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HomeMy WebLinkAboutRes 05-70 C24170 ICMA Post-Retirement Medical Savings PlanCITY OF PALM DESERT Office of the Director of Human Resources Community Services Division Staff Report REQUEST: Request for adoption of the proposed Post -Retirement Medical Savings Plan, as an additional employee benefit, and designation of ICMA as the "Plan Administrator." SUBMITTED BY: Duane K. Munson, Interim Director of Human Resources DATE: August 25, 2005 CONTENTS 1. Resolution adopting the Post -Retirement Savings Plan and designating ICMA as the plan administrator 2. A statement signed by authorized City Officials and members of the PDEO Board of Directors, verifying that the Post - Retirement Medical Savings Plan has cleared the state mandated meet -and -confer process, and is by affirmative vote of a majority of the PDEO voting membership submitted for the approval of the City Council. Recommendation: 1) Waive further reading and adopt Resolution No. 05 - 70 adopting the Post - Retirement Medical Savings Plan as an additional employee benefit; 2) by Minute Motion direct the City Manager to sign the contract with ICMA establishing this plan. Executive Summary: Staff has been approached by management to explore methods for employees to finance the rising cost of medical expenses in retirement. After speaking with other Valley cities, the staff met with our ICMA representative. It was determined that the VantageCare Retirement Health Savings Plan will provide employees with an additional method of financial planning to meet the cost of their medical expenses in retirement, at no cost to the City. Discussion: State law requires the City to convert accrued but unused vacation leave into cash for all terminating employees (including retirees), and to add those monies to their final paycheck. The current City policy also allows terminating employees to convert a CITY COUNCIL STAFF REPORT RE: Post Retirement Medical Savings Plan August 25, 2005 percentage of their accrued but unused sick leave into cash provided they do so within the following constraints: 1) The employee must have at least 192 hours of accrued sick leave on the date of termination; and 2) All service time used for the calculation must be full-time paid City service in order to qualify. Assuming the above criteria are met, the percentage cash -out is based on the following schedule: YEARS OF SERVICE PERCENTAGE OF PAYOUT Less than four (4) N Over four (4) but less than seven (7) 25% Over seven (7) but less than ten (10) 35% Over ten (10) but less than thirteen (13) 45% Over thirteen (13) but less than sixteen (16) 55% Over sixteen (16) 65% Based on this criteria, employees will be paid for a percentage of unused sick leave accruals upon termination of employment. Under the provisions and limitations of CalPERS contract options Section 20965, the balance of unused sick leave may be converted to additional service credit, for employees who retire within four months of their date of separation from the City of Palm Desert. Under the current policy, whatever portion of unused sick leave and vacation leave that the employee elects to convert to cash must be added to their annual income and will be taxable at the rates required by the Internal Revenue Service and the Franchise Tax Board. The proposed Post -Retirement Medical Savings Plan allows for the employee to have access to the same cash conversion privileges but permits this cash to be deposited directly into a pre -taxed medical savings account and to be paid out, as needed tax- free. The program will allow for the transfer of any or all of the accrued vacation and sick leave balances, within the cash conversion limits defined by Ordinance 1072, into an individual post -retirement medical savings account on a pre -taxed basis. It also allows the retiree to draw down this account to pay for permissible medical insurance premiums, co -payments, deductibles, and other permissible medical expenses on a tax- free basis. 6 CITY COUNCIL STAFF REPORT RE: Post Retirement Medical Savings Plan August 25, 2005 The cash deposits of these accounts will be administered by ICMA. The administration of these accounts includes the placement of funds into emplovee/retiree-selected investments and the eventual withdrawal or disbursement of the funds. The City's program has been designed to work in the following manner: • To be eligible, the employee must be vested in the CalPERS retirement system, and also be at least 45 years of age as of January 1 of the year of their enrollment and have at least 192 hours of unused sick leave banked. • Enrollment in the program is completely voluntary. • The window for enrollment will be between October 1s' and November 30th of each year. • Once enrolled, the City would make a mandatory and irrevocable transfer of the cash value of at least 5 hours of sick leave per year from the employee's accrued sick leave balance into the employee's individual medical savings account. • The employee may also add to the account by contributing, from his/her salary, up to 15% of the cash value of the mandatory sick leave hour per year. This contribution is also voluntary and pre-tax, but once it has been added to the individual's medical savings account, it is also irrevocable. • All monies deposited into the individual medical savings accounts are fully vested to the employee from day one. • Upon retirement, the employee may transfer any portion of his/her accrued sick leave and accrued vacation balances into his/her medical savings account pre-tax, and there is no maximum contribution limit. • The retiring employee is eligible to file claims for reimbursement for permissible medical expenses beginning in the calendar year following his/her retirement and these reimbursements are tax-free. • The Permissible Medical Benefit Payments are as follows: ■ Medical Insurance Premiums ■ Co -payments ■ Deductibles ■ Medicare Part "B" Insurance Premiums ■ Medicare Supplemental Insurance Premiums ■ COBRA Premiums ■ Dental Insurance Premiums • Out -of -Pocket Dental Expenses 3 CITY COUNCIL STAFF REPORT RE: Post Retirement Medical Savings Plan August 25, 2005 Long-term Care Insurance Premiums Vision Other (Must be eligible under IRC Section 213) • In the event of the retiree's death, the surviving spouse may use the benefit tax-free, under the same terms and conditions. • Should there be funds remaining in the retiree's account following the death of both the retiree and his/her spouse, the benefit would become part of the estate and could be used by their beneficiaries for reimbursement for the same Permissible Medical Expenses as listed above; however, the payments would be taxable to the beneficiaries. • ICMA charges a fee to each account to cover the cost of administration; this fee is deducted from the individual's account. The fee per account is $30.00 plus 4 basis points (4/10 of 1 %) of the account balance, calculated on an annual basis and deducted quarterly. Sub fitted by: C DUANE K.'MUNSON �- Interim Director of Human Resources Approval: CAR OS L. ORT GA City Manager an SHEILA R. GILLIGAN ACM/Community Sen PAUL S. GIBSON Director of Finance .] 4 RESOLUTION NO. 05- 70 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PALM DESERT, CALIFORNIA, ADOPTING EMPLOYER VANTAGECARE RETIREMENT HEALTH SAVINGS (RHS) PLAN 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 Employer hereby adopts the Plan in the form of the ICMA Retirement Corporation's VantageCare Retirement Health Savings program. BE IT FURTHER 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 Desert Integral Part Trust in the form of the model trust made available by the ICMA Retirement Corporation BE IF FURTHER RESOLVED, that the Finance Director shall be the coordinator and contact for the Plan and shall receive necessary reports, notices, etc. Resolution No. 05- 70 SECTION VI This resolution is effective upon adoption. PASSED, APPROVED AND ADOPTED by the Palm Desert City Council this 25t' day of August, 2005 by the following vote, to wit: AYES: NOES: ABSENT: ABSTAIN: BUFORD A. CRITES, MAYOR ATTEST: RACHELLE D. KLASSEN, CITY CLERK CITY OF PALM DESERT F POST -RETIREMENT MEDICAL SAVINGS PLAN June 29, 2005 On Wednesday June 29, 2005 the authorized representatives of the City of Palm Desert (City) and the Palm Desert Employees Organization (PDEO) met in the City Council Conference Room to meet -and -confer of the City's proposal to add a post -retirement medical savings plan as a new employee benefit (see attached). The negotiations were amicable and constructive. The City representatives presented the PDEO representatives with a memorandum the provided a complete explanation of the plan and its functions. The PDEO representatives asked several questions and made two suggestions for improving the plan. The City representatives agreed to adopt both suggestions into the proposed plan. The PDEO representatives agreed to take the proposed plan to their next general membership meeting for consideration and a vote for adoption, with the understanding that final approval would rest with the City Council. The PDEO conducted a vote during the week of Aiwust 8-12, 2005, which resulted in a vote to accent the proposed Post - Retirement Medical Savinzs Plan as presented to the PDEO General Memhership. The City's Authorized Representatives: The PDEO's Authorized Representatives: Duane K. Munson Robert Riches Director of Human Resources PDEO President Paul Gibson Director of Finance/City Treasurer r Lori Carney Human Resources Manager __C. 0a" !l Christina Canales PDEO Board Member fir/ I l �� N IQYI Lori imbish PDEO Board Member