HomeMy WebLinkAbout1989-11-21; City Council; 10377; Flexible spending accounts-
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Cll - OF CARLSBAD - AGEND, BILL
TITLE
FLEXIBLE SPENDING ACCOUNTS
City Council adopt Resolution No. fi fflf approving the
adoption of Flexible Spending Accounts on January 1, 1990.
ITEM EXPLANATION
Flexible Spending (also referred to as Reimbursement Accounts) is an innovative benefit which offers a way for employees to set aside pre-tax salary dollars to pay for eligible health care or dependent care expenses. Employees can incur a number of necessary health care and dependent care expenses that are not covered under any medical, dental, or vision plan. These expenses can add up
to a significant portion of an employee's annual income. Implementing Flexible Spending allows employees to use pre-
tax dollars to pay for certain expenses not covered by the City's regular benefits plan. The employee uses his or her
income for this plan and the City is providing this program
strictly as a benefit for the employee.
There is a whole host of items that would be covered under
Flexible Spending. cosmetic surgery, eyeglasses, guide dog, hair transplants, insulin, etc.
The Human Resources, Information Systems, and Finance Departments will work with TPF&C, the City's benefit
consultant, to establish the Flexible Spending Accounts once
the concept is approved by council.
are available. This includes the health care reimbursement account and the dependent care reimbursement account. Employees who elect to participate will determine the benefit amount and the deposit amount during an annual
enrollment period. accounts.
Some examples are contact lenses,
Two types of accounts
The employee can fund either or both
Once the employee determines the amount he or she wishes to spend, that amount stays fixed until the next plan year. This amount can't be changed unless the employee terminates his or her employment or has a change in family status. employee can deposit into the account $2,500 per year for health reimbursements and $5,000 per year for dependent care. lose it" rule. The unused balance at the end dqf the year can't be returned to the employee.
be transferred back into the general fund. Stqpf is recommending that our health plan carrier, Nofthwestern
National Life, coordinate the administration of the plan.
The
The only drawback to this concept is the "use it or
The remain&ng funds will
r
They will provide several reporting services for the
employee and employer.
An important aspect of this program is communication. will assist Human Resources in developing a communication
program. employees.
program is January 1, 1990. from January 1 to December 31.
TPF&C
Meetings will be scheduled with all City The recommended date for implementation of this
The plan year will be conducted
Last January, the City implemented pre-tax contributions for
health insurance premiums. This means that the health premiums are paid before taxes are deducted from an
employee's paycheck. process.
of Flexible Spending Accounts. The final step will be implementation of a full Flexible Benefit Plan.
This was a first step in a three part
The next step in the process is the implementation
Staff would like to take a moment to explain the concept of
Flexible Benefits. Flexible Benefits or more commonly known as a cafeteria plan is a benefit delivery system that provides employees with a variety of benefit choices while allowing the City to budget for fixed benefit expenditures. In other words, the City provides a specific amount of money each month on the employees to spend on benefits. This can
include such benefits as health, dental, vision, and group life. Staff is exploring the possibility of implementing
flex benefits in the future for the management employees. The members of the Carlsbad Police Officers' Association are
scheduled to participate in a flexible benefit program in January of 1990.
FISCAL IM PACT
The estimated costs for the first year will be approximately
$6,500. year in the health care account and 5% in the dependent care account.
This assumes a participation rate of 15% the first
The detailed costs are as follows:
Estimated 55 drafts per month x $3.50 $193
Estimated total monthly fees $428
Estimated total annual fees $5,136
1.350 Employee Communication Kit $3 x 450
Estimated total first year costs $6,486
Flat monthly fee 235
x12
The unused balance at the end of the year will be
transferred back into the general fund. The costs will be
supported by a transfer from the Contingency Fund. The
Contingency Fund balance will be $339,335.
EXHIBIT
Resolution No. 8Y-b”
Exhibit A
- -
EXHIBIT A
REIMBURSEMENT ACCOUNTS - A NEW BENEFIT OPTION
You now have a new benefit option available to you called the
Reimbursement Account Plan. This innovative benefit offers a way for
you to save on out-of-pocket expenses for Health Care and Dependent
Care by using before-tax dollars. When you use before-tax dollars to
pay for eligible Health Care or Dependent Care expenses, you can
reduce your taxable income and stretch your take-home pay. This
Newsletter describes the Reimbursement Account Plan concept and
how it can work for you.
There are two accounts under the Reimbursement Account Plan: one is for eligible Health Care expenses, the other is for eligible Dependent
Care expenses. You may choose to participate in either one of the
Accounts, or both.
How can Reimbursement Accounts work for you? Even with the best
of plans, you and your family are bound to have expenses for medical
and dental care that are not covered by your insurance. Plan
deductibles and co-payments, for example, are items that you still must pay out-of-pocket, with after-tax dollars.
The Health Care Reimbursement Account will allow you to establish an account with before-tax dollars to pay for eligible medical and
dental expenses. By depositing before-tax dollars from your salary into your Reimbursement Account, the money you spend will go even
further than before.
Why? Think of it this way: the purchases you make with your take-
home pay are made with after-tax dollars. In other words, to buy a $20 item, you have to earn more than $20--maybe even $30 or $4040
have $20 left over after various state and federal taxes are deducted.
But, if you enroll in the Health Care Reimbursement Account, the pay
you set aside for contributions will not be taxed. You’ll get the full use
of your earnings. Your $20 of pay set aside will pay for a full $20 worth of expenses.
The Dependent Care Reimbursement Account works the same way.
Before-tax earnings will allow you to make the most of the money you
spend for the daytime care of your children or other dependents,
including adults, when the expenses enable you to work. You may
save money, depending on your tax bracket.
39530a
Eligible expenses include deductibles and co-payments and items
such as glasses, routine physicals, dental or orthodontia care under
the Health Care Reimbursement Account. Eligible expenses for the
Dependent Care Reimbursement Account include day care centers
and nursery schools for your child or in-home day care for your child
or other dependents, such as for an incapacitated spouse or an elderly parent.
There are options for everyone:
Bill’s daughter is getting braces in the spring. Bill’s Dental Plan
doesn’t cover orthodontia. Bill deposits before-tax contributions into
his Health Care Account and makes the most of his money.
Sandy’s sister looks after her baby son during the day. Sandy pays
her sister with non-taxable reimbursements from her Dependent Care Account. And when her son starts going to a day care center, she’ll continue to use her Reimbursement Account for those expenses.
Jennifer wears soft contact lenses and, even though she’s careful,
she often tears a lens and needs to purchase a replacement. Jennifer
can cover replacement expenses with before-tax dollars from her
Health Care Account.
Jim’s housekeeper helps him care for his children by cleaning and preparing meals. Jim saves on taxes by making contributions to his Dependent Care Account and pays wages for household services with before-tax dollars.
Maureen’s mother had a stroke last year and now lives with her.
Maureen pays for a companion to care for her mother while she’s at
work. With her Dependent Care Account, Maureen’s expenses are
paid for with before-tax, and not after-tax, dollars.
probably find ways to make the Reimbursement Accounts work for Review your expenses for health and dependent care and you’ll
you too!
You will soon receive detailed information in your Reimbursement
Account enrollment packet. The enrollment packet contains
additional information on Reimbursement Accounts, your company’s
Plan specifics, eligible expenses and enrollment forms. To make the
most of this innovative opportunity, take the time to read the materials
to come and determine for yourself how the Reimbursement Account
Plan can work for you.
@Copyright 1988 Northwestern National Life Insurance Co.
All rights reserved.
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RESOLUTION NO. 89-408
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF CARLSBAD, CALIFORNIA, ADOPTING THE ESTABLI H- MENT OF A FLEXIBLE S PENDING ACCOUNT.
WHEREAS, the City Council wishes to establish
3 flexible spending account for City employees: and
WHEREAS, Northwestern National Life will administ
€lexible spending program for the City.
r the
NOW, THEREFORE, BE IT RESOLVED by the City Council of the
City of Carlsbad, California, as follows:
1. That the above recitations are true and correct.
2. That the City establish flexible spending accounts
€or employees.
3. That the amount of $6,500 be transferred from the
Contingency Fund to the Human Resources budget.
PASSED, APPROVED, AND ADOPTED at a regular meeting of the
City Council of the City of Carlsbad on the 21st day of
November , 1989, by the following vote, to wit:
AYES: Council Members Lewis, Kulchin, Pettine and Mamaux
NOES : None
ABSENT : Council Member Larson
ATTEST:
Lz&ziL. ,4flr,&- ALETHA L. RAUTENKRANZ, City Cletk
(SEAL)
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