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STAFF REPORT To: City Council Report No.: VI, C From: Kim Moore -Sykes, Assistant City Manager Date: October 24, 2006 Subject: Health Care Savings Plan (HCSP) Background: Because of the high cost of post -employment and retirement medical insurance, non- union City staff members asked that the City consider providing non-union employees with an opportunity to establish an employee -paid health care savings plan. As authorized by Minnesota statutes (2001), the Minnesota State Retirement System established and was charged with administering a health care savings plan (HCSP) for public employees who, through their employer, may save pre-tax dollars to cover future post employment health care expenses. The one stipulation of this plan that proved problematic for City staff was a mandatory participation requirement by the IRS regulations. Because of the high interest of employees, non-union employees were surveyed to determine their interest in participating in an HCSP. The results showed that non-union employees liked the concept but few voted for the HCSP because of the mandatory participation requirement that was included in the State's health care savings plan. Without proper support, a health care savings plan could not be implemented. Staff then reviewed other State compliant health care saving plans and found that ICMA, who administers the City's deferred compensation plan, also has an HCSP that allows a city to essentially establish their own plan in compliance with State and IRS regulations. While the State's HCSP requires 100% employee agreement to participate before a plan can be established, ICMA is more flexible regarding the mandatory participation stipulation. The ICMA HCSP can be organized in a manner that allows employees to enroll in the plan when it is suitable to their individual circumstance. Once they have elected to enroll, the amount the employee has designated to be deducted as pre-tax contributions from their paycheck and their membership status cannot be changed until he/she terminates employment with the City, either through retirement or voluntary termination. ICMA has reviewed and approved the attached health care savings plan. Recommendation: Council approves Resolution 06-080 authorizing participation in the VANTAGECARE Retirement Health Care Savings Plan. Attachments: City's Post Employment Health Care Savings Plan Resolution 06-080 FACouncil Meetings\2006\10242006\102406 HCSP Staff Report.doc 46