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HomeMy WebLinkAboutItem 07 Health Reimbursement Arrangement-Voluntary Employees' Beneficiary Association (VEBA) Plans Resolution AGENDA ITEM SUMMARY Meeting Date: 6/15/2015 Meeting Type: Regular Meeting Staff Contact/Dept.: Greta Utecht, HR Dept. Staff Phone No: x3787 Estimated Time: Consent Calendar S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Provide Financially Responsible and Innovative Government Services ITEM TITLE: HEALTH REIMBURSEMENT ARRANGEMENT/VOLUNTARY EMPLOYEES’ BENEFICIARY ASSOCIATION (VEBA) PLANS RESOLUTION ACTION REQUESTED: Adopt/not adopt the following Resolution: A RESOLUTION AUTHORIZING THE ESTABLISHMENT OF THE HEALTH REIMBURSEMENT ARRANGMENT/VOLUNTARY EMPLOYEES’ BENEFICIARY ASSOCIATION (“HRA VEBA”) PLANS ISSUE STATEMENT: Most employees who retire from the City of Springfield receive a cash-out of up to 480 hours of any remaining sick leave they may have. In order to reduce the cost of these disbursements to the City (by avoiding payroll taxes) and to allow the full amount of the payment to be available to the employee for retirement health expenses, staff recommends the establishment of an HRA VEBA plan. ATTACHMENTS: 1. Resolution DISCUSSION/ FINANCIAL IMPACT: An HRA VEBA plan is a type of tax-exempt trust instrument through which post-retirement benefits can be paid. VEBAs are authorized by Internal Revenue Code section 501(c)(9). The HRA VEBA plan is administered by the Voluntary Employees’ Beneficiary Association Trust for Public Employees in the Northwest (“Trust”). The City currently administers an HRA-only plan for active employees as part of our high deductible health benefit, but our HRA plan does not allow for lump-sum retirement cash-out deposits. Currently the City deposits a fixed amount per employee to his or her HRA account, which can be used to partially fund the high deductible and out of pocket expenses our health plan is designed with. The money in the HRA account does not earn interest, but any money not used at the end of each calendar year rolls over to the next year and can grow over the employee’s tenure with the City. After retirement the HRA dollars remain available for use by the retiree, but the account continues to be managed by the City, which is an additional administrative load and liability to the City. By establishing the HRA VEBA plan, sick leave cash out dollars will be deposited into a tax free account that has investment options similar to deferred compensation accounts. Interest earned is not taxed, and dollars withdrawn to reimburse qualified medical, dental, vision and tax qualified long-term care premiums and non-covered healthcare expenses of the employees and their qualified dependents is also tax free. In addition, remaining HRA account dollars can be folded into the VEBA at retirement, reducing the liability and administrative load on the City, and combining all funds for use for retirement health expenses into one account for the employee. The Trust is an independent entity; the funds in the Trust are managed by the employee and the Trust. The City pays nothing to the Trust, nor is the City exposed to any liability as a result of establishing the plan. The financial advantage to establishing the plan is the avoidance of payroll taxes on the cash-outs. RESOLUTION NO. A RESOLUTION AUTHORIZING THE ESTABLISHMENT OF THE HEALTH REIMBURSEMENT ARRANGEMENT/VOLUNTARY EMPLOYEES' BENEFICIARY ASSOCIATION C'HRA VEBA") PLANS WHEREAS,the Internal Revenue Code Section 501(c)(9)allows for the creation of a voluntary employees'beneficiary association which Is a tax-exempt health and welfare trust;and WHEREAS,IRS regulations and guidelines allow an employer to offer health reimbursement arrangement (HRA)plans;and WHEREAS,such HRA plans are available to governmental employers In the Northwest;and WHEREAS,the Voluntary Employees' BeneficiaryAssociation Trust for Public Employees In the Northwest C'Trust") offers and will administer two HRA VEBA plans (collectively the "Plans") as amended and restated:the Standard HRA Plan,which shall be Integrated with the City of Springfield's or another qualified group health plan and which shall accept City of Springfield contributions on behalf of eligible employees who are enrolled In or covered by such qualified group health plan and any other contributions that may be permitted under applicable law from time to time;and the Post-separation HRA Plan,which shall accept contributions on behalf of eligible employees.Including eligible employees who are not enrolled In or covered by the City of Springfield's or another qualified group health plan, and which shall provide benefits only after a participant separates from service or retires; and WHEREAS,The Cityof Springfield has determined that It Is In the best Interest of the Cityand Its employees to establish the Plans, which provide tax-free,defined contribution accounts for employees to reimburse qualified medical,dental,vision and tax qualified long-term care premiums and non-covered healthcare expenses of the employees and their qualified dependents;and WHEREAS,The Cityof Springfield desires to establish the Plans for Its employees;and WHEREAS,The City of Springfield desires to use the services of the Trust to administer such Plans;and WHEREAS,the Plans will be administered In accordance with the Plan documents provided by the Trust on file In the Employer's main office. NOW,THEREFORE,BEIT RESOLVED by the City of Springfield as follows: Section 1.The City of Springfield hereby elects to participate In the Plans and Trust as presently constituted or hereafter amended using the Trust as Its plan administrator for the benefit of eligible employees as defined by City of Springfield policies or collective bargaining agreements. N:\City\RESOLUTI\2015\VEBA RESOLUTION -DRAFT.2015.05(2).docx Attachment 1 Page 1 of 2 Section 2. The Plans will be funded with City of Springfield employee contributions at retirement in amounts determined from time to time pursuant to the City of Springfield's policies and collective bargaining agreements. Section 3.The City Manager is authorized to execute documents and establish procedures consistent with Plan and Trust provisions and applicable City of Springfield Policies polices and collective bargaining agreements necessary to effect the adoption and administration of the Plans. Section 4. This Resolution shall take effect upon its adoption by the Council and approval by the Mayor. ADOPTED by the Common Council of the City of Springfield this day of June,2015, with a vote of for and against. Christine L.Lundberg,Mayor ATTEST: nfv:ji:::uAF['ROVED AS 'I'O Amy Sowa,City Recorder DAi ir;_Lz OFFICE OF Oi lYATTORNEY N:\City\RESOLUTI\2015\VEBA RESOLUTION -DRAFT.2015.05(2).docx Attachment 1 Page 2 of 2