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HomeMy WebLinkAbout1989-11-21; City Council; 10377; Flexible spending accounts- n LLI > 0 oc e % .. z 0 5 a il 0 z 3 0 0 4B# 3fv ~TG. 11-21-89 3EPT. HR c. _- 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. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 2c 21 22 22 24 25 26 27 28 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) i