CCP 11-13-2012 - Laserfiche WebLink

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Report Number 12-260 4/ NEw Agenda Section V1-6 1GiHi ]N Council Meeting Date November 13, 2012 the city that works for you REQUEST FOR COUNCIL CONSIDERATION ITEM DESCRIPTION: RESOLUTION AUTHORIZING THE AMENDMENT TO THE EMPLOYEE CAFETERIA PLAN EFFECTIVE JANUARY 1, 2013 DEPARTMENT HEAD'S APPROVAL: ipCITY MANAGER'S APPROVAL: No comments to supplement this repo Comments attached Recommendation: Adopt the RESOLUTION AUTHORIZING THE AMENDMENT TO THE EMPLOYEE CAFETERIA PLAN EFFECTIVE JANUARY 1, 2013. Legislative History: The City has had an Employee Cafeteria Plan for many years. The Plan provides employees with the opportunity to use pre-tax dollars to pay certain benefit costs by entering into a salary reduction arrangement. Under federal tax laws (IRS), the arrangement allows employees to save social security and income taxes on the amount of the salary reduction. The Plan allows employees to design their benefits package that fits their own personal needs and goals. Financial Impact: There is no financial impact to the City. Employees may experience a financial impact in 2013 depending on their specific cafeteria plan selections due to IRS mandated changes. Explanation: A § 125 cafeteria plan is a written plan that allows employees to elect between permitted taxable benefits (such as cash) and certain qualified benefits. Section 125(a), (d)(1), if an employee makes the election before the start of the plan year, and other § 125 requirements are satisfied, the employee's election of one or more qualified benefits does not result in gross income to the employee. The IRS has amended its regulations relating to cafeteria plans (Section 125). Section 125(i) was added by § 9005 of the Patient Protection and Affordable Care Act(the Act), Pub. L. No. 111- 148 (as amended by § 10902 of the Act, and further amended by § 1403(b) of the Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152). Section 125(i) is effective for "taxable years" beginning after December 31, 2012. Prior to the effective date of§ 125(i),plan sponsors imposed limits on the amount of salary reduction contributions that employees may elect to health FSAs, but there had been no mandated limit. Recommended amendments include the following: • The City's Cafeteria Plan imposed a$6,000 limit on the Health Flexible Spending Account portion of the plan. In order to stay in compliance with the IRS Affordable Care Act (ACA) we need to amend our plan with the new imposed $2,500 limit. • IRS dollar requirements for a Qualifying High Deductible Health Plan have increased slightly. Page 1 of 2