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Ceafr Q� d ra Ceemack <br />515 Little Canada Road, Little Canada, MN 55117 -1600 <br />(651) 766 -4029 / FAX: (651) 766 -4048 <br />www. ci.little- canada. mn. us <br />MEMORANDUM <br />TO: Mayor Blesener and Members of the City Council <br />FROM: Kathy Glanzer, City Clerk <br />Shelly Rueckert, Finance Director <br />Joel Hanson, City Administrator <br />DATE: August 18, 2005 <br />RE: Personnel Issues <br />MAYOR <br />Bill Blesener <br />COUNCIL <br />Jim LaValle <br />Rick Montour <br />Barbara Allan <br />John Keis <br />ADMINISTRATOR <br />Joel R. Hanson <br />Staff has been researching a number of personnel issues for discussion with the Council. <br />Below is a description of each: <br />Pre -Tax Medical Spending and Dependent Care Flexible Spending Accounts <br />Currently the City provides employees with the ability to pay their share of health <br />insurance costs with pre -tax dollars under a Section 125 Premium Only Plan. Many <br />cities have broader Section 125 Plans that include Medical Flexible Spending and <br />Dependent Care Flexible Spending Accounts. <br />A Medical Flexible Spending Account allows for the reimbursement of qualified IRS <br />medical expenses with pre -tax dollars set aside by the employee. Briefly, the employee <br />determines the dollar amount he /she would set aside for the year. That amount is <br />deducted pre -tax from biweekly paychecks and forwarded to a plan administrator. As the <br />employee incurs qualified expenses, receipts are submitted to the plan administrator for <br />reimbursement. Some possible examples of qualified expenses include dental care, <br />prescription co -pays, eye glasses, laser eye surgery, etc. <br />The plan operates on a "use it or lose it" basis; that is, the employee must use the pre -tax <br />dollars he /she has set aside within a certain time frame, or the unused dollars revert to the <br />City. There is a risk to the City in that the employee may be reimbursed for qualified <br />expenses up to the annual dollar amount they have elected prior to those dollars being <br />deducted from paychecks. If the employee resigns and there is a negative balance in this <br />account, the City has no means of collecting those dollars. One safeguard to minimize <br />the City's exposure is to cap the annual election amount available to employees. <br />A Dependent Care Flexible Spending Account allows an employee to set aside day care <br />expense dollars pre -tax. This account is also "use it or lose it" and the IRS has <br />established a $5,000 annual maximum per family. Given that these dollars are typically <br />