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Item No. 9I <br />Meeting Date: April 12, 2004 <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: Resolution 6228 Adopting the VantageCare <br />Retirement Health Savings Program <br /> <br />Overview: <br />The staff has been investigating retirement health savings (RHS) programs as an <br />additional benefit for the employees. The plan from the International City Manager’s <br />Association (ICMA) Retirement Corporation appears to offer the most in terms of <br />flexibility for the City and its employees. <br /> <br />RHS is a City sponsored program that allows employee to accumulate assets on a <br />tax free basis to pay for medical expenses of the employee, their spouse, and their <br />dependents after the employee retires. Assets are in most cases put into the plan tax <br />free, accumulate earnings on a tax deferred basis, and are withdrawn tax free if used <br />for qualified medical benefits. <br /> <br />An example would be a long time employee who is retiring and is eligible for a <br />$10,000 cash payout of unused vacation and sick time. This will cost the City <br />$10,765 because of the 7.65% employer’s share of the social security tax. The <br />employee will receive substantially less than $10,000 because they will pay income <br />taxes and the employee’s share of the social security tax. <br /> <br />If the same employee were to elect to put the $10,000 into the RHS, it would cost the <br />City $10,000, because the social security tax wouldn’t have to be paid. The <br />employee would get $10,000 into their account because they wouldn’t have to pay <br />social security or income taxes. It would be invested tax deferred and could be paid <br />out tax free if used for qualified medical benefits. <br /> <br />Adoption: <br />It is ICMA’s recommendation that the City adopt the RHS plan in its broadest form. <br />This would allow contributions like the one described above as well as many others. <br />The City may not want to allow all the possible kinds of contributions because some <br />of them would cost the City money that it wouldn’t otherwise pay out. <br /> <br />The RHS plan documents will specify that the allowable forms of contribution will be <br />defined by the City’s personnel manual and by labor contracts. This way, the City