Title
Temporary Suspension of Voluntary Contributions to the Retiree Health Savings Plan (B)
This item involves authorizing the City Manager to execute the necessary document to temporarily suspend the irrevocable voluntary contributions to the City's Retiree Health Savings Plan.
Explanation
In January 2002, the City of Gainesville began implementation of the Retiree Health Savings Plan (RHS) administered by ICMA-RC. The addition of this plan and the original adoption agreement that included only a mandatory contribution for all eligible members was a result of the collective bargaining process with the Communications Workers of America (CWA). The CWA, ATU and Management wanted to find a method to help employees better prepare for the additional cost of health insurance upon retirement. The ICMA-RC Vantagecare Retirement Health Savings Plan was developed by ICMA-RC as a vehicle to allow employees to accumulate assets in a tax-free plan to pay for post-employment medical, dental and vision expenses, including the retiree's portion of the health insurance premium. The reimbursements (disbursements) from this plan for qualified expenses are not taxable, therefore, allowing a tax-free source of income to pay for these post employment health care expenses.
The first plan amendment was effective in January 2003 and added an additional contribution method. The change allowed employees to make an irrevocable voluntary election to contribute to their account subject to plan maximums. This amendment offered employees the ability to put aside additional funds above the mandatory contribution as a means to better prepare for retirement.
Recently, ICMA-RC sent a notification to employers with a RHS Plan regarding the voluntary elections offered in these plans. According to ICMA-RC, the Internal Revenue Service (IRS) has raised an issue with the voluntary elections and the tax preference these elections receive. ICMA-RC is currently working with the IRS to reach a practical resolution to all RHS plans. However, until the matter is resolved, ICMA-RC has suggested that plan sponsors may want to temporarily suspend enrollment in and any current voluntary contributions for the plan year beginning January 1, 2007. Based on the discussions the City has had with ICMA-RC, staff has concluded that it would be best to suspend the irrevocable voluntary contributions and enrollment for these contributions for the plan year beginning January 1, 2007.
Past plan changes were effectuated with an amendment to the plan document and the adoption of a resolution. However, since at this time the proposed change is considered temporary, ICMA-RC has supplied each plan sponsor with a letter that needs to be sent to ICMA-RC concerning these changes pending final resolution with the IRS. The letter is attached as backup. Should the final resolution require a permanent change to the plan, staff will prepare the amended plan document and resolution for the City Commission's final approval.
These temporary changes do not effect any mandatory contributions being made by employees. The mandatory contributions will continue without change until they are amended via the collective bargaining process.
Fiscal Note
There is no fiscal impact.
Recommendation
The City Commission authorize the City Manager to sign the letter temporarily suspending the irrevocable voluntary contributions, and enrollments for such, to the Retiree Health Savings Plan for the plan year beginning January 1, 2007.
Alternative Recommendation A:
The City Commission could choose not to authorize the temporary suspension. The current contributions would continue, however the City cannot be sure how the IRS will treat these contributions from a tax perspective.