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Item No: 9 K <br />Meeting Date: 1/24/05 <br /> Type of Business: Council Business <br />Administrator Review: _______ <br />City of Mounds View Staff Report <br />To: Honorable Mayor and City Council <br />From: Charles Hansen, Finance Director <br />Item Title/Subject: Discussion of Request from Past Employee to Join the Retirement <br />Health Savings Plan <br /> <br />Background: <br />On April 12, 2004, the City Council approved Resolution 6228 adopting the City’s <br />participation in a retirement health savings (RHS) program as an additional benefit for the <br />employees. The International City Manager’s Association (ICMA) Retirement Corporation <br />was selected as the administrator of the plan. <br /> <br />On October 25, 2004, the City Council approved Resolution 6352 adding specific <br />provisions to the Personnel Policy to govern use of the RHS by non-union employees. The <br />same provisions are being added to union contracts as they come up for renewal. <br /> <br />This plan provides a savings to the City and a long-term benefit to employees. For <br />example, a long time employee who is retiring and is eligible for a $10,000 cash payout of <br />unused vacation and sick time will cost the City $10,765 because of the 7.65% employer’s <br />share of the social security tax. Additionally, the employee will receive substantially less <br />than $10,000 because they will pay income taxes and the employee’s share of the social <br />security tax. <br /> <br />If the employee deposits the sick with the City to pay future group health insurance <br />premiums, the employee and the city are still liable for social security tax if the employee <br />was subject to social security tax when employed. <br /> <br />If the same employee were to elect to put the $10,000 into the RHS, it would cost the City <br />$10,000, because the social security tax wouldn’t have to be paid, thereby saving the City <br />$765. In addition, the employee would get $10,000 into their account because they <br />wouldn’t have to pay social security or income taxes. <br /> <br />The RHS allows employees to accumulate assets on a tax-free basis to pay for medical <br />expenses of the employee, their spouse, and their dependents after the employee retires. <br />Assets are in most cases put into the plan tax-free, accumulate earnings on a tax-deferred <br />basis, and are withdrawn tax free if used for qualified medical benefits. <br /> <br />Discussion: <br />One of the employees who retired before the RHS was approved has requested that past <br />retirees also be allowed to participate in the RHS. This would be for employees who