Agenda Packets - 2004/10/25 - Laserfiche WebLink

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No contributions to the HSA plan may be made after the recipient leaves the employment of the City of Mounds View. RHS is a City sponsored program that allows employee to accumulate assets on a tax-free basis to pay for medical expenses of the employee, their spouse, and their dependents after the employee retires. Assets are in most cases put into the plan tax-free, accumulate earnings on a tax-deferred basis, and are withdrawn tax free if used for qualified medical benefits. This plan will provide a savings to the City and will provide a long-term benefit to employees. For example, a long time employee who is retiring and is eligible for a $10,000 cash payout of unused vacation and sick time will cost the City $10,765 because of the 7.65% employer’s share of the social security tax. Additionally, the employee will receive substantially less than $10,000 because they will pay income taxes and the employee’s share of the social security tax. If the same employee were to elect to put the $10,000 into the RHS, it would cost the City $10,000, because the social security tax wouldn’t have to be paid, thereby saving the City $765. In addition, the employee would get $10,000 into their account because they wouldn’t have to pay social security or income taxes. It would be invested tax deferred and could be paid out tax free if used for qualified medical benefits. The April approval by the Council adopted the RHS plan in its broadest form. Although many possible kinds of contributions are allowed, some programs call for additional contributions by the City. It is staff’s proposal to limit employee benefits to employee contributions only. The RHS plan documents specify that the allowable forms of contribution will be defined by the City’s personnel manual and labor contracts. This way, the City can start with a limited set of contributions and add others at the City’s choice without having to amend the RHS plan documents. The proposed Personnel Policy amendment has the following provisions: POLICY: RETIREMENT HEALTH SAVINGS SECTION 3.45 The City of Mounds View offers its employees a Retirement Health Savings Plan pursuant to Internal Revenue Code regulations through a third party administrator selected by the City. The following contributions will be allowed to the Retirement Health Savings Plan: A. Upon separation from employment with the City, an employee may contribute their compensation for accrued vacation and compensatory time. Employees who have completed two years of service and leave in good standing may also contribute fifty percent (50%) of unused sick leave calculated against a maximum accumulation of