04-A Flex Benefits PlanBACKGROUND INFORMATION
FLEX BENEFIT PLAN
PER IRS CODE 125
In response to increasing health insurance costs, the recent increase
of employee dependent costs, and the proposed employee cost for
employee coverage, City staff has explored the use of a 125
Cafeteria Plan. We have spoken to Institutional Securities
Corporation Representative Deb Reed with whom the City has
dealt with in the past in order to learn the mechanics of how this
idea would help the City.
A Premium Only Plan (Medical, Vision, Dental, and Supplemental
Insurance premiums) would be administered at no cost to the City
in exchange for the opportunity to market supplemental insurance
products to City employees. These products would be purchased at
the employee's expense through payroll deduction. Examples are:
Accident, Disability, Intensive Care, Cancer, and Heart
Attack/Stroke Insurance.
If a Flexible Spending Account is added to the above premium
only plan, a one-time $450 set up charge and a$3 monthly charge
per actual participant would be incurred.
Use of IRS Section 125 would permit employee insurance
premiums to be paid with pre-tax dollars and also remove those
premiums from taxable social security wages. This is a win-win
situation for employees and the City. Estimated annual savings for
the City would be $45,000. Employees would benefit by a similar
amount plus federal income tax savings.
The staff would recommend the premium only plan as the initial
phase, with exploring the concept of adding flexible spending
accounts as a second phase.
The City currently offers a 457 supplemental retirement plan.
There is no representative with the existing company who can
assist our employees with investment decisions. The staff would
like to add another 457 plan and a Roth IRA plan. Employees
would then have a choice of plans as well as a financial services
representative to assist them in saving for retirement.
The staff would like direction as to the following:
a. Do you wish us to pursue this idea?
b. Which method of paying for administration do you prefer?
c. Permission to add the 457 Plan and the Roth IRA Plan.
d. What methodology of vendor selection do you wish to use?