Agenda Packets - 2006/08/14 - Laserfiche WebLink

Home Browse Search

Item No: 8K Meeting Date: 08/14/06 Type of Business: CA City of Mounds View Staff Report To: Honorable Mayor and City Council From: Kurt Ulrich, City Administrator Item Title/Subject: Resolution 6916 Adopting Attorney’s Recommendation in Regard to Taxability of Employee Severance Benefits Background: Former Mounds View Police Chief Timothy Ramacher has indicated to the City that the health insurance premiums paid by the City on his behalf have been wrongfully reported to the Internal Revenue Service (“IRS”) as gross income. At the City Council’s direction, the City Attorney has reviewed the facts and law applicable to Mr. Ramacher’s request and made recommendations as outlined in the attached memo dated July 20, 2006. Discussion: The City Attorney has concluded as a result of his investigation, that Mr. Ramacher did not have the option of receiving his accrued sick leave in a lump sum cash payment at the time of severance in 1999 and therefore the health insurance premiums paid by the City on his behalf should not be reported to the IRS as income. The City Attorney found that there were a number of “options” considered by the City Council with respect to the approval of Mr. Ramacher’s severance package in 1999, but that there is no direct evidence that Mr. Ramacher was expressly provided the option of a cash payment for his accrued sick leave at the time of his retirement in March of 1999. In exercising its discretion to determine the severance package of Mr. Ramacher, a non- union employee, the City Council did not formally provide the Mr. Ramacher with the option to receive a cash payment. Having such a cash payment option would have made the benefit taxable. The City Council ultimately approved Resolution No. 5313, which granted Mr. Ramacher severance benefits equal to 100% of his accumulated vacation time in a lump sum payment and 1,393 hours of accumulated and banked sick leave to be used for his health insurance premium payments for as long as the funds were available. The amount of sick leave granted to Mr. Ramacher in the form of future health insurance payments represents a combination of sick leave time that Mr. Ramacher accrued while he was a patrol officer as well as sick leave that he accrued while he was the Chief of Police. Recommendation: Based on the recommendation of the City Attorney, it is recommended that the City Council adopt the attached resolution 6916 in regard to tax treatment of Mr. Ramacher’s severance benefit.