at the address shown above) within 60 days after the date his claim is denied. City of Palm Desert Cafeteria Plan / page 13 Claims Procedures, continued At such time as the Claimant requests a review of the denied claim, he may review any pertinent documents and should submit issues and comments in writing. The Plan Sponsor will make a decision with regard to such claim not later than 60 days after the receipt of the request for review, unless special circumstances require an extension of time. If such an extension is required, written notice of the extension will be furnished to the Claimant prior to the termination of the initial 60-day period. The extension notice will explain the special circumstances requiring an extension and the date the Plan Sponsor expects to render the final decision. The decision on review will be in writing, will include the specific reason(s) for the decision and will reference the pertinent provisions on which the decision is based. City of Palm Desert Cafeteria Plan / page 14 DEFINITIONS When capitalized within, the following items will have the meanings shown below. Cafeteria Credits - Those dollar amounts which an Employee may allocate to obtain benefits. Cafeteria Plan Credit Allocation Worksheet - An agreement between an Employee and the Employer under which the Employer reduces the Employee's current salary and the Employer contributes the amount of the reduction to the Plan on behalf of the Employee. as a before -tax contribution. The Cafeteria Plan Credit Allocation Worksheet will be in a form which permits the Employer to reduce the Employee's current salary and contribute the amount of the reduction to the Plan on behalf of the Employee. The Cafeteria Plan Credit Allocation Worksheet will apply only to amounts of the Employee's pay that have not been actually or constructively received as of the date the worksheet is completed. Any amounts so elected will not become currently available to the Employee. The amount of the salary reduction elected by the Employee will be deemed to be an Employer contribution for purposes of the Code. The Cafeteria Plan Credit Allocation Worksheet will be irrevocable during the Plan Year except as provided in "Changes in Election" in the Eligibility and Effective Date section. Calendar Year - The period of time commencing at 12:01 A.M. on January 1 of each year and ending at 12:01 A.M. on the next succeeding January 1. Each succeeding like period will be considered a new Calendar Year. Claimant - Any Covered Person on whose behalf a claim is submitted for benefits under the Plan. Code - The Internal Revenue Code of 1986, as amended, and the regulations thereunder. Contract Administrator - A company which performs all functions reasonably related to the general management. supervision and administration of the Plan in accordance with the terms and conditions of an administration agreement between the Contract Administrator and the Plan Sponsor. Counciimembers - The Councilmembers of the City of Palm Desert. Covered Person - A covered Employee or a Qualified Beneficiary under COBRA. See Eligibility and Effective Dates and Continuation of Coverage Option (COBRA) sections for further information. Dependent - Any individual with respect to whom, for the taxable year, a deduction is allowable under Code Section 152 for Employee or Employee's spouse. Earned Income - As provided in Code Section 32(c)(2), all income derived from wages, salaries, tips, other employee compensation and earnings from self-employment (within the meaning of Code Section 1402(a)); but not including any amounts paid or incurred (i) as a pension or annuity, or (ii) by the Employer for Dependent Care Assistance to the Employee. Employee - see Eligibility and Effective Dates section(s). Employer - The Employer participating in the Plan as stated in the General Plan Information section. Fiduciary - A Fiduciary of the Plan is any person who has binding power to make decisions regarding Plan policies, interpretations, practices or procedures. A Fiduciary will thus include, but not be limited to, the Plan Administrator, officers and directors of the Plan Sponsor, investment committee members and Plan trustees, if any. City of Palm Desert Cafeteria Plan / page 15 Definitions, continued Flexible Spending Coverages - The benefits as described herein. Plan - The entity which provides the benefits described by the Plan Document, its amendments and addendums. The name of the Plan is shown in the General Plan Information section. Plan Administrator - see "Plan Sponsor." Plan Document - A formal document which describes the plan of benefits and the provisions under which such benefits will be paid to Covered Persons, including any amendments. Plan Sponsor - The entity sponsoring this Plan. The Plan Sponsor may also be referred to as the Plan Administrator. See General Plan Information section for further information. Plan Year - see General Plan Information section. Reserve Account - An individual account established by the Plan Sponsor and in the name of the Employee, for the purpose of accounting for Cafeteria Credits allocated to and benefits paid under the Plan. A Reserve Account is not an interest -bearing account. Separate accounting will be performed for each benefit elected by an Employee. Amounts attributed to one benefit cannot be transferred, in any manner, to another benefit. Student - As provided in Code Section 21(e)(7), an individual who, during each of five calendar months during the taxable year, is a full-time student at an educational organization which normally maintains a regular facility and curriculum and normally has a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on, as provided in Code Section 21(e)(8) and 170(b)(1)(A)(ii). isi City of Palm Desert Cafeteria Plan / page 16 GENERAL PLAN INFORMATION Name of Plan: Plan Sponsor / Plan Administrator. Address: Business Phone Number: Employer. Plan Sponsor ID Number (EIN): Plan Year: NOTE: The first Plan Year is a short year from July 1, 1999 through December 31, 1999. Plan Number: Fiduciary (Named Fiduciary): Address: Designated Legal Agent: Address: City of Palm Desert Cafeteria Plan City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260 (760) 346-0611 City of Palm Desert 95-2859459 January 1 through December 31 501 City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260 (see also definition of "Fiduciary") City of Palm Desert 73-510 Fred Waring Drive Palm Desert, CA 92260 (Legal process may also be served upon the Plan Sponsor or a Fiduciary) Contract Administrator: Street Address: Mailing Address: Phone: Sponsored Marketing Insurance Administrators, Inc. 4351 Latham St. #100 Riverside, CA 92501 P. O. Box 51098 Riverside, CA 92517 (909) 370-7400 Funding - Sources and Uses Sources of Funds Contributions for the Flexible Spending Coverages will be provided by the Employer on behalf of an Employee through the Cafeteria Plan Credit Allocation Worksheet. The annual election amount(s) to be deposited to Reserve Accounts will be deducted from the Employee's salary in equal amounts per pay period. All contributions must be used within the Plan Year during which the contributions were made or they will be forfeited by the Employee to the Plan. Uses of Funds The contributions will be applied to provide the benefits under the Flexible Spending Coverages. Unused (forfeited) contributions may not be carried forward by the Employee in any manner to a subsequent Plan Year. The Plan Sponsor in its sole discretion, however, may use forfeited amounts to: (1) pay administrative expenses: (2) reduce Reserve Account contributions for the following Plan Year; (3) increase amounts available to pay claims from Reserve Accounts in future years: or (4) provide a rebate to Plan participants, in which case funds must be allocated on a reasonable and consistent basis and cannot be allocated based on claims experience. City of Palm Desert Cafeteria Plan / page 17 General Plan Information, continued Administrative Provisions Administration The benefits of the Plan are administered by a Contract Administrator under the terms and ssiO conditions of administration agreement(s) between the Plan Sponsor and Contract Administrator. Amendment or Termination of the Plan The Plan Sponsor expects the Plan to be permanent, but since future conditions affecting the Plan Sponsor or Employer(s) cannot be anticipated or foreseen, the Plan Sponsor must necessarily and does hereby reserve the right to terminate, suspend, withdraw, amend or modify the Plan in whole or in part at any time. With the exception of forfeited amounts, Plan funds will not at any time be used for or diverted to purposes other than for the exclusive benefit of Employees or their beneficiaries, and no amendment will divest any person of his interest therein, except as may be required by the Internal Revenue Service or other governmental authority, or give any person any assignable or exchangeable interest or any right or thing of exchangeable value in advance of the time distribution is to be made to such person, except as otherwise permitted by law. NOTE: Any termination, suspension, withdrawal, amendment or modification will be done in writing, and by resolution of a majority of the Plan Sponsor's Councilmembers. Annual Statements If required by law, the Plan Sponsor will furnish to each Employee within a reasonable period of time following the close of a Plan Year, a written statement showing the amounts paid or expenses incurred by the Plan Sponsor for Plan benefits during the prior Plan Year. Anticipation. Alienation. Sale or Transfer No benefit payable under the provisions of the Plan will be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge. encumber, or charge will be void; nor will such benefit be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of, or claims against, any Employee or beneficiary. including claims of creditors, claims for alimony or support, and any like or unlike claims. Discrepancies In the event that there may be a discrepancy between the booklet(s) provided to Employees (the "Summary Plan Description") and the Plan Document, the Plan Document will prevail. Entire Contract The Plan Document, any amendments and addendums, the individual applications, if any, and Cafeteria Plan Credit Allocation Worksheets of Covered Persons will constitute the entire contract between the parties. Facility of Payment Every person receiving or claiming benefits under the Plan will be presumed to be mentally and physically competent and of age. However, in the event the Plan determines that the Employee is incompetent or incapable of executing a valid receipt and no guardian has been appointed, or in the event the Employee has not provided the Plan with an address at which he can be located for payment, the Plan may, during the lifetime of the Employee, pay any amount otherwise payable to the Employee, to the husband or wife or relative by blood of the Employee. or to any other person or institution determined by the Plan to be equitably entitled thereto. If a guardian, conservator or other person legally vested with the care of the estate of any person receiving or claiming benefits under the Plan is appointed by a court of competent jurisdiction, payments will be made to such guardian or conservator or other person, provided that proper proof of appointment is furnished in a form and manner suitable to the Fiduciaries. To the extent permitted by law, any such payment so made will be a complete discharge of any liability therefor under the Plan. City of Palm Desert Cafeteria Plan / page 18 General Plan Information, continued Fiduciary Responsibility. Authority and Discretion Fiduciaries shall discharge their duties under the Plan solely in the interest of the Employees and their beneficiaries and for the exclusive purpose of providing benefits to Employees and their beneficiaries and defraying the reasonable expenses of administering the Plan. The Fiduciaries shall administer the Plan and shall have the authority to exercise the powers and discretion conferred on them by the Plan and shall have such other powers and authorities necessary or proper for the administration of the Plan as will be determined from time to time by the Plan Sponsor. In carrying out their responsibilities under the Plan, Fiduciaries may adopt such rules and procedures for the administration of the Plan as they shall consider advisable and shall have discretionary authority to interpret the terms of the Plan and Plan Document and to determine eligibility for and entitlement to Plan benefits in accordance with the terms of the Plan. Any interpretation or determination made pursuant to such discretionary authority shall be given full force and effect, unless it can be shown that the interpretation or determination was arbitrary and capricious. The Fiduciaries may employ such agents, attorneys. accountants, investment advisors or other persons (who also may be employed by the Employer) as in their opinion may be desirable for the administration of the Plan, and may pay any such person reasonable compensation. The Fiduciaries may delegate to any agent, attorney, accountant or other person selected by them. any power or duty vested in, imposed upon, or granted to them by the Plan. Force Majeure Should the performance of any act required by the Plan be prevented or delayed by reason o f any act of God, strike, lock -out, labor troubles, restrictive governmental laws or regulations, or any other cause beyond a parry's control, the time for the performance of the act will be extended for a period equivalent to the period of delay, and non-performance of the act during the period of delay will be excused. In such an event, however, all parties will use reasonable efforts to perform their respective obligations under the Plan. Gender and Number Except when otherwise indicated by the context, any masculine terminology will also include the feminine and any term in the singular will also include the plural. Megality of Particular Provision The illegality of any particular provision of the Plan Document will not affect the other provisions, but the Plan Document will be construed in all respects as if such invalid provision were omitted. Indemnification To the extent permitted by law, Employees of the Employer, the Fiduciaries, and all agents and representatives of the Fiduciaries, will be indemnified by the Plan Sponsor and saved harmless against any claims and conduct relating to the administration of the Plan except claims arising from gross negligence, willful neglect, or willful misconduct. The Plan Sponsor reserves the right to select and approve counsel and also the right to take the lead in any action in which it may be liable as an indemnitor. Legal Actions No Employee or other beneficiary will have any right or claim to benefits from the Plan, except as specified herein. Any dispute as to benefits under this Plan will be resolved by the Plan Sponsor under and pursuant to the Plan Document. No action may be brought for benefits provided by the Plan or an amendment or modification thereof, or to enforce any right thereunder, until after the claim has been submitted to and determined by the Plan and then action may only be brought within one year after the date of such decision. Right of Recovery Whenever any benefit payments have been made by the Plan in excess of the maximum amount required under the terms of the Plan Document, the Plan will have the right to recover all such City of Palm Desert Cafeteria Plan / page 19 General Plan Information, continued excess amounts from any persons, insurance companies or other payees, and the Employee shall make a good faith attempt to assist the Contract Administrator in such recovery. The Plan Sponsor may, in its sole discretion, pay benefits for expenses covered hereunder pending a determination of whether or not such care or services are covered hereunder. Such payment will not affect or waive any exclusion, and to the extent such care or services have been provided, the Plan will be entitled to recoup and recover the amount paid therefor from the Covered Person or the provider of service in the event it is determined that such care or services are not covered hereunder. Rights Against the Plan Sponsor Neither the establishment of the Plan, nor any modification thereof, nor any distributions hereunder, will be construed as giving to any Employee or any person any legal or equitable rights against the Plan Sponsor, its shareholders, directors, or officers, or as giving any person the right to be retained in the employ of the Employer. Titles or Headings Where titles or headings precede explanatory text throughout the Plan Document. such titles or headings are intended for reference only. They are not intended and will not be construed to be a substantive part of the Plan Document and will not affect the validity. construction or effect of the Plan Document provisions. Unclaimed Accounts If the Plan is unable, within two years after any amount becomes due and payable from a Reserve Account to an Employee or beneficiary, to make payment because the identity or whereabouts of such person cannot be ascertained, the Plan Sponsor may mail a notice by registered mail to the last known address of such person outlining the action described in this section to be taken unless such person makes written reply to the Plan Sponsor within 60 days from the mailing of such notice. The Plan Sponsor may direct that such amount and all further benefits with respect to such person will be discontinued and all liability for the payment will terminate; however, in the event of the subsequent reappearance of the Employee or beneficiary prior to termination of the Plan, the benefits which were due and payable and which such person missed will be paid in a single sum. City.of Palm Desert Cafeteria Plan / page 20 AIM V CONTINUATION OF COVERAGE OPTION (COBRA) In order to comply with the Consolidated Omnibus Budget Reconciliation Act of 1985, during any Plan Year during which the Employer has more than twenty (20) Employees, a Continuation of Coverage Option will be available when health care coverages under the Plan would otherwise terminate. This provision is intended to comply with that law, and, if it is found to be incomplete or in conflict in any way with the law and its amendments, the law will prevail. NOTE: The COBRA option is also intended to comply with the Health Insurance Portability and Accountability act of 1996. If this provision it is found to be incomplete or in conflict in any way with that law and its amendments, the law will prevail. Definitions Qualified Beneficiary - An Employee who was participating in the Plan on the date preceding the date on which the Qualifying Event occurred. Qualifying Event - Any one of the following which would result in the loss of coverage under the Plan: the termination of the covered Employee (other than by the Employee's gross misconduct): reduction in a covered Employee's hours of employment to an ineligible status. Notification Employer must notify Employee of Continuation of Coverage rights in event of Employee's termination or reduction of hours. Notice mailed to the Qualified Beneficiary's last known address will be considered adequate. Notification must be made to Qualified Beneficiaries within 14 days of Employer's notice of the occurrence of Qualifying Event. Election and Election Period Continuation of Coverage may be elected during the period beginning on the date coverage would otherwise terminate due to a Qualifying Event and ending on the later of the following: sixty (60) days after coverage ends due to a Qualifying Event; sixty (60) days after the Qualified Beneficiary receives notice of the Continuation of Coverage Option rights. Effective Date of Coverage Continuation of Coverage, if elected within the period allowed for such election, is effective retroactively to the date coverage would otherwise have terminated due to the Qualifying Event and Qualified Beneficiary will be retroactively charged for coverage accordingly. Level of Benefits Continuation of Coverage hereunder will be equivalent to coverage provided to a similarly situated person to whom a Qualifying Event has not occurred. If coverage is modified to similarly situated Employees, the same modification will apply to Qualified Beneficiaries. Cityof Palm Desert Cafeteria Plan / page 21 Continuation of Coverage Option (COBRA), continued Cost of Continuation of Coverage The cost of coverage may be paid in monthly installments and such cost will not exceed 102% of the cost of coverage, during the same period. for a similarly situated Covered Person to whom a qualifying Event has not occurred. The additional 2% charge is to cover administrative costs and is not added to Reserve Account balances. Retroactive payments must be paid by the Qualified Beneficiary to the Plan within 45 days of election of Continuation of Coverage hereunder. NOTE: In most instances. COBRA contributions will have to be paid with after-tax dollars. Termination of Continuation of Coverage Coverage under this provision will terminate on the occurrence of the earlier of: the end of eighteen (18) months if the Qualifying Event is employment termination or reduction of hours to non -eligible status. HOWEVER. a Qualified Beneficiary who is determined under Title II or Title XVI of the Social Security Act to have been disabled at the time of termination or within the 60 days thereafter (i.e., at the time of the Qualifying Event or at any time during the first 60 days of COBRA coverage) may notify the Plan Sponsor of such disablement before the end of the 18-month period and extend the continued coverage for 11 months (i.e., from 18 to 29 months) or until the Qualified Beneficiary is no longer disabled, if earlier. The cost of such extended coverage may be 150% of the active Employees' cost for months 19 through 29. the termination of all Employer -provided group health plans; the failure to make timely premium payments to the Plan (coverage may be terminated i f the beneficiary is more than 30 days delinquent in paying his/her contributions); the date the Qualified Beneficiary becomes covered under any other group health plan as a result of employment, re-employment or remarriage. which does not contain any exclusion or limitation with respect to any pre-existing condition of such beneficiary; or the date the Qualified Beneficiary becomes entitled to Medicare benefits. City.of Palm Desert Cafeteria Plan / page 22 Exhibit A City Of Palm Desert Cafeteria Plan Schedule Of Mandatory And Optional Benefits - Plan Period 7/99 through 12/99 Mandatory Health Benefits; Optional Health Benefits; Minimum Health Insurance Coverage - Choose One Optional Health Insurance Coverage Plan Type Carrier Employee Only Employee + Spouse Emplo :: + Fami HMO HMO Mandatory Dental Benefits Plan Type Carrier Employee Only Employee + Spouse Employee + Family Kaiser Health Net Mandatory Vision Benefits Plan Type 41"'•• Carrier Employee Only law Employee + Spouse Emplo ee + Fami Employee Only Employee + Spouse Employee + Family Employee Only Employee + Spouse Employee + Family Employee Only Employee + Spouse Employee + Fami $165.65 $165.23 $331.32 $330.46 $430.71 $429.62 PPO 1 Delta $34.44 $64.94 $109.65 PPO VSP $12.06 $24.08 $31.36 HMO HMO HMO HMO PPO PPO Blue Aetna Shield PERS- PERS HMO Access + CIGNA PacifiCare Care Choice $168.57 $170.96 $164.19 $165.47 $274.37 $164.82 $337.14 $341.92 $328.38 $330.93 $548.73 $329.64 $438.29 $444.49 $426.89 $430.19 $713.55 $428.13 Optional Out Of Pocket Medical Expense Reimbursement Benefit Limited To: Unused Cafeteria Credits Unused Cafeteria Credits Unused Cafeteria Credits Optional Child/Dependent Care Expense Reimbursement Benefits Limited To The Lesser Of: Unused Cafeteria Credits Or $5,000• Annually Unused Cafeteria Credits Or $5.000* Annually Unused Cafeteria Credits Or $5,000* Annually • $2500 if IRS filing status is married filing separate Optional Deferred Compensation Contribution; Limited To The Lesser Of: Unused Cafeteria Credits Or ($8,000 Annually or 25% Of Salary) Unused Cafeteria Credits Or ($8,000 Annually or 25% Of Salary) Unused Cafeteria Credits Or ($8,000 Annual or 25% Of Salary) Exhibit B City Of Palm Desert Cafeteria Plan Schedule Of Monthly Credits By Family Size - Plan Period 7/99 through 12/99 Choice A - Kaiser Health Coverage Employee Only Employee + Spouse Employee + Family Choice B - Health Net Employee Only Employee + Spouse Employee + Family Total Minimum Monthly Monthly Monthly Remaining Available Health Available Credits* Credits Credits $418.10 $165.65 $252.45 $836.16 $331.32 $504.84 $1,087.05 $430.71 ; $656.34 Total Minimum Monthly Monthly Monthly Remaining Available Health Available Credits* Credits Credits $418.10 $165.231 $252.871 $836.16 j $330.46 $505.70 r $1,087.05 $429.62 ! $657.431 Note - calculations are based on selection of Kaiser or Health Net as the minimum mandatory benefit. Selection of optional health carriers will impact the monthly remaining available credits due to additional costs. * The % change in the amount of total monthly available credits in subsequent plan years will be based on the following ratio of CalPers PPO health plan premiums : Average subsequent plan year CalPers PPO Premium rates Multiplied by 70% Average 1999 CalPers PPO premium rates J City Of Palm Desert Cafeteria Plan Credit Allocation Worksheet For The Plan Period 7/99 through 12/99 Employee Name: Points To Consider Step 1 - Select health benefit. Step 2 - Calculate remaining credits available after dental and vision. Step 3 - Allocate remaining credits to medical expense reimbursement, child/dependent care reimbursement. deferred compensation or cash. Step 4 - Complete plan election form. A) Total Monthly Available Credit B) Selected Health Benefit C) Credits Remaining (A minus B) D) Mandatory Dental Benefit E) Mandatory Vision Benefit F) Credits Remaining (C minus D minus E) G) Medical Expense Reimbursement H) Child/Dependent Care Expense Reimbursement I) Deferred Compensation aR J) Cash i J) Credits Remaining (F minus G minus H minus I minus J) Employee Employee+ Employee Only Spouse Family $418.10; $836.16 $1,087.051 $34.44 1 1 1 $64.94 1 1 $109.65 $12.06 $24.081 f $31.36 J (Should Equal Zero) # Cafeteria credits become taxable income to you - taxable income Is subsequently reduced by the amount that you elect for deferred compensation contributions.