HomeMy WebLinkAbout15.E.8. VantageCare Retirement Health Savings Program-Res. No. 6040
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CITY OF SHAKOPEE
Memorandum
TO: Mayor and City Council
FROM: Mark McNeill, City Administrator
SUBJECT: VantageCare Retirement Health Savings Program
DATE: March 29, 2004
INTRODUCTION:
The Council is asked to approve a resolution authorizing City participation in the
VantageCare Retirement Health Savings (RHS) Program, as offered by the International
City Management Association Retirement Corporation (ICMA-RC). This would be for
non-contract employees only.
INTRODUCTION:
As Council is aware, nationally there is a growing concern about a fundability of health
care for individuals following retirement. While policy makers at all levels of
government continue to wrestle with this, nationally Congress has authorized some
changes in tax law which are intended to assist employers and participants in finding
ways to fund health care expenses on their own.
The City of Shakopee currently participates in the ICMA-RC deferred compensation
plan. Recently, ICMA has offered a program that they call the "VantageCare Retirement
Health Savings (RHS) Program". The RHS allows monies that would otherwise be paid
out at retirement or separation from the City (and potentially at other times) to go into a
dedicated fund specifically for that employee. The monies being deposited into the
program are tax-exempt both going in; and when they are later withdrawn for use in
paying health premiums and other qualifying health care costs. Without programs like
this, severance packages are subject to normal taxation, and as much as one-half of the
separation pay could be 10st to income taxes.
The advantage to the City is that, in addition to it being a benefit for its employees, the
program saves the City the costs of FICA taxes being paid on severance packages.
An individual must elect to enroll in the RHS by means of one time irrevocable
designation. Upon that decision being made, all monies payable at separation can go for
the future payment of health insurance premiums and other qualifying expenses.
Currently, all City employees participate in a post-employment health plan (PEHP)
account that is offered by the "Nationwide" Insurance Group; the city contributes $25 per
employee per month. There are a number of other advantages thatthis RHS provides
over the Nationwide plan--as Nationwide's PEHP was a "first generation" plan that
attempted to address the post-retirement health insurance issue, it has a number of
significant restrictions. An example of one of the RHS advantages is that in the event of
the death of a participant, the fund monies are transferable to a designated beneficiary,
rather than being "lost" to the participant. Under the Nationwide PEHP, the plan
administrator (the City) will receive the unused amount - that is seen as a detriment by
prospective participants.
There are a number of other ways that monies can be transferred into the RHS from the
employee; those are being researched. In the meantime, the City Council is asked to
adopt this RHS program under the current format.
BUDGET IMPACT:
The major economic advantage to the City is that at the time of severance pay-out, the
City saves the cost of normal FICA taxes. Otherwise, what is being recommended is
"cost-neutral" to the City in terms of contributions.
At some point, non-contract employees will likely be offered the opportunity to make
additional contributions to the RHS on their own.
Again, if approved by the Council, this would be offered for non-contract employees only
at this time, as the three unions have a separate severance package that is in excess of
what is available to the non-contract employees. Therefore, participation in the RHS
program would be subject to future negotiations with the individual unions.
RECOMMENDATION:
I recommend that the City participate in the ICMA-RHS Program.
ACTION REQUIRED:
If the Council concurs, it should, by motion, adopt the following resolution:
RESOLUTION NO. 6040
A RESOLUTION AUTHORIZING CITY OF SHAKOPEE
P ARTICIP ATION IN THE V ANTAGECARE RETIREMENT
HEALTH SA VlNGS (RRS) PROGRAM OF INTERNATIONAL
CITY MANAGEMENT ASSOCIATION - RETIREMENT ASSOCIATION
1hJLVvtc AwiP
Mark McNeill
City Administrator
RESOLUTION NO. 6040
A RESOLUTION AUTHORIZING CITY OF SHAKOPEE
P ARTICIP ATION IN THE V ANTAGECARE RETIREMENT
HEALTH SAVINGS (RHS) PROGRAM OF INTERNATIONAL
CITY MANAGEMENT ASSOCIATION - RETIREMENT ASSOCIATION
WHEREAS, the City of Shakopee has employees rendering valuable services;
and
WHEREAS, the establishment of a retiree health savings plan for such employees
serves the interests of the City of Shakopee 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 City of Shako pee has determined that the establishment of the
retiree health savings plan (the "Plan") serves the above objectives;
NOW, THEREFORE BE IT RESOLVED, that the City of Shakopee 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 ofthe Plan shall be held in trust,
with the City of Shakopee 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 City of Shakopee has :;:
executed the Declaration 6fthe Trust ofthe City of Shakopee Integral Part Trust :ill the
fonn of the model trust made available by the ICMA Retirement Corporation.
BE IT FURTHER RESOLVED, that the City Administrator shall be the
coordinator and that the Payroll Benefits Coordinator shall be the contact for the Plan and
shall receive necessary reports, notices, etc.
Adopted in session of the City Council of the City of Shakopee,
held this day of ,2004.
Mayor of the City of Shako pee
ATTEST:
City Clerk
..~ VantageCare Retirement Health Savings Program
E~WfVS~y
Participation and Contributions in the VantageCare Retirement Health Savings Plan
Contribution and participation features of the VantageCare Retirement Health Savings (RHS) Plan are permit-
ted by ICMA Retirement Corporation (ICMA-RC), pursuant to a formal private letter ruling issued by the
Internal Revenue Service ("IRS") and subsequent opinion of ICMA-RC's outside counsel, Groom Law Group,
a leading legal firm in the area of employee benefits. Employers should evaluate the RHS provisions that
meet the plan needs of both the employer and employee, keeping the level of authority governing the provi-
sion in mind. While some employers may not choose to adopt provisions not previously ruled on by the
IRS, other employers will be comfortable with an opinion of ICMA-RC's outside counsel, particularly after the
opinion is reviewed by the employer's benefits counsel.
Existing Provisions
The following features are specifically addressed in the Private Letter Ruling issued by the IRS in connection
with the first municipality adopting the VantageCare RHS program:
Participation
Mandatory participation - employees in the covered group(s) are required to participate. There is no option
at the employee level.
Contributions
Direct employer contribution - These are contributions made directly by the employer in either flat dollar
amounts or as a percentage of compensation.
Mandatory vacation and sick leave contribution - Mandatory contribution of accrued vacation or sick leave
according to a pre-determined schedule established by the employer or collective bargaining unit.
Mandatory pre-tax employee contribution - Mandatory reduction from salary according to a pre-determined
schedule established by the employer or collective bargaining unit.
(aYeA'")
ICMA RETIREMENT CORPORATION
The Public Sector Expert
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New Features '..'
Since developing RHS, the ICMA Retirement Corporation has sought to enhance the features to make the
program even more flexible for employers and employees. ICMA-RC's outside employee benefits legal
counsel, Groom Law Group, has developed an opinion letter at ICMA-RC's request, providing the foundation
for employer adoption of some significant additional provisions for the RHS Plan.
Participation
One-time irrevocable election to participate - An eligible employee may make a one-time irrevocable elec-
tion to participate in the plan. Until such time as the election is made, the individual may not participate in
the plan, Once made, the election is irrevocable and the employee may not opt out of the program.
Contributions
Irrevocable employee pre-tax contribution - A participating employee may make a single irrevocable elec-
tion to make ongoing contributions from compensation of a specified dollar or percentage amount on a pre-
tax basis, The participating employee may also irrevocably elect to make contributions of a specified amount
of accrued sick and vacation leave, typically at retirement. Once the election is made, it is irrevocable and
may not be changed.
Employee voluntary after-tax contributions - Employee after-tax voluntary contributions may comprise up to
25% of the overall contributions to the plan for each calendar year. (For purposes of determining the 25%
limit, after-tax contributions are measured against all other contribution types listed in this summary: direct
employer contributions, mandatory leave contributions, mandatory employee contributions, irrevocable
election contributions, and annual irrevocable prospective leave contributions.)
Annual, irrevocable election of contribution of prospective leave accruals - Each year, employees are per-
mitted to irrevocably elect to contribute all or a portion of the upcoming year's accrual of vacation and/or
sick leave to VantageCare RHS.
No specific dollar or percentage limitation is required for RHS plan contributions (other than for after-tax
contributions), although limitations are suggested in the opinion. The employer may establish limits by con-
tribution type, or at an overall level.
The opinion letter on these enhancements states that, while there is no direct Internal Revenue Service
authority with respect to the issues covered, and while it is possible that a court or the IRS could reach dif-
ferent conclusions, the provisions should stand jf challenged. Employers may wish to refer the opinion let-
ter, available on request to interested employers, to outside benefits counsel for review prior to adoption of
the provisions outlined above.
Copies of the private letter ruling and the opinion of outside counsel referred to above are available to
employers on request.
777 North Capitol Street, NE, Washington, DC 20002-4240. 1-800-299-9249 · www.icmarc.org
FL YOOO-093-200206-C7 53
New Features
Since developing RHS, the ICMA Retirement Corporation has sought to enhance the features to make the
program even more flexible for employers and employees. ICMA-RC's outside employee benefits legal
counsel, Groom Law Group, has developed an opinion letter at ICMA-RC's request, providing the foundation
for employer adoption of some signifrcant additional provisions for the RHS Plan.
Participation
One-time irrevocable election to participate ~ An eligible employee may make a one-time irrevocable elec-
tion to participate in the plan. Until such time as the election is made, the individual may not participate in
the plan. Once made, the election is irrevocable and the employee may not opt out of the program.
Contributions
Irrevocable employee pre-tax contribution - A participating employee may make a single irrevocable elec.
tion to make ongoing contributions from compensation of a specified dollar or percentage amount on a pre-
tax basis. The participating employee may also irrevocably elect to make contributions of a specified amount
of accrued sick and vacation leave, typically at retirement. Once the election is made, it is irrevocable and
may not be changed.
Employee voluntary after-tax contributions - Employee after-tax voluntary contributions may comprise up to
25% of the overall contributions to the plan for each calendar year. (For purposes of determining the 25%
limit, after-tax contributions are measured against all other contribution types listed in this summary: direct
employer contributions, mandatory leave contributions, mandatory employee contributions, irrevocable
election contributions, and annual irrevocable prospective leave contributions.)
Annual, irrevocable election of contribution of prospective leave accruals - Each year, employees are per-
mitted to irrevocably elect to contribute all or a portion of the upcoming year's accrual of vacation and/or
sick leave to VantageCare RHS.
No specifrc dollar or percentage limitation is required for RHS plan contributions (other than for after-tax
contributions), altholjgh limitations are suggested in the opinion. The employer may establish limits by con-
tribution type, or at an overall level.
The opinion letter ontheseenh(:tnG~ments statesthat, whil~. there is no.direct Internal Revenue Service
authority with respect to the issues covered;-andwhileit is possible that a court or the IRS could reach dif.
ferent.conclusions, the provisions should stand if challenged. Employers may wish to refer the opinion let-
ter, available on request to interested employers, to outside benefits counsel for review prior to adoption of
the provisions outlined above.
_ _ ._...__,..,...._..__...m~
Copies of the private letter ruling and the opinion of outside counsel referred to above are available to
employers on request.
777 North Capitol Street, NE, Washington, DC 20002-4240. 1-800-299-9249 · www.icmarc.org
FL YOOO-093-200206-C753