HomeMy WebLinkAbout2006 Resolution No. 076•
•
•
RESOLUTIC,N NO .~
SERIES OF 2006
A RESOLUTION CREATINCl A RETIREE HEALTii PLAN FOR CITY E.\fPLOYEES TO BE
ADMINIST'J!RED BY 1HE INTERNATIONAL CITY MANAGEMENT ASSOCIATION
RETIREMl::'NT CORPORATION (ICMA-RC).
WHEREAS, the establilhment of a retiree health savinp plan for employees serves the
interests of the City by enabling it to provide reasonable security regardina such employees'
health ~eecls during retirement, by providbg increased flexibility in its personnel management
system, and by assisting in the attrar.tion and retention of competent personnel; and
WHEREAS, the City has determined that the establishment of the retiree health savings plan
(the "Plan'') serves the above objectives; and
WHEREAS , to implement this Plan, the City of Englewood, as employer desires to make the
VantageCare Retirement; 'Health Savings Plan ("RHS Plan" or "Plan") provided by ICMA-RC
available to its employees; and
WHEREAS, ICMA-RC makes available the Vantagepoint Funds, a no-load, diversified
mutual fund, for investment of public employer plan assets, including RHS Plan assets; and
WHEREFORE , ICMA-RC provides a complete offering of services to public employers for
the operation of employee retirement and retiree health savings plans, including, but not limited
to, communications concerning inveslluent alternatives, account maintenance, account rccord-
keeping, investment and tax reporting, form processing, benefit disbursement and asset
management . ·
NOW, THEREFORE, BE IT RESOLVED:
~ That the City of Englewood hereby adopts the Plan in the form of the ICMA
Retirement Corporation·:; VantageCare Retirement Health Savings program in the form attached
hereto as Exhibit A.
ADOPTED AND Ai PROVED this 18th day of September, 2006 .
I, Loucrishia A. Ellis, Cill) 9Jc:rk for the C o
is a true copy of Resolution No. 'lfL., Series of
• VantagaCara
Retirement Health
Savings Plan
Questions and A ~swers l
for Employers
ICMA RETIREMENT CORPORATION
Tho Public Sector hper,
VANTAUCAIII IIITIIIIIIIINT NIALTN SAVINGS PIAN
QUDTIONI AND MIWIIII POil lMPLOYIIII • INTRODUCTION TO VANTAGECARE RETIREMENT HEALTH SAVINGS
01 : What Is the VantagaCare Retirement Health Savings Plan? ...................................................................... 1
02: Whal are the key features of RHS7 ............................................................................................................. 1
BENEms OF RHS
03: What are the benefits of RHS to the employer? ........................................................................................ 1
04: What are the benefits of RHS to the employee ?.. ....................................................................................... 2
INTEGRAL PART TRUST
05: 1 Vhat is the legal basis for RHS7 ................................................................................................................. 2
06: Why isn 't there an IRS determination letter cvailable for RHS7 ................................................................ 3
07: What are tho requirements for qualifying as an "integral part" of a governmental employer? ............ 3
08: What constitutes an elig ible employer/.. ..................................................................................................... 3
09: How does RHS compare to a VEBA or 401(h) plan ? Cen these assets be transferred to
an RHS plan? ............................................................................................................................................... 3
010: Are asset s in the employer's integral part trust accessible to the employer and /or
its general creditors? .............................................................. , ..................................................................... 5
011 : How does RHS compare to a Health Savings Account? ..................................................... .. ......... 5
•
012:
013:
Is the RHS Plan a Health Reimbursement Arrangemem i .................................... ..
Does ;CMA•RC offer a program specificall y fo r employer ,rsfund ing of retiree
..5
healthcare liabilities? .......................................................................................................... . .. .. 5
~STABLISHING AN RHS PLAN -PLAN DESIGN, ADOPTION AND IMPLEMENTATION
014: What is the adoption procedure for establishing an RHS Plan? ................................................................ 5
015 : What documents govern the RHS Plan? ...................................................................................................... 6
016: What plan design features are available under the RHS Program I .......................................................... 7
017: How much individual choice is permitted? .................................................................................................. 7
018 : How do your employees get started? ......................................................................................................... 8
CONTRIBUTIONS
019: What type s of contributions can be made to the RHS Plan7.. .................................................................... 8
020: How are RHS contributions reported on the employee's Form W·27 ...................................................... 10
021 : What are some ex amples of contributions allowed by employers?.. ...................................................... 10
022: Are there limits to the amount of contributions that may be made in a given year? ............................ 11
023 : How are the contributions coord inated with Section 457 and 401 plans? .............................................. 11
024: Are contributions made to the account included in "pensionable " compensation? ............................ 11
025: When does the employer make contributions? ........................................................................................ 11
•
PLAN INVESTMENTS
026: Where will RHS essets be Invested? .......................................................................................................... 11
MEDICAL BENEFITS AND PLAN DISTRIBUTIONS
027: At what point are employees eligible for and what procedure do they
follow to begin receiving medical benefits? .............................................................................................. 12
028: What medical benefits can be provide i to participating employees? .................................................... 12
029: What circumstances permit an employee to receive assets from the account? .................................... 13
030: Ara there any emergency withdrawal provisions? .................................................................................... 13
031: What happens when employees leave the employer J2till.C to benefit eligibility? .................................. 13
032: What happens to the account balance when the participant dies? ......................................................... 14
PROCEDURES FOR MEDICAL EXPENSE REIMBURSEMENT
033:
034:
035:
036:
Who will pay medical benefit claims? .............. . .. .............................................................. 14
Who is Zenith Administrators? ......................... . ... ............................ .. ........................... 14
Is Zenitl, Administrators HIPAA compliant? ........................................ . ......... 15
......... 15 What is the procedure for reimbursement? How long does it take? ........................... .
How are payments from RHS ac.counts treated for tax purposes? ..................................................... 15
TAXES
037:
038: What is the employer's responsibility with respect to tax reporting and remittance? ... ........ 15
ADMINIS rHATION
039: Are there any ongoing employer responsibilities related to the
administrati on of the RHS Program? ..................................................................................................... 15
040: What is EZ Link?....................................................................................................................... .. ......... 16
041: Are there nondiscrimination requirements that apply to the RHS Plan? ............................................... 16
042: What types of reports will employers and employees receive? ........
043: What fees does ICMA-RC charge for the RHS Program?
RESOURCES
.. .............................. 16
.............................. 17
044: What information will I receive to assist in ongoing plan administration? ........................................... 17
045: Whom should I call with other qu estions regarding the RHS Program? ................................................ 17
•
•
•
01: What I ■ th■ V■nt■g ■C■r■ R ■tlr■-
m ■nt H ■■lth Saving ■ Pl ■n1
•
VantagaCare Retirement Health Savings IRHS)
Plan 11 the ICMA Retirement Corporet ion's
employer-sponsored health benefit savings vehi•
cle that allows employeH to accumulate assets to
•
pay for medical expen111 (e .g., health Insurance,
co-pays , prescription expenses, etc .) at retirement
lor upon meeting other eligibility criteria) on a tax-
free basis . The plan brooks new ground lo, health
care sevlngs in the public sectur and Is offered
through a concept pioneered by ICMA-RC that has
received IRS approval (see 05).
RHS is similar to other ICMA-RC products such as
the 401 and 457 plan s in that it allows an employ-
ee to invest dollars on a pre-tax basis in the Van-
tagepoint Mutual Funds• for financial needs dur-
ing retirement (or when otherwise eligible). RHS
offers a nu mber of benefits, including tax-deferred
accumulation of earnings and, when account
assets are used to pay for tax qual ified medical
benefits for participants, their spouses and/o r
depend ents, the additional benefit of tax-fre: -vith-
drawals.
• A transaction fee of 2 % may be applied to the
value of amounts transferred from the Income
Preservation Fund. Please consult the current
Vantagepoin t Funds prospectus carefully for a
complete summary of all fees, expenses,
charges, financial h1t1hlights and i nves tment
objectives, risks and performance information
prior to inves ting any money. Vantagepoint
securities are distributed by ICMA -RC Services
LLC, a broker dealer affiliate of ICMA-RC,
member NASDISIPC. For a current prospectus,
contact ICMA-RC Services LLC, 777 North
Capitol Straet NE, Washington, DC 20002-4240.
1-80 0-669 -7400.
02: What ■r■ the key fe ■ture ■ of RH:,/
• The plan allows for flexibility in plan design to
meet employer/e mployee needs and permits
sig~ificant employee choice (see 016).
Employers may make tax-free contributions to
an employee account (see 019).
Mandatory, pre-ta x employee contributions
mPv be required from compensation or from
accrued sick and /or va cation leave (sea 019).
•· The plan may permit employee elective pre-
tax contributions on a one-time i rrevocable
election basis (see 019).
• Tho plan may permit employees to Irrevocably
elect to contribute accrued leave lsee 014).
• The plan may allow employees to annually
el ect to contribute e portion of the following
year't accruals of leave (see 019).
• Emp loyees may make voluntary after-tax con-
tributions (see 019).
• All earnings grow tax -deferred, and with·
drawals used to pay for qualified medical ben-
efits for participants , their spouses and/or
dependants are tax -free (see 037).
• Plan assets remain i ng at the time of the
employee 's death ara not forfeited . The
account can continue to be used for medical
expenses by the employee 's spouse or
dependents, or passed on to benefici aries , for
thei r med ic al expenses (see 032).
BENIPITS OF RHS
03: What ■re t:,e benefits of RHS to
the employer?
The cost of medical care continues to go up every
year, while new Medi care prescription drug bene-
fits leave ben efi ciaries with large out-of-pocket
deductibles and co -pays . This continuing medical
i nflation, particularly for services not covered by
Medicare or employer-sponsored retiree health
plans, means that retirees are increasingly respo n-
sible for growing medical costs. The RH S Program
enables employe rs -and their employees -to save
in advance for these costs .
There are several benefits to employers that
choose to offer the RHS Program :
No unfunded liability -Existing retiree med-
ical programs, offered either through a retire-
ment sy!=tem or by the employer directly, may
burden employers with unfunded liabilities,
particularl y when the Governmental Account-
ing Standards Board reporting requirements
for Other Post Employment Benefits become
effective. RHS now offers a way to pra-fund
some or all of these costs.
• Low cost -RHS provides the ability to offer a
low-cost employee benefit that complements
your currant ret i rement savings package. Also,
employer and r,nst employee contributions
are not subject to FICA and unemployment
taxes, resulting in savings to the employer.
• Easy ad ministration -By using ICMA-RC's EZ
Link System , RHS Is offered with limited
administrat ive effort by the employer l saa 039
and 40).
• Retention -· RHS can help you attract and
retain valued employees .
• Security -Allows the employer to provide
additional security to employees saving for
their retirement health needs . Similar to a
defined contribl!tion r,::t!~e:-,,ent plan, it also
provides employees with greater responsibili-
ty and control over SJving for retirement
health 1113eds .
• Flexibility -The employer can des ign its RHS
Plan to best fit the needs of employee groups,
includ ing collective bargaining units .
• Unused leave -Provides the employer with
additional flexibility in the payout of accrued
vacation, sick or other leave . Employers can
structure an RHS program to reward the
responsible use of a sick and vaca ti on leave
program and discourage its abuse .
FICA Savings -Contributions made to the
RHS Plan by the employer and the employee
(other than after-tax contributions) are exempt
from FICA taxation, saving the employer up to
7.65% of the amount contributed (see 019).
04: What are the b,,nefits of RHS to
the employee?
Employees can reap substantial benefits as well.
• Conveni ence -Once an employee is elig ible
to participate in RHS (see 017), the employee
only has to enroll (see 018) and make deci-
sions regarding investment of RHS funds lsee
026). Contributions are made directly by the
employer or through converting employee
!covo lsee 019). Additional employe-, contribu-
tion options may include manda · ..... ry and irrev-
ocably elected pre-taK, annual leave, terminal
leave , and voluntary after-tax contributions
lsee 019).
• Tax-advantaged savings -Most contributions
are pre-tax and assets grow in a tax-deferred
accou nt.
• Tax-free withdrawals -Withdrawal~ a re tax-
free when used for the participant 's (including
spouse and dependent) qualified medical
2
eKpenses as allowed by tha employer's RHS
Plan .
Full range of appropriate investment options
-RHS allows Investment in the Vantagepoint
Mutual Funds', including ICMA-RC 's low-cost
index funds (see 026).
• Flex ibility -Participants may use RHS assets
to pay medical expenses for themselves, their
spouses and dependents .
No account balance forfeiture upon death -
At the de ath of the part icipant, the accou 11t
balance is transferred to an account for the
surviving spouse and /or dependents , or for an
alternate beneficiary, to use for the ir ow n
medical expenses (Note : benefits paid to other
than a surv iving spouse or dependent will be
taxable). !See 032.)
• A transaction fee of;_% may be applied to the
value of amounts trans.'erred from the Income
Preservat ion Fund. Pleast.' consult the current
Vantagepoint Funds prosp 9c tus carefully fo r a
complete summary of all ft.•es, expenses,
charges, financial highlights and investment
objectives, risks and perform~1nce information
•
prior to investing any money. Vantagepoint
securities are distributed by /CMA-RC Services •
LLC, a broker dealer affiliate of ICMA -RC,
member NASDISIPC. For a current prospectus,
contact ICMA-RC Services LLC, 777 North
Capitol Street NE, Washington, DC 20002·
4240. 1-800-669-7400.
INTEGRAL PART TRUff
05: What is the legal bHis for RHS7
ICMA-RC has pioneered a new concept for offer•
ing retirement health savings to the public sector
through the use of an integral part trust. The legal
basis for RHS stems from several private letter rul-
ings IPLRs) issued by the Internal Revenue Service
!IRS ) which allow non-profit organizations, includ-
ing state and local government bodies, to estab -
lish "funds " which are deemed to be an "integral
part" of the organization . Because the provision of
welfare benefits is considered an essential func-
tion of the government, the vehicle used to fund
the activity is also considered part of the govern-
mental entity, and enjoys the entity's tax-exempt
status. •
ICMA-RC has craf:ud program documents for you
to uae b11ed on a PLR obtained from the IRS for
an initial adopting employer. Your use of a similar
•
trust document will provide you with aBSurance
that your Program la also within the IRS 's require-
ments. (Thia Is Identical to the uaurance provided
when you use lCMA-RC's model 457 plan docu-
rr.~nts.) A copy of the RHS PLR will be provided to
you by ICMA-RC In the Retain Booklet provided in
the adoption proceBB (see 014).
Since obtaining the original PLR, ICMA-RC's out-
side counsel hos issued an opinion broadening
the types of contributions which may be made to
the plan and permlnlng certain elections by the
participant. ICMA-RC is offering these enhanced
opportunities as part of the RHS plan design. You
may wish to have your benefits counsel review
this opinion prior to adoption. An Executive Sum -
mary of the opinion is available from your ICMA-
RC Retirement Plans Specialist. The opinion of
counsel is also available on request.
Please note that the information in this document
takes i nto account only the federal tax rules relat -
ed to ICMA-RC's VantageCare Retirement Health
Savings Plan. Prior to implementing an RHS plan ,
the employer is responsible for detarmining that
there are no state or local laws that would prohibit
•
it from offering the plan or any of the selected
options to its employees.
06: Why isn't there en IRS determina-
tion letter available for RHS?
Although Voluntary Employee 's Beneficiary Asso -
ciations ("VEBA ") require an IRS determination
letter, Integral Part Trusts are not required to fol-
low this procedure. There is also no procedure
available for determination leners for Health Reim-
bursement Arrangements ("HRA "). (See 012.)
HRAs may rece ive Private Letter Rulings (PLRs),
and ICMA-RC used this process to establish the
acceptability of plan features . (See 05.)
07: What are the requirements for
qualifying aa an "integral part" of
a governmental employer?
In order for a trust to qualify as an "i ntegral part"
of the employer, the employer must exert "sub-
stantial control " directing the plan and must have
"substantial financial Involvement".
•
"Substantial control" simply means that the
employer controls the integral part entity by hold-
ing the power to amend or terminate it, and by
3
naming the parties that manage the daily opera -
tions of the entity. These parties include trustees
appointed _by the employer to hold title to trust
assets on behalf of the employer. The trustees can
be named solely bv the employer, named in con-
j unction with th & employee group(s) covered by
the Trust, or ca, be a directed trustee hired by the
employer.• ICMA-RC 's model trust egreement
gives the employer the authority to amend or ter-
minate the trust and to name the trustees . Thus,
the requisite level of control is eutomatically pres-
ent.
"Substantial financial involvement" means that
the employer has the primary responsibility for
funding the trust. The IRS considers direct
employer contributions, mandatory contributions
of accumulated unused leave, mandatory contri -
butions from compensation , and irrevocably elect-
ed pre-tax contributions to be employer contribu-
tions (see 019).
• Employers that are interested in obtaining the
services of a directed trustee can contact ICMA -RC
for additional information .
08: What constitutea an eligible
employer?
Any state or local government employer or its
agency or instrument ali ty is eligible to use the
program. Employers wishing to pursue adopt ion
may contact (800 ) 299-9249 to i nitiate a discussion
on adoption.
09: How ,., , RHS compare to a VEBA
or 40·, '"' plan? Can theae assets
be transferred to an RHS plan?
The RHS Program is considerably more flexible
and less restrictive than either a Voluntary
Employees' Beneficiary Association (VEBA) or a
Section 4011h) medical account. The chart on the
next page lays out the similarities and differences
between these three types of retirement medical
funding vehicles .
Based on advice of ICMA-RC's counsel, assets of
the employer that are in a VEBA may be trans•
!erred to RHS accounts for the individual employ-
ees covered. Section 401(h) assets may also be
transferred; however, the employer should obtain
a determination letter on the 401 plan to which the
401(hJ account is ettached to ensure that the quali·
fied status of the retirement assets is protected .
~---V1nug.C1ro RHS Slc:tlon 401(hl Account• VEBA•
egal Basis Pr ivate Letter Rulings IRC Sect ion 401(h) IRC Section 501(cl(9)
and Treas . Reg . • 301 .7701 -1(11(3)
Type ■ of Contributions
Allowed
• Employer Available Available Available
• Mandatory Unused Ava il able Unclear+ Ava II able
Leave
• Mandatory Pre-Available Available with 4141h) Available
Tax Employee "pick-u p "
• Irrevocable Elective Available Unclear+ Unclear+
Pre-Tax
• Voluntary after-tax Available Unclear+ Unclear
Employee
Limit on Contributions None, except 25 % Limited to 25 % of total None for governmental
limit on voluntary Section 401 Plan VEBA
after-tax co ntributions (or 33 % of
retirement contributions)
Tax Treatment Tax-deferred Tax-deferred Tax -deferred
of Earnings
Types of Benefits • Healt h . Hea lth . Health
Allowed • Survivor health benefits . Death Benefit
• De minimis account . Other welfare
distributions be nefits • Tax Treatm ent of Part icipan t Tax -free Tax-free Tax-free
Health Benefits
Part icipation . Mandatory Mandatory for Mandatory for . Irrevocable electio n covered employees covered employe es
(see 012)
Treatment of Assets Balance remains Must revert to Determined by VEBA
Remein i ng After available to survivors for the employer provisions: balance may
Employee's Death medica l expenses be forfeited back to trust
or remain available to
survivors
Application of Welfare Apply to self-insured, Apply to self-i nsured , Apply to self-insured ,
Plan Non-Discriminatio n non-col lective ly non-collectively non-collectively
Rules bargained plans (see 034) bargain ed plans bargained plans
Assets Subject to Claims No No No
of Employer's Creditors?
IRS Ruling Required? No Part of qualified Yes
Section 401 plan
determination letter
• Please note that the theoretical ability of a 401(h) or VEBA to include a particular feature does not suggest tha.
the programs currently offered to local governments are str Jctured with these features. ICMA-RC makes evall •
abla an RHS summary chart that may be useful in comparing other programs to AHS .
+ ICMA-RC is not aware of an existing 401 (hi or VEBA program that allows these feetures.
4
If there ere general assets of the employer that are
held for future retiree health care costs, they may
be transferred to RHS so long as the individual
•
employee doesn't have a vested Interest in the
useta (i.e ., no option to receive the assets in cash
rather then transferring them to the RHS pro-
gram).
ICMA-RC will work with employers on a case-by-
case basis to determine if their existing retiree
health assets are transferable and to assure an
efficient transition. Employers should also consult
with their own counsel.
010: Are aaaeta in th• employer'• Inte-
gral part truet acceeeible to the
employer end/or ita general cradi•
ton?
The employer/plan sponsor and its general credi-
tors do not have access to the assets in the RHS
integral part trust. The assets in the trust are
reserved for the stated purpose of being for the
"exclusive benefit of the participants and their
beneficiaries." This security measure is language
similar to that used in describing a trust for quali-
fied 40'. and 457 plan assets .
011: How does RHS compare to a
• Health Savings Account?
Health Savings Accounts l "HSAs") were enacted
by the Medicare Prescription Drug, Improvement,
and Modernization Act of 2003. Individuals that
are panicipating in a "high deductible health plan"
may be able to establish and make contributions,
subject to statutory limitations, to lin HSA. The
HSA assets are primarily used to cover current
health expenses, such as the deductible amount
under the health plan. Most insurance premiums,
including those of the high deductible health plan,
cannot be paid through the HSA prior to age 65.
Any HSA assets remaining in the account at termi-
nation of retirement can be used to pay for retiree
health care costs.
VantageCare RHS is primarily a post-employement
health savings program sponsored hy an employ-
er. There is no need for an individual employee to
be panicipating in a high deductible health plan in
order to panicipate in RHS. There is no stautory
limit on RHS contributions. Insurance premiums
may be reimbursed when the panicipant attains
the eligibility criteria established in the adoption
•
agreement. There is no prohibition on use prior to
age 65.
5
If you are interested in additional information on
the differences between the two types of health
savings p(ograms, please contact your ICMA-RC
Retirement Plans Specialist or call 1-800-299-9249 .
012: la the RHS Pl ■n ■ H ■-lth Relm-
burum ■nt Arrangement?
The IRS Issued guidance regarding "health reim-
bursement arrangements" or "HRAs" in 2002 . Any
retiree or post-employment health savings plan
has many elements in common with the specific
HRA for which the IRS issued their ruling, though
there are several areas within the HRA guidance
that don't quite fit the RHS program. Nonetheless,
ICMA-RC has determined that it is prudent to fol-
low the requirements of the 2002 guidance to gain
the comfort of the most recent guidance from the
IRS. As such, the RHS program complies with the
HRA rules .
013: Does ICMA-RC offer• program
specifically for employer prefund•
Ing of retiree health care liabili-
tiae 7
Yes. ICMA-RC's VantageCare RHS Employer Invest-
ment Program ("EIP ") is available to help employ•
ers meet the funding requirements of the Govern-
mental Accounting Standards Board's "l"GASB")
pronouncement on reporting for Other Post
Employeme11t Benefits l"OPEB "). including retiree
health carp costs. The GASB rules require state
and local government employers to account for
the cost of promised retiree health benefits over
the working lives of employees. By prefunding
these costs in a dedicated integral part trust (see
05 through 71 through EIP, employers can offset
their financial reproting liability, as well as help
assure that the assets will be there to pay the
promised benefits .
Contact your ICMA-RC Retirement Plans Specialist
or call ICMA-RC at 1-800-299-9249 for more infor-
mation about EIP.
UTABUSHING AN RNI PLAN -
DUIGN. ADOP11ON AND
IMPLIMINTATION
014: What la tha adoption procedure
for aetabllehlng an RHS Plan7
1. The empl~yer first talks to an ICMA-RC Retire-
ment Plans S~ecialist and reviews the ber,efits
and features of ,:·,c 'IHS program and how
they mey apply to the employer's current
need, and capabllltlea. A preliminary decl1lon
Is made on the following :
a. Whether benefit■ will apply to all employ-
111 or to e ■pacific group or collective bar•
!}tining unit (If applicable).
b. Whet contributions will be made and whet
the fun di ng formula(s) will be.
c. What medical benefit& the program will
reimburse.
d. When employees w i ll become eligible for
benefits .
2. The employer makes a decision to proceed
with the adoption and implementation
process . The employer notifies the Retirement
Plans Specialist that it is ready to proceed and
undertake a complete evaluation of relevant
adoption materials .
3. The employer meets with covered employee
groups as appropriate. These may include col-
lect ive bargaining groups.
4. ICMA-RC supplies the employer with the Van-
tageCare RHS Return and Retain Booklets.
These booklets contain all materials necessary
to adopt the plan.
5. The necessary documents are prepared:
VentegeCare Retirement Health Savings
Plan Adoption Agreement. ICMA-RC pro•
vides this document as pert of the Return
Booklet. All specifics of the program are
outlined in the Adoption Agreement. (See
015 and 016.)
RHS Declaration of Trust. ICMA-RC pro-
vides e model trust declaration in the
Retain Booklet. (See 015.)
• Welfa re benefit plan (if one does not
. already exist-see 015). The Retain Book-
let includes a sample which may be adopt·
ed by the employer.
Administrative Services Agreement. This
document contains the agreement for the
plan administration services provided by
ICMA-RC to the omployer's RHS plan .
6
6. ·'. he employer obta i ns governing body
approval to estebliah the RHS Program . ICMA·
RC pr1ivld11 a modal reaolutlon and model
alflrmatlva llatement In the Return Booklet.
7. Employer returns required document■ to
ICMA-RC.
8. The employer submit• employee enrollment
information via EZLlnk.
9. The employer begins to transmit data and con-
tri butions to ICMA-RC via EZ Link (see 039 end
40).
015: What documant■ govarn the RHS
Plan?
The provisions of an employer's RHS Program are
governed by three documents that collectively
comprise the VantageCare Retirement Health Sav-
ings Plan. All three documents are provided by
ICMA-RC as pert of the adoption process. You may
alternatively work with your human resources and
benefits counsel to develop your own welfare ben-
efit plan and RH S Trust documents.
VantaaeCare Retirement Health Savings Plan
~: The Adoption Agreement
specifies the details of the employer's RHS Pro -
gram. For example, the Adoption Agreement
details employee eligibility requirements , sources
of contributions , the level of contrib:.Jt iv ns, vesting
provisions (if any), the types of benefits that will
be funded by the RHS trust, and procedures to be
followed in case of the death of tt,e employee. See
016 for more information on employer options in
the RHS program .
BHS Dodaration of Trust: The Declaration of Trust
establishes the legal entity ("integral part trust")
that holds the assets set aside to pay for employees'
retirement health benefits. As part of the adoption
process , tCMA-RC provides a model trust agreement
that has already received approval by the IRS for
another employer for the basic plan concepts .
(See 05.) You should check with appropriate coun-
sel prior to adopting this document. Alternatively,
this document may be drafted by you in conjunction
with your human resc.iurces or benefits counsel.
However, if you develop your own Trust agreement,
it mull be reviewed by tCMA-RC piior to adoption
to ensure compliance with Integral part trust rules
and r~nforrn ity with ICMA-RC's administration of
the RHS program.
•
•
•
Tho welfare benefit plan : A written document
should be In place In order to offer en\' tax -advan•
taged waif are benefit plan , and you rr.ay have one
•
in place already. This document(&) identifies the
underlying benefits available to the
employee/ret iree such as medical, dental anti
•
•
long-term care covarage. As part of the adoption
agreement process, ICMA-RC provides a sample
welfare benefit plan that can be executed If an
appropriate plan is not already in place.
016: Whet plan dealgn fHtUrH ere
av111leble under the RHS Program?
The RHS Program has been designed to both (1)
allow the employer flexibility in establishing its
Plan to best meet the needs of its employees and
(2) minimize the adm inistrative effort by the
employer. In completing the RHS Plan Adoption
Agreement, the employer may make choices
regarding the following features .
1. Emolovee groups : The employer can deter-
mine which groups of employees will be
included in the RHS Plan (e .g. all employees ,
full -time employees , or a specific unit of col-
lectively-bargained employees). A separate
plan should be adopted for eac ' group if dif •
ferent features are selected for d ifferent
groups.
2. Emolovee olan oart icioation and eliaibil itv crite-
ri.11; The employer may make participation by
th e covered employees mandatory or elective
based on an irrevocable election (see 017) and
can establish a minimum age and/or period of
service for participation.
3. Contributions: The employer can determine
the funding typs and leve ls (e .g., direct
employer contributions and /or elective
employee contributions). (See 019.)
4. l,ltsling; The employer may establish a vesting
schedule ,·or direct employer contributions if
desired . II.II employee contributions are auto-
matically fully vested .)
5. ~ The employer determines how for-
feited funds will be used when an employee
separates from service prior to becoming fully
vested, or in the rare case that assets must
reven to the trust after the participant 's or sur-
vivor's death (see 032).
8. Benefit ejjgjbj)lty· The employer determines
when participants will become eligible to use
their RHS uaet■ for medical benefits (e .g., at
retirement or upon attainment of a certain
age). (See 027.)
7. Permiaslblo medical boootit1 · The employer
can choose the types of med ical expenses that
will be reimbursed by the RHS Plan . (See
028.)
8. Pe Minimis benefits · The plan may al low par-
ticipants that separate from serv ice prior to
attaining benefit eligibility to receive a payout
of their account balance of $5,000 or less . The
employer may select a de minimis value of
less than $5 ,000 if desired . (See 031 .)
017: How much lndh•ldual choice I•
permitted?
A significant amount of individual choice is avail -
able depending on options selected by the
employer in the Adoption Agreement.
• A plan may permit employees in the covered
group to irrevocably elect to participate. Until
such time as the employee elects to partici -
pate , he or she does not participate in the pro-
gram and does not receive or make contribu-
tions. Once an employee elects to participate ,
ther e is no opportunity for the participant to
res ci nd participation .
Employers may provide an election "window "
of up to 60 days. For newly hired or newly eli-
gible employees, the election to participate
may be effective no earlier than the calendar
rr.onth ,allowing the end of the election win-
dow. If an employee does not make the elec -
tion in the year of initial eligibility, the election
may be made in a later ye ar. However, in this
case , participation may not begin until the
year following the election year.
• A plan may permit employees to make a one-
time irrevocable election to make pre-tax con-
tributions from compensation {either a fixed
dolla r amount or a percentage of compensa-
tion) on an ongoing basis. Once the election is
made, the participant may not elect to receive
the contributi,n as cash or part of compensa-
tion . (See 019.)
• A plan may permit employees to Irrevocably
elect to contribute accrued vacation, sick or
other leave to the plan. Acc rued leave may be
contributed each year or at separation, but
only a single election will cover contributions
o f accrued leave. (See 019.)
• A plan may permit employees to annually
make an election to contribute a portion of the
followlr,g year's accrual of vacation, sick or
other leave . (See 019.)
• A plan may permit voluntary after-tax contri•
butions . (See 019.)
018: How do your employee ■ get
aterted7
1. The employer announces the RHS Plan to
employees , notifies them of their eligibility to
participate, and informs them of the Plan pro-
visions as selected in the Adoption Agree-
ment. ICMA-RC will provide an Aanounce -
ment Letter which may be used for thi3 pur-
pose. ICMA-RC also provides enrollment kits
containing forri is and necessary information.
2. The employee completes the enrollment form
and any applicable contribution election forms
and returns them to the employer. The enrol-
ment form includes participant indicative data
(e .g., name and address) and a beneficiary
designation (see 032). Employees that are not
electing to participate (see 017) should not
complete the enrollment form .
3. Once the employer receive, the completed
enrollment form , the employer verifies the
participant's eligibility to participate, and trans-
mits the participant data to ICMA-RC via EZ
Link (see 040). The employer retains the con -
tribution election forn:s and uses the informa-
tion on the forms to est · lish payroll process-
ing of employee contri tions.
4. ICMA-RC sets up the participant's account that
day, if the enrollment information is received
prior to 4:00 p.m. East ern lime.
5. ICMA-RC sends the participant a welcome let-
ter the business day following the establish-
ment of the new account.
6. The participant can make changes to the
account, includmg investment allocation (see
026), by Vantageline, Vantagclink or by
speaking to an ICMA-RC Investor Services
associate.
8
7. If any employees are eligible for benefits upon
enrollment, the employer should notify ICMA-
RC of Jholr benefit ellglblllty through EZ Link
when the employee is enrolled . The employee •
should also complete a VantsgeCare RHS Ben-
efit Eligibility Form . (See 027 .)
C0NTRIBmONs
019: What type ■ of contribution• can be
mede to the RHS Plan?
All contributions must be specified in the Adop-
tion Agreement. These contributions may be any
or all of the fo ll owing :
• Direct employer contributions+
Direct employer contributions can be either a flat
dollar amount or a percentage of earnings for
each participating employee. (Note that percent-
age-of-earnings contributions may be subject to
nondiscrimination testing for non-collectively-bar-
gained plans or plans that permit benetit pay-
ments for other than insurance premiums. (See
041)),
No FICA (Social Security and Medicare) or income
tax applies to the contributed funds. and, if used •
for pa1ticipant, spouse or dependent medical
expenses, no FICA or income tax will be due at
distribution .
The RHS Program default is immediate 100% vest-
ing for direct employer contributions, but, if
de~ired, the employer can establish a vesting
schedLle .
• Mandatory unused leave contributions+
The RHS Plan can also provide a way to defer
unused sick, vacation and other types of leave. No
FICA or income tax applies to the contributed
funds and , if used for participant, spouse or
dependent medical expenses, no FICA or income
tax will be due at distribution .
Ttiese unused leave contributions are mandated
by th , employer -employees may not choose
V'•hether or not to make these contributions. The
contribution formula may provide for annual con-
tributions or balloon contributions at the time of
retirement. The employer can establish an unused
leave contribution formula that best fits the noeds
of its covered employees . •
Contributions of unused leave ere always 100%
vested .
•• Mandatory pre-tax tontrlbutlons of compen&a•
tion
A plan may require individuals to contribute acer-
tain portion of their salary. For example, the
employer might grant a salary increase of which
part is paid to the individual and the other portion
directed to RHS for ell covered employees . Alter-
natively, the employer might mandate that all or a
portion of an incentive payment be contributed to
the RHS Plan .
Employees may not choose whether or not to
make these contributions; they are mandated by
the employer. Ma11datory pre-ta,c contributions are
always 100% vested. As with mandatory unused
leave contributions, neither the employer nor the
employee will pay FICA or income tax on the con-
tributed funds , and , if used for participant, spouse
or dependent med ical expenses, no F1CA or
income tax will be due at distribution.
• Irrevocable elective pre-tax contributions of
compensation or c,.;c rued leave+
A plan may also provide for pre -tax contributions
•
to be made by the individual on an elective basis .
Once elected , these contr ibutions may not be
changed or rescinded.
Employers may prov ide an annual election "wi n-
dow" of up to 60 days for employee elections . For
newly hired or newly covered employees , the
election to contribute may be effective no earlier
than the month following the end of the election
window. A participant that does not make t he
election in the yea r of initial eligibi lity may make
the election in a subsequent year. However, in this
casa, contributions will not begin until the year
following the election year.
Neither the employer nor the employee will pay
FICA or income tax on elective pre -tax contribu-
tions, and, if used for participant, spouse or
dependent medical expenses , no FICA or income
tax will be due at distribution.
Compensation :
The plan may provide for an employer-fixed per-
centage (e .g., 5%) that all electing employees
•
would make, a range chosen by the employer
(e .g., 3%, 5%, 7% or 10%), or amployee choice of
9
the percentage (e.~ .• up to 10%J , a ■ long H the
election ia Irrevocable . The employer speclfiH the
acceptable range or the limit In the Adoption
Agreement.•
• Employers should discuss with coun,ol the
number or range of choices provided to partici-
pant:. The IRS guidance upon which this ele.:tion
is based consisted of three specific percentages of
compensation .
Accrued Leava:
The employee may also be permitted to irrevoca-
bly elect to contribute accrued vacation, sick , or
other leave. Accrued leave contributions may be
made annually (e .g., all leave in excess of a speci-
fied number of hours). or at separation from serv-
ice or retirement. A single election covering
accrued leave must be made no later than the cal •
endar year prior to the contribution . Newly hired
or newly eligible employees may make the elec-
tion to contribute in the month prior to the month
of contribution .
Although ICMA-RC ac ce pts these contributions and
is confident that the IRS would find them accept·
able, employers should be aware that the PLR
doesn't cover elective pre-tax contributions of
compensation or accrued leave . ICMA-RC accepts
them as a result of an opinion of outside counsel ,
which is available from ICMA-RC . (See Q 5.)
• Prosp ect ive election to contribute annual
,eave+
The employer's plan may allow part ic ipants to
make an election each year to contr ibute annual
leave (sick, vacation , etc.) to their accounts . The
election is valid for accruals earn ed during the fQ1:
I.Qn1Qg calendar year and may be changed for
subsequent years. However, the election may not
be revised or rescinded for the imm ediately fol-
lowing year.
Neither the employer nor the employee w iil pay
FICA or income tax on prospective annual leave
contributions, and, if used for participant, spouse
or dependent medical expenses, no FICA or
income tax will be due at distribution .
Although ICMA-RC accepts prospective annual
leave contributions and is confident that the IRS
would find them acceptable, employers should be
aware that the RHS PLR doesn't cover prospective
annual leave contributions. ICMA-RC accepts t~em
as a raault of an opinion of outside counsel, which
is available from ICMA-RC. (See 05.)
• Voluntary after-tax contributions•
Up to 26% of total RHS plan contributions may be
voluntary after-ta• participant contributions,
(These contributions are the only RHS contrlbu•
tions subject to FICA and income tax .) Earnings
on these contributions are tax-deferred , and bene-
fit payments are , of course, nontaxahla if used for
partici pant, spouse or dependant medical expense
reimbursements.
These contributions should be tested ior the 25%
limit at the plan level although the er,,ployer may
wish to set a partici pant level limit as well. The
contributions may oe st arted and stopped by the
participant as permitted by the employer.
Althougt 1 IC MA-~C accepts these contributions
an CI is confident that the IRS would find them
acce ptable , employers should be aware that the
PLR doesn't cover voluntary after-tax cortribu-
tions. ICMA-RC accepts them as a result of an
opinion of outside counsel. (See O 5.)
+ These contributions are treated as employer
contributions by the IRS and not subject to
FICA or income tax. Since they are considered
employer contributions by the IRS, these con-
tributions satisfy the requirement for #sub-
stantial financial involvement " as required by
the integral part trust rules (see 06). However,
ICMA-RC will recordkeep the contributions
separately in employer (subject to vesting) and
employee pre-tax (mandatory leave, mandato-
ry pre-tax and elective pre-tax} sources.
~ Voluntary after-tax contributions will be
source d separately and are subject to FICA
and income tax .
Q20: Hr>w are RHS contributiona report-
ed on the emplryee'a Form W-27
Beca\.1S8 direct empioyer and pre-tax emplcyee
contribu ti ons (whether ma•1datory or irrevoi;ably
elected) are not taxable wages and are not subject
to FICA taxation (see 037), these cor.tributions are
not reportable at all on Form W-2 . (The employer
may report these contributions for information
purposes i n Box 14 "Other", if desired.)
Employee voluntary after-t ax contributions to the
RHS Plan are subject to both income and FICA tax-
10
atlon. These contri butions are reportable as Gron
Wages and FICA Wages (Boxes 1, 3, and 5),
There 11 no raqulred reporting in Form W-2, Box
12, for any RHS Plan contributions .
021 : Wh ■t ■r■ aom• ■x■mpl ■• of contri-
bution• ■llow■d by ■mployera7
Emp)oyer #1 has chosen to provida all of the fol -
lowing types of contributions for employees :
Flat dolla r contribution for all employee~ 1,1 •he
amount of $350 to a reimburs er1e nt account
covering all medical expenses ;
I % of each full -time employee's salary above
$35,000 as a direct employer contribution to
an acco Jnt that re im burses only for insurance
premium reim bursement in order to eli minate
any potential for nondiscrimination issues (see
034);
10% of an emplo yee's accumulated sick leave
at the time an emp loyee leaves service witt-,
the employer, if the employee has at least 10
years of service with the City.
Emp)oyer #2 contributes $1,300 per employee per
•
year. In addition, at retirement , the dollar equiva-•
lf!:nt of accrued va cation and sick leave up to
$40,000 per retiree is contributed on a mandatory
basis.
Emolover #3. contributes on a mandatory basis :
• Annual unused sick leave as prescribed in the
existing employee contract ;
• One-time bonuses and awards ;
• Annual unused vacation accru als exceeding
320 hours;
• Annual unused administrative leave , not to
exceed 64 hours ;
• All unused sick leave not to exceed 500 hours
upon retirement or other separation of service ;
• All unused administrative leave and vacation
accrual on retirement or separation.
Emolover #4 contr ibutes direct employer contribu -
tions equal to 3% of compensation per employee, •
plus additional 1 % of compensation for employees
•
•
•
contributing annual leave of 16 hours per year. An
employee who hes accrued 40 or more hours r,f
unused annuel leave must contribute on a mend ■·
tory b11l1 all such leave over 40 ho~ra to I ma•I•
mum of 16 hours per year.
Employee #6 granted 1 1% aalory Increase which
must be contributed to RHS II a mandatory pre·
tax employee contribution. Panki pants may Irrev-
ocably elect to contribute a whole percentage of
salary as a pre-ta• contribution; the contribution
may be from 1 to 5% of salary. The participant
may irrevocably elect in the year prior to retire -
ment eligibility to contribute accrued vacation and
sick leave at sepa :-ation from service.
Emolover #6 may make a discretionary direct
employer contribution; the level of the contribu-
tion will be determined each year by the govern ·
ing board. In some years, no employer contribu-
tion will be made. A mandatory accrued sick leave
contribution will be made on behalf of ell partici-
pants that elect to make et least e 1 % of compen•
sation contribution, or to contribute at least tJ
hours of vacati on leave on a prospective basis.
Participants may irrevocably elect to contribute up
to 10% of compensation on a pre-tax basis. In
addition, participants may make a prospective
election to contribute the followi;ig year's •1 acation
lea ve in 8-hour increments.
Ot her employers use age, years of service end
date of hi re as part of th e formulas that deter mine
contributions.
022: Are there limit• to th& am'.lunt of
contribution• that ma\• b1t made in
a given year7
There are no percentage or dolla r limitations on
the amount of contributions to RHS made on a
ta•·•dventaged basis to RHS . T~e only currant
limitation is that no more than 25% of total plan
contributions (or 33 1/3% of pre-ta• employer end
employee contributions) may be voluntary after-
tax contributions.
The employer may want to consider placing a rea -
sonable fixed dollar limit 01 elective pre-ta• con-
tributions, in order to ensure the RHS pron rem
does not provide benefits in excess of re fi aonable
benefits normally provided by such e w elfare
plan .
11
023: How ara tha contribution ■ ooordl•
n■ted with Section 417 and 401
pl ■n17
Contribution, to RHS are not coordinated with
and do not off11t contribution, that may b~ made
to Sect ion 457 and 401 plan,. Howeve,, there may
be an Ind i rect impact relative to mandatory and
elective pra-tax contrlbu:Jc.,,a, Since these contri-
bution, reduce "gro11 comp~o11tlon" for Form
W-2 purposes, they may lower the base on which
the contributions to a 45; or 401 plan are calculat-
ed , d•pa11dlng upon the terms of the 457 or 401
pla 1 . ICMA-RC's model 4b 7 end 401 plan docu -
ments i nclude RHS c~ntributions es compensation
for retirement plan contribution calculations (see
0191 .•
• Nore that RHS contribuliors will not be counted
as compensation for purposes of the statutory
limits on 457 and 401 plan contributions.
024: Ara contribution• made to the
account included In Mpan ■ion
■blaw compan ■ation7
The definition of compensation covered by the
employer's pension will need to be examined to
determine whether any of the RHS contribution
types ere considered pert of compensation on
which penalon benefit calculations are made . The
employer should contact the pension plan
provider to determine proper treatment.
021: Whan doH tha employer make
contribution•?
The employer can elect to se nd contributions to
ICMA-RC et any Interval (e .g., weel:I " bi -weekly,
monthly, quarterly, annually, at reti,l,,ne nt or at
sr,me other prearranged date). Th e employer can
re nit the contributions via check o r electronic
fur ds transfer (EFT).
l'LAal INVUTIIIINTS
028: Where wlll RHB a ■■■t• be invHted7
The investment funds available to RHS partici-
pant, ara ICMA-RC'1 Vantagepolnt Fund•*· These
19 fund, conIiIt of nine actively mannged fund,,
five model portfolio f•Jntt,. ,nd five •~.dax funds .
Upon Initial anrollm,·nt In the RHS Program, a par-
ticipant's invastment allocation 11 automatically
established as the Vantagepolnt Money Mark,•t
Fund•. The participant may subsequently cha, ge
the investment allocation for future contributions
at any time through ICMA-RC 's VantageLlne ltoll-
free automated service line), VantageLink !Internet
Web site), or an ICMA-RC Investor Services Repre-
sentative. Additionally, existing balances can be
transferred among the Vantar,epoint Funds at any-
time through VantageLine, VantageLink, or an
ICMA-RC Investor Services I1epresentative.
When ICMA-RC is notified of a participant's death ,
the account balance will automatically be trans-
ferred into the Vantagepoinl Money Market Fund.
Moving the account balance into the Vantagepoint
Money Market Fund may provide protection to the
employee's spouse/dependents or beneficiarylies)
against a market downturn. Th i .. will avoid poten-
tial problems arising from a reduction in the value
of a participant 's account due to a dn .. p in the mar-
ket . The spouse/dependents or beneficiarylies)
may transfer the account balance from the Money
Market Account into the investments of their
choice at any time.
::t A transactio., fee of-'% may be applied to the
value of amc:.nts transferred from the Income
Preservation .Cund. Please consult the current
VsntageJ.,oint Funds prospectus carefully for a
complete summary of all fees, expenses,
charges, financial highlights and investment
objectives, risks and performance information
prior to investing any money. Vantagepoint
secu rit ies are distributed by ICMA-RC Services
LLC, a broker deafer affiliate of /CMA -RC,
merrber NASO/Sf PC. For a current prospectus,
c,:,.o tact ICMA -RC Services LLC, 777 North
Capitol Street NE, Wa shington, DC 20002-
4240. 1-800-069-7400.
An investment in the Vantagepoint Money
Market Fund is neith er insured nor guaranteed
by the U.S. Government and there ca n be no
assurance that the Fund will be able to main -
tain a stable net asset value of $1 .00 per share.
MEDICAL BENEFITS AND PLAN
DISTRIBUTIONS
027: At what point are amployeaa eligi-
ble for and what procedure do
they follow to begin receiving
medical banefita7
The employer determines the benefit eligibility cri-
teria for participating employees via the Adoption
12
Agreement (see 015). The RHS program hes been
designed to allow the employer the flexibility to
choose the benef,1 eligibility criteria thet best
meets the needa of Its employee group. For exam-•
pie , the employer might select separation from
service or Hretirement"• as the appropriate time
for benefit eligibility. Alternatively, a specific age
(e .g., 65) could be chosen , or a comlilnation of
separation and a specific age.
• If the employer selects •retirement " as the pri-
mary eligibility criteria, a secondary criteria {e .g.,
age 55) must also be provided for. Employees that
separate from service prior to Hretirement H will
become eligible for benefits under the se co ndary
criteria.
There are two steps that must be taken when an
employee becomes eligible for medical benefits .
Benefit payments cannot be processed until both
steps are completed.
• The employer must notify ICMA-RC vie EZ Link
(see 040) when an employee becomes eligible
under the employer's chosen cri teria .
• Th e employee must co mplete and send the
VantageCare RHS Plan Employee Benefit Eligi-
bility Form to Zenith Administrators, Inc ,
ICMA-RC 's third party claims administrator •
(see 034). This form provides information on
the spouse and eligible dependents to Zenith.
The employee will then be able to submit reim-
bursement requests directly to Zenith on the Van -
tageCare RHS Plan Benefits Reimbursement
Request Form, available through the employer,
ICMA-RC , or Zenith . Medical expenses incurred
before the participant is eligible will not be reim -
bursed.
028: What medical benefit• can be pro-
vided to participating employeea 7
When adopting th • RHS Plan , the employer
chooses the medical benefits that will be offered
to participating employees. The employer may
offer reimbursement for ell qualifying medical
expenses as defined in Internal Rev enue Code
Section 213 (i.e., medical costs that would other-
wise be deductible to the employee on his or her
in dividual income tax return) other than direct
long-term care expenses.•
• Direct long -term cars expanses are defined as •
amounts paid for long-term care (of a custodial
rather than medical nature) other than through a
•
•
•
long-term care insurance policy. Long-term care
insurance premiums are an allowable eJ1penses
un1er the RHl plan .
Alternatively, the employer may choose the bone•
fits that will be provided. Fo r example, reimburse•
ments may be made aveilable only for health
insurance premiums, COBRA premiums, Medicare
supplemental insurance premiums, dental insur-
ance premiums, out-of-pocket medical costs, qual•
ified long-term care insurance, etc . The employer
may allow reimbursement for only one benefit, or
for any combination of qualifying medical costs .
Information about what constitutes a qualifying
medical expe nse can be found in IRS Publication
502, Medical and Dental Expenses, availat>le on
the IRS Web site at http://www.irs.gov/ and in the
RHS Employer Manual (see 044). Generally, the
expenses permitted ere all expenses "paid for
diagnosis, cure, mitigation, treatment, or preven-
tion of disease, and for treatments afferting any
part or function of the body." Insurance premi ums
covering these expenses are also permissible, as
are expenses for certain over-the-counter medica-
tions. Cosmetic surgery and expenses that may be
merely beneficial (such as vacations) are not per-
missible.
02~: What circumstances permit a par-
ticipant to receive aBBeta from tha
account?
As the sole functio n of the trust is to provide for
medical expenses for th e participant, spouse,
dependents, and survivors, t here are no other cir-
cumstances under which the participant may
receive account assets, except in the case of de
minim is accounts (see 031 ).
030: Are there any emergency with-
drawal provisions?
Unlike Section 457 plans, there are no provisions
for withdrawals in the event of a financial hard-
ship. However, an RHS participant that is eligible
for medical ex pense reimbursement will be able
to use RHS assets in the event of a medical emer-
gency or hardship.
031: What happens when a participant
leavea the employer mim: to
benefit eligibility?
When an employee separates from service, imme-
diate lump-sum payment will be made if the
account balance is de mir1imis. A de m i r imis ban-
13
efit Is provided for employees that sep1rate from
service and aro not booefit eligible on mWll.a.n
(see 027) with vested account balarces of $5,ooo•
or less . I, :1 par.i1..iµo~! is benefit-P.:1glble upon se p-
aration or has a balanr.e c,f mor•, than $5,000, the
de minimis provision will n'".lt ,-pply.
• The employer may sele,.t an amount lower
than $5,000 or may chc ose not to include the
de minimis benefit.
In the situation where a separating participant's
account balance is not de minimis, the employer's
plan will provide for medical benefit eligibility
either immediately or at a future date (e .g., age
65). (See 027.)
See 037 for a discussion of the tax treatment of
de minimis benefits.
032: What happens to the account bal•
ance when the participant dies?
An important feature of the RHS Program is that it
provides for continuing benefits for survivors of
deceased participants.
• ~c:oouse and/or deoendentlsJ : Upon
the participant's death, remaining assets will
be transferred to an acco unt for continuing
tax-free use by the surviving spouse and /or
dependents for their own qualifying health
expenses. If there are assets remaining upon
the death of the spouse and all dependents,
they will continue try he available for medical
expense use on a taxab1 e basis by the named
beneficiary(ies) of the last spouse or depend·
ent to die. This taxable use by a named bene·
ficiary(ies) will continue until there are no
longer any asse ts , or no named beneficiary
can be located . At that time, any remaining
assets w i ll revert to the RHS trust to be used
as a "forfeiture" in the employer's RHS plan .
• No survivin g spouse or deoendent(s): It the
participant is not survived by a spouse or
dependents, the account assets will be trans-
ferred to an account for medical expenses on
a taxable basis by the named alternate benefi•
ciary(ies) of the participant. If assets remain
in the account upon the death of the named
beneficiary(ies), they will continue to be used
on a taxable basis for health expenses of the
beneficiary(ies) of the participant's beneficiary.
This taxable use by a named beneficiary(les)
will continue until there are no longer any
assets, or no named beneficiary can be lo cat-
ed. At that time, any remaining assets will
revert to the RHS trust to be used as a "forfei-
ture" In the employer's RHS plan.
In tha cue of medical expenses relmburse-
menll for a non-spouul or non-dependent
beneficiary, no payments will be allowed until
the year following the year of the participant's
death. This will ensure that no FICA taxes will
be due on tha disH butions.
See 037 for a discussion of tho tax treatment of
survivor benefits.
rul3: Who wlll pay medical benefit
claims?
The participant (or his/her survivor) will make the
initial payment for medical expenses that are paid
directly to the service or insurance provider. The
employer may also make the initial payment for
insurance premiums.
Reimbursement for eligible benefits (whether
direct expenses or insurance premiums) will be
handled by Zenith Administrators, Inc., a third-
party administrator hired by ICMA-RC (see 028).
Zenith will reimburse the participant or employer
on receipt of completed benefit reimbursement
forms. An exception to this procedure exists for
situations where the participant has recurring
expenses fe .g. insurance pay,nents). In this case,
reimbursem en 1 can be made on an automatic pay-
ment ba sis to the participant after the appropriate-
ly completrrl re quest is filed with Zenith.
In situations where the employer pays insurance
premiums on behalf of the participants, the
employer may request reimbL,rsement directly
from Zenith by using the approi)riate form. An
automatic reimbursement can bb es tablished for
recurring premium payments.
034: Who is Zenith Administrator ■?
Zenith Administrators, Inc., is a third-party claims
administrator hired by ICMA-R C to perform
administrative services for the RHS i:;rngram as
directed by ICMA-RC. Zenith is well -ve rsed in
medical benefit claims processing (its 70 0 employ-
ees currently serve 400 client funds), and is famil -
iar with the workings of lCMA-RC's RHS Program.
All questions regarding claims should be directed
to Zenith at 1-800-788-5885. Please request to
speak with the ICMA-RC VantageCare RHS claims
representative. Zenith's claims representatives are
available from 9:30 a ,m. to 5:30 p .m . Eastern Time.
74
0311: I• Zenith Administrators HIPAA
compliant?
Zenith Administrators, the third party claims •
processor utilized by ICMA-RC for the RHS pro-
gram (see 034), has instituted procedures to com-
ply with Health Insurance Portability end Account-
ability Act of 1996 ("HIPAA") requirements . At the
request of employers, ICMA-RC will sign HIPAA
"business associate " agreements after legal
review of the agreement.
036: What I• the procedure for reim-
bursement? How long does It
take?
When a participant becomes benefit-eligible, the
employer notifies ICMA-RC and the participant
notifies Zenith Administrators (see 027). The par-
ticipant may then submit medical claims to Zenith
Administrators for reimbursem ent on the Vantage-
Care RHS Plan Benefits Reimbursement Request
Fo rm . Zenith reviews the claim to ascertain that
the individual is benefit-e ligible and that the
expense is one covered by the employer's plan . 1f
these conditions are met, Zenith will process the
claim and coordinate payment with ICMA-RC . All
claims will be paid, suspended, or denied in writ-
ing within 30 days . If claims are denied, there is an
appeal process, which ends with a final determ i-•
nation on any denied claim by the employer. The
RHS Plan Employer Manual includes a detailed
description of the appeal process (see 044).
TAXES
037: How are payments from RHS
accounts treated for tax purpose■?
RHS benefits peid in the form of medical expense
re imbursements Nill never be taxed to the partici-
pant, his or her spouse, or dependents (whether
paid before or after the death of the participant).
No income tax withholding or reporting ls
required, and the benefits need not be reported at
all by the recipient on his or her income tax
return .
De minimis benefits and medical expense reir,-
bursements paid to a non-spousal /non-depeno~nt
beneficiary, on the other hand, are taxable ban.•
lits. In these instances, the recipient of the fund,
(either a beneficiary or the participant) will rece ive
a tax reporting form, and income tax will be •
payable. In the case of de minimis benefits, FICA
taxes will also be payable. (See 031 .)
• 11111:)meT~•n
Typo ol llHS klOllt llthollfMftl •-II Income
lncomeT.-1 T11 Wllhhlldl
Medical benollll No No
p1ld to employee
'
Medical benefits No No
psld to
spouse/dependents
Med ical benefit Yao -to ba_neficlory No
paid to non-1pou11, receiVlng
non-dependent the paymant .
beneficiary
(In year followi~g
. y~a,r ot d~~th or ' ' lsterl.(Sae 03~.) ,,)~
De Mlnlmis YBs • to participa nt Yes
account payout
(See 031 .)
• OASDI = Social Security and HI = Medicare
• The chart above outlines the tax rules for RHS
payments .
•
038: What I• the amployer'• respon•I•
blllty with respect to tax report-
Ing and remittance?
The responsibilities of Zenith and the employer
relative to FICA taxes and federal and state
income taxes are outlined in the RHS Plan
Employer Manual (see 044.)
For de minimis payments, the distribution will be
sent by Zenith to the employer, along with a
transaction summary. The employer will then cal-
culate, withhold, and transmit the employer and
employee shares of FICA (if applicable) as well as
the applicable Federal and state/local income
taxes and pay the net amour! to the participant.
The employer includes the distribution on the
employee's W-2 as FICA and income tax wages.
Survivor benefit payments made In the form of
medical expense reimbursements to a beneficiary
(other than the participant, spouse, or depend-
ents) are taxable. These payments will be made
only in years following the year of the partlci-
15
Tu •
Raportlng
FICA by ..'..
llltm/l.c<allnaomt IIOAIDI/HI'
T1aWlthheld1 Wllhhlld ~ Appllclbll7
No No NIA . " ·,,' ... ,
No No NIA
No No· OASDIIHI
taxeaare not
rsqulredto be paid
-~ ·•.
Yes , if required Yes -if employee Employer
by state/local law was covered by
OASDI and /or HI
pant 's death . This will ensure that no FICA taxes
will be due on the distributions. ICMA-RC will
prepare Forms 1099-MISC for the total reimburse-
ment made to each beneficiary. No income tax
withholding win be performed. The beneficiary is
responsible for payment of income taxes either
through estimated payments or when his or her
income tax return if filed .
ADMINISTRATIVE
039: Are there any ongoing employer
responalbllltles reletad to the
administration of the RHS Pro-
grem7
The pri;nary responsibilities of the employer are
to provide enrollment materials to employees
when they become eligible to enroll in the Pro-
gram and to send RHS contributions and contribu-
tion detail to ICMA-RC. Ongoing responsibilities
include the following:
Provide enrollment data via EZ Link (see 040)
for employees participating in the Plan .
Retain file copies of employee enrollment and
change forms .
Submit all RHS Plan employee information
changes (a.g., address changes) via EZ Link.
Provide benefit eligibility dates, termination
dates, and rea~on for termination via EZ Link ,
Remit withheld employee FICA, federal and state
income taxes to the appropriate taxing authori-
ties and file Forms W-2 for any de minimis bene-
fit (see 038).
040: What Is EZ Link?
EZ Link is an Internet-based program developed by
ICMA-RC that provides employers with g '•ater con-
trol over plan admi nistration. EZ Link gives employ-
ers electronic access to a wide range of plan specific
information, transaction -processi ng capabilities such
as contribution processing , enrollments and indica-
tive data changes and keeps employers up-to-date
on the latest in plan change s. RHS Plan administra•
tion is done almost enti rely through EZ Link • partici-
pant enrollment. acc ount changes, ben ef it eligibility
notification, and termination notification are all com-
municated to ICMA-RC electronically via th e Internet .
More information on EZ Link is available from the
Employer Services Unit of the Investor Services Divi-
sion at ICMA-RC's Corporate Office . Pleas e call (800)
326-7272.
Q41: Are there nondiacrimination require-
ments that apply to the RHS Plan?
As with y our other health and welfare benefit plans ,
RHS plans are generally covered by nondiscrimi na-
~i on requirements found under Internal Revenue
Co de Section 1051h). Th ese rules are similar to the
non-discrimination rules that apply to cafeteria plans
and flexible spending accounts .
There are two ci rcumstances under which an AHS
pl an will not be subj ect to these requ i rements:
1. If your RHS Plan is limited to one or more collec-
tive bargaining groups.
2. If your RHS Plan limits reimbursement to insur•
ance premiums only (health insura nce p remi -
ums, Medicare supplemental insurance premi-
ums, Medicare Part B insurance premiums,
COBRA insurance premiums, long-term care
insurance premiums, etc.)
16
If your RHS Plan falls into one of the two catsijorles
above, health and welfare nondiscrimination require-
ments will not apply.
What does all th is mean for your RHS Plan?
It means that if your plan covers only a collectl 10
bargaining unit or only reimburses insurance premi-
ums, you can establish It without concern for tho
nondiscrimination requirements. Otheiwlse, you
need to consider the nondiscrimination requirements
when developing your Progra m. Planr that do not
meet nondiscrimination requirement. ,re not disal-
lowed; they must test benefit reimbursements .
Should your plan be determined to not meet the
nondiscrimi nation requirements, the effect will be
that the non-insurance benefits paid for your highly
compensated employees may be axable to those
individuals . You may want to consider talking to your
benefits counsel regarding your re sponsibilities for
teating nis and other welfare benefit plans .
Q42: What typas of reports will employer•
and employee ■ receive?
The RHS ~ will rece ive two types 01 sta te-
m ents for an RHS Plan -
Quarterly Summary Plan Statements prov ided by
ICMA-RC and listing information on contribu-
tions, investment earnings , and d istributions for
all participating employees. The statements will
use the same format as ICMA-RC's 457 ao1 401
retirement plan statem ents .
• Quarterly Disbursement Aeport provided by
Zen ith Administrators , Inc . summarizing all
claims paid out of the employer's RHS Plan . This
quarterly Disbursement Report w i ll outline on an
aggregate basis, as well as on a per-porticipant
basis, the typ es of claims paid (i.e ., insurance,
other medical, and de minimis).* This report will
allow the employer to track participant usage of
its RHS Plan .
• Protected health information (sea 035/ will not be
included in the qu arterly disbursement report.
The employer will also receive confirmations of con-
tributions and reinvested earnings.
Note : all employer-level reports will be sent to the
employer's RHS Trustee . If the employer is not the
Trustee, the employer may request a copy be sent to
itself as well.
•
•
•
RHS p1nlclp1nt1 will rece ive Quinerly Summery Pian
St1tement1, 1howlng the activity In their Individual
RHS 1ccount1. P1nlclp1nta will 1110 receive conllrmt•
•
ona of benefit peymenta, 1ddre11 changaa, Invest•
ent allocetlon changoa, and fund to fund tran1fera.
043: Wh ■t fH■ do ■■ ICMA-RC '.'h ■rg ■ for
th■ RH8 Program?
ICMA-RC does not charge any e1.,,:loyer-level fees for
the RHS Plan .
Each quarter, the following fees wili ~e assessed to
panicipant accounts . These fees will be reflected on
perticipants' quarterly statements.
• Account fee · An annual ac count fee of S30 will
be charged to the participant's account on a
quarterly basis ($7 .50/quarter),
and
• ~ An annual asset fee of 30 or 40 basis
points (0 .30 % or 0.40 % of the account) will be
assessed to the parti cipant's account on a
quarterly basis.
Your ICMA-RC-administered 401 and 457 plan average
•
articipant account balance determines the asset fee
at w i ll apply to your RHS Plan . If your average par·
tici pant account balance totals $25 ,000 or more, the
annual asset fee will be 30 basis points (0 .30 %). If
your average participant account balance is less than
$25 ,000 , or if you do not have a 401 or 457 plan with
ICMA·RC, the annual asset fee will be 40 basis points
(0 .40 %). (When the av erage participant account ba l·
an ce in your ICMA-RC-administered sectio n 401 rmd
457 plans totals $25 ,000 or more (based on the bal ·
anc es in your retirement plans on the last da y ot the
previous quarter), ICMA-RC will reduce the annual
asset fee to 30 basis points (0 .30 %) for the subsequent
quarter. Once the fee is set at 30 basi s points it will not
subsequently be increased if av erage account balances
go below $25 ,000).
Fee example ·
If a participant's account balance as of the close of the
priJr quarter was $10 ,000 and your plan has an annual
ar,set fee of 40 basis points, the fee charged to the par•
'cicipent's account for the quarter will be $17 .50 : a
$7 .50 account fee plus a $10 asset fee .
For de minimis benefits (if applicable to your plan), t>:MA-RC will assess a flat $25 fee , which will be col-
lected through the sale of shares in the participant's
account Just prior to the peyout.
RHS feea are subject to change with eppro priate prior
notification.
IIUOUIICU
044: Wh■t Information wlll I r■c■lve to
■■■l ■t In ongoing pl ■n ■dmlnl
■tr■tlon?
The VantageCare Retirement Health Savings Plan
Employer Manual is ava i lable on line through EZ Link,
the required portal for submission of enrollment, con•
tribution, termination and eligibility information to
ICMA-RC (see 040). Th is document is invaluable in
detailing all tho administrative procedures involved in
maintaining an RHS plan . You ma y download and pri nt
this manual ii desi reu . The Manual includes as exhibits
all forms used in plan administration , a copy of Publi•
cation 502 (the IRS publication detailing eligible med•
ical expenses), and examples of confirmations for v ari -
ous transaction s.
045: Whom ahould I c ■II with other quea-
tion• regarding the RHS Program 7
Fo r adoption questions, your ICMA-RC Reti rement
Plans Specialist (RPS) is the best starting point for
questions about RHS . He or she can point you to an
RHS expert at ICMA-RC for techn ical or complex
inquiries . II you don't ha ve an RPS or don't know who
the individual is, you may call (8001326 •72 ·,2.
For EZ Link questions, supplies of publication s and
forms and administrative assistan ~e once you have
adopted the plan , you may contact RC 's Employer Ser·
v ices Unit (ESU) in the Investor Services Division at
(800) 326-7272 . Employees will be provided a separate
number to call in the program materia l they are pro-
v ided at the t i me of adoption .
17
ICMA RETIREMENT CORPORATION
777 North Capitol Street, NE
Wash ington, DC 20002-"240
1-800-299 -9249
www.ic marc .org
BRC000-050-0604-30-C331
June 2004
•
•
•
•
•
•
COUNCIL COMMUNICATION
Date: Agenda Item: Subject
September 18, 2006 9 c I Resolution approving the Retiree Health
Savings Plan
Initiated By: I Staff Source:
Human Resources Sue Eaton , Director of H1Jman Resources
PREVIOUS ACTION
This was discussed by Ci ty Council at the September 11 , 2006 Study Session .
RECOMMENDED ACTION
Staff •~commends that City Council approve, by Resolution, implementation of a Retiree Health
Savings Plan.
BACKGROUND, ANALYSIS, AND ALTERNATIVES IDENTIFIED
The Rt tiree Health Savings Pl an, administered by ICMA Retirement Corporation , was researched by
an inter-departmental committee for purposes of establishing a plan through w hic:, the City could
enable employees to save, tax-free for medical expenses after separatio n of employment from the
City.
Key elements 0f the plan include the employees ' options to contribute:
• A pe rcentage of compe nsation to the plan,
• All or a percentage of unus ed personal lea ve to the plan ,
• All or a percentage of longe vity pay (for those receiving such pay) to the plan,
• All or a percentage of sick lea ve bank pay (for those receiving such pay) to the plan, and
• All or a perce ntage of any paid leaves that would otherwise be paid out upon separation
from employment.
FINANCIAL IMPACT
There is no financial impact to the City. All contributions to the plan are employee contributions.
LIST OF ATTACHMENTS
Resolution