HomeMy WebLinkAbout20101206 - VI-08
City Council Memorandum
To: Mayor Hicks & City Councilmembers
From: Melanie Mesko Lee, Assistant City Administrator
Date: December 1, 2010
Item: Flexible Spending Account Plan Amendment
Council Action Requested:
Approve amendments to the City's Flexible Spending Account Plan Documentation, expanding
the definition of Plan Administrator
Background Information:
The City's Flexible Spending Account Plan document defines the City as Plan Administrator, and
defines that reimbursement through this program will be done by payroll. Effective January 1,
2011, this reimbursement process will be performed by SelectAccount, the same agency that has
administered the City's HRA administration for the last several years. Therefore, changes to the
plan documentation are needed to be consistent with the process that will be in place as of
January 1, 2011.
This change is being made to take advantage of services currently available through Select
Account administration as well as ensuring compliance with ever changing federal rules and
regulations regarding these accounts. Additionally, this change will allow participating
employees the opportunity to obtain a debit card to pay for eligible expenses
Financial Impact:
None.
Advisory Commission Discussion:
N/A
Council Committee Discussion:
N/A
Attachments:
FSA Plan Document
The City of Hastings
Flexible Compensation Plan
Effective Date: August 1, 2008
Approved by the Hastings City Council
July 21, 2008
Amended by Hastings City Council
Dependent Care Spending Grace Period (November 17, 2008)
Part-time employee eligibility (January 4, 2010)
Authorizing Select Account to act as administrator for plan (December 6, 2010)
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Table of Contents
1. The Plan
…………………………………………………………………………………...3
2. Definitions
………………………………………………………………………………....3
3. Participation
……………………………………………………………………………....4
4. Salary Redirection/Allocation
……………………………………………………………5
5. Flexible Benefit Account
…………………………………………………………………5
6. Health Care Flexible Spending Account
………………………………………………...6
7. Dependent Care Flexible Spending Account
…………………………………………....7
8. Claims
……………………………………………………………………………………..7
9. Plan Administration
…………………………………………………………………….10
10. Miscellaneous Provisions
………………………………………………………………..11
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The Plan
1.
Establishment
a.
The City of Hastings has established a flexible compensation plan for eligible employees.
This plan document amends and restates the Plan effective August 1, 2008
Purpose
b.
The purpose of the plan is to provide Employees with a choice to set aside a portion of his/her
earnings to pay for qualified expenses for medical care benefits, dependent care benefits, and
coverage under the group medical plan maintained by the Employer.
Legal Status
c.
The Plan is intended to qualify as a cafeteria plan under Section 125 of the Internal Revenue
Code, as amended and is to be interpreted in a manner consistent with the requirements of
Section 125. The employer will take whatever steps are necessary to maintain the Plan as non-
discriminatory as defined in IRC Section 125. Under IRC Section 105, this Plan is also
intended to qualify as an uninsured medical reimbursement Plan, to the extent that Participants
use salary reduction to pay for non-insurance health expenses, and is intended to qualify as an
insured medical reimbursement Plan, to the extent that Participants use salary reduction to pay
for Employer-sponsored group insurance premiums. In addition, the Plan is intended to
qualify as a dependent care assistance plan under IRC Section 129.
Definitions
2.
The following words appearing in the Plan have the meanings set forth below, unless the context
clearly denotes otherwise:
a. “Compensation” means an employee’s total salary, wages, incentive pay, overtime pay,
bonuses, and other cash compensation before any salary redirection/allocation under this Plan
or any other plan; but excluding expense reimbursements, severance pay, contributions to a
qualified or non-qualified retirement or other deferred compensation plan, and any non-cash
compensation.
b. “Dependent” means an individual who qualifies as a dependent under IRC Section 152.
c. “Dependent Care Flexible Spending Account (DCFSA)” means the amount of expenses paid
by a Participant for household or dependent care services for the care of a Dependent under the
age of thirteen (13) or of a Dependent or spouse of the Participant physically or mentally
incapable of caring for himself/herself, to the extent that such expenses are incurred to enable
the Participant to be gainfully employed.
d. “Effective Date” means November 1, 1993, as amended and restated on January 1, 1997, and
as amended and restated on August 1, 2008 and other dates as adopted by the City Council of
the City of Hastings.
e. “Employee” is a regular full-time or part-time employee of the City, as defined by the City’s
Employee Handbook.
f. “Employer” is the City of Hastings.
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”
g. “Grace Periodmeans a period of 2 ½ months following the end of each plan year whereby
participants can continue to use allocated funds from the previous plan year for eligible health
expenses and still receive reimbursement.
h. “Health Care” means the amount paid for medical care as defined in the IRC Section 213(d)(l).
i. “Highly Compensated Employee” means any Employee who is:
i. an officer;
ii. A shareholder owning more than five percent of the stock of the Employer;
iii. Among the highest paid 25% of all employees; or
iv. Highly compensated as determined by the IRS
j. “Code” means the Internal Revenue Code of 1986, as amended.
k. “Participant” means an eligible employee who satisfies the plan participation requirements.
l. “Plan” means the Flexible Compensation Plan.
m. “Plan Administrator” is the person, outside company and/or Department appointed by the City
to administer and manage the Plan and its assets for the exclusive benefit of the Participants.
n. “Plan Sponsor” is the City of Hastings.
o. “Plan Year” begins on January 1 and end on the next following December 31. In the case of a
newly hired employee, the employee’s initial Plan Year is the period beginning on the date the
employee is first eligible to participate and ending on the following December 31.
p. “Salary Redirection/Allocation” means the Participant’s designation of compensation to
his/her Flexible Benefit Account, Health Care Spending Account, Dependent Care Spending
Account, or to any combination of these accounts.
3. Participation
Eligibility.
a.
A regular, full-time employee is eligible to participate in any component of the Flexible
Compensation Plan as of the first of the month coinciding with or next following 30 days of
continuous employment. An employee must meet the participation requirements for the
Employer-sponsored medical plan to be able to redirect compensation for any premium for
such plan.
Participation in Flexible Benefit Account.
b.
Each eligible employee will be automatically enrolled in the plan to redirect the compensation
necessary to pay for the Employee’s share of the premium for any Employer-sponsored
medical coverage. An employee may waive participation in the plan by submitting a
completed waiver prior to the date he/she is eligible to participate.
Application to Participate in Spending Accounts.
c.
To enroll, each eligible employee must affirmatively elect participation in the Plan prior to the
date he/she is eligible to participate and each subsequent plan year. Such election will
designate the annual election to be redirected to the Participant’s HCFSA and/or DCFSA. If
an Employee does not affirmatively elect an annual salary redirection, he/she will not become
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a participant in the HCSFA or DCFSA until the first day of the next plan year following
affirmative election or unless application is made as a result of a qualifying change in family
status.
4. Salary Redirection/Allocation
Qualifying Events
a.
Subject to plan limits, a participant may affirmatively allocate a portion of his/her
compensation to be redirected to the Employee’s Flexible Benefit Account, Health Care
Flexible Spending Account and/or Dependent Care Flexible Spending Account each plan year.
Such designation must be made during the designated enrollment period and/or eligibility
period. An allocation designation for any given plan year cannot be changed or revoked once
the plan year has begun, with the following exceptions:
i. A change in marital status, such as marriage, death of a spouse, divorce, legal
separation or annulment,
ii. Change in the covered employee’s number of dependents, such as by birth,
adoption, death, or placement for adoption,
iii. Change in the covered employees employment status that alters the employee’s
eligibility for medical coverage;
iv. A significant change in the coverage of a spouse or dependent under a plan of the
spouse or dependent;
v. Any other qualifying events as defined by IRS rulings.
Notification
b.
A Participant must make any new election within 30 days of the qualifying event. Any such
change will be effective no earlier than the first pay period beginning after the election form is
completed and returned to the Plan Administrator.
Allocation Reduction
c.
A Participant may not reduce an annual salary allocation for a Health Care Flexible Spending
Account or Dependent Care Flexible Spending Account to a point where the total yearly
allocation would be below the amount already reimbursed in that year.
Additional Limitations
d.
i. No redirection will be allowed under this Plan for any insurance coverage premiums
that are not sponsored by the Employer.
ii. Minimum contribution will be $10 per pay period.
5. Flexible Benefit Account
Establishment
a.
Each eligible employee will have a Flexible Benefit Account established, which will be
increased by the amount of the Participant’s redirected compensation necessary to pay
premiums for eligible group medical coverage offered by the City. The redirection cannot
exceed the amount necessary to pay premiums for eligible group medical coverage.
Separate Written Plan
b.
For purposes of the Code, this section will constitute a separate written plan providing for
redirection of employee premium contributions for eligible group plans. To the extent
necessary, other provisions of the Plan are incorporated by reference in this Section 5.
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6. Health Care Flexible Spending Account
Establishment
a.
Each eligible employee will have a Health Care Flexible Spending Account established, which
will be increased by the amount of the Participant’s affirmative election for that plan year.
Maximum Annual Allocation.
b.
A Participant may elect up to a maximum of $3,000 to the HCFSA per plan year.
Eligible Reimbursements
c.
Upon election, a participant will be entitled to be reimbursed for eligible health care expenses
incurred by the participant or eligible Dependents, up to the participant’s annual allocation
election, and provided the Health Care expense was:
i. incurred after the Employee became a Participant in the Plan;
ii. incurred within the current Plan Year;
iii. not in excess of the amount elected for the current plan year; and
iv. eligible under provisions specified
Claim Reimbursement
d.
Eligible expenses will be reimbursed through payroll if the plan is administered by City staff;
or reimbursed through direct deposit or separate check if the plan is administered by an
authorized company performing such functions. Appropriate documentation must be
submitted for claims to be processed. Appropriate documentation will include at least the
following:, on a form provided by the City, provided the following is submitted in a timely
manner:
i. Written evidence from an independent third party stating the services rendered and
the costs incurred;
ii. The employee’s certification that the claimed expenses are eligible for
reimbursement under the definitions of the plan;
iii. Any other documentation the Plan Administrator may deem necessary.
Verification
e.
The City of Hastings Plan Administrator reserves the right to verify all claimed expenses prior
to reimbursement and to reimburse only those amounts that are determined to be Eligible
Health Care Expenses.
PaidClaims
f.
Claims will be paid for eligible health care expenses incurred up to the full annual elected
amount, without regard to the amount of contributions made through the date of
reimbursement
Health Care Limits
g.
No benefits will be paid under this Plan:
i. for expenses reimbursed under any insurance policy, or any other plan of
reimbursement for health care expenses;
ii. in an amount greater than the total amount of a Participant’s allocation for that plan
year;
iii. for any premium for health or life insurance plans;
iv. for claims submitted more than 90 days after the end of the plan year’s grace period
in which the claims were incurred.
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Forfeitures
h.
If the total eligible expenses incurred and reimbursed during a plan year are less than the total
allocation, the remaining unused balance will be forfeited and retained by the Employer.
Grace Period
i.
The HCFSA will have a grace period whereby participants can continue to use allocated funds
from the previous plan year for eligible health expenses and still receive reimbursement period
for a period of up to 2 ½ months following the end of each plan year. The plan year is from
January 1-December 31; if allocated funds are not exhausted by December 31 of one plan
year, participants can use the balance of allocated funds through March 15 of the following
year without penalty.
Separation of Employment
j.
If a Participant separates employment, participation in the Health Care Flexible Spending
Account component of the Plan will end. The Employer Plan Administrator will continue to
reimburse the Participant, or his/her spouse or dependents if the Participant dies, for any
remaining eligible Health Care expenses incurred prior to the Participant’s separation, to the
extent that sufficient funds exist in the Participant’s Health Care Spending Account. A
Participant who has separated employment with the Employer may continue participation in
the Plan by making monthly after-tax contributions or contributing the remaining balance of
his/her annual election from his/her last paycheck(s) on a pre-tax basis. If that is done, the
City Plan Administrator will continue to reimburse the Participant, or his/her spouse of
dependents if the Employee dies, for any remaining eligible Health Care expenses incurred
prior to the Participant’s separation, or prior to the end of the current Plan Year if after-tax of
pre-tax monthly contributions are made, to the extent sufficient funds exist in the Participant’s
Health Care Spending Account.
Continuation
k.
If a Participant’s eligibility under the plan ends due to a reduction of hours of employment or
termination of employment for reasons other than the Participant’s gross misconduct,
continued participation in the Health Care Spending Account portion of the Plan is available
under state and federal law. The City’s medical plan booklet describes relevant eligibility
provisions, notification requirements, and length of participation.
Separate Written Plan.
l.
For purposes of the code, this section will constitute a separate written plan providing for
reimbursement of Health Care expenses. To the extent necessary, other provisions of the Plan
are incorporated by reference in this section.
7. Dependent Care Flexible Spending Account
Establishment
a.
Each eligible employee will have a Dependent Care Flexible Spending Account established,
which will be increased by the amount of the Participant’s affirmative election for that plan
year.
Maximum Annual Allocation
b.
A Participant will be limited in the amount of Compensation that may be redirected to his/her
Dependent Care Spending Account to a maximum of $5,000 per Plan Year.
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Eligible Reimbursements
c.
Upon election, a participant will be entitled to be reimbursed for eligible dependent care
expenses incurred by the participant or his/her spouse, up to the participant’s annual allocation
election, and provided the Dependent Care expense was:
i. incurred after the Employee became a Participant in the Plan;
ii. incurred within the current Plan Year;
iii. not in excess of the amount elected for the current plan year; and
iv. eligible under provisions specified.
Claim Reimbursement
d.
Eligible expenses will be reimbursed through payroll if the plan is administered by City staff;
or reimbursed through direct deposit or separate check if the plan is administered by an
authorized company performing such functions. Appropriate documentation must be
submitted for claims to be processed. Appropriate documentation will include at least the
following:,, on a form provided by the City, provided the following is submitted in a timely
manner:
i. the Qualifying Dependent(s) for whom the Eligible Dependent Care Expenses were
incurred;
ii. information necessary to substantiate that the dependent or dependents are
Qualifying Dependent(s), such as the age of the dependent or a statement as to the
physical or mental capacity of the dependent;
iii. written evidence from an independent third party stating that the expenses have been
incurred, a description of the services and where the services were performed, the
amount of the expense;
iv. the relationship to the Covered Employee, if any, of the person performing the
services;
v. if the services are to be performed in a dependent care center, a statement that the
dependent care center meets the requirements of Code Section 21.
Verification
e.
The City of Hastings Plan Administrator reserves the right to verify all claimed expenses prior
to reimbursement and to reimburse only those amounts that are determined to be Eligible
Dependent Care Expenses.
ClaimsPaid
f.
Claims will be paid for eligible dependent care expenses incurred up to the full annual elected
amount, not in excess of without regard to the amount of contributions made through the date
of reimbursement.
Dependent Care Limits
g.
No benefits will be paid:
i. in an amount greater than the total amount of a Participant’s allocation for that plan
year;
ii. for claims submitted more than 90 days after the end of the plan year’s grace period
in which the claims were incurred.
iii. in an amount greater than the Participant’s Compensation in any calendar year. If
the Participant is married, Dependent Care benefits also cannot be greater than the
earned income of the spouse.
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Forfeitures
h.
If the total eligible expenses incurred and reimbursed during a plan year are less than the total
allocation, the remaining unused balance will be forfeited and retained by the Employer.
Grace Period
i.
The DCFSA will have a grace period whereby participants can continue to use allocated funds
from the previous plan year for eligible health expenses and still receive reimbursement period
for a period of up to 2 ½ months following the end of each plan year. The plan year is from
January 1-December 31; if allocated funds are not exhausted by December 31 of one plan
year, participants can use the balance of allocated funds through March 15 of the following
year without penalty.
Separation of Employment
j.
If a Participant separates employment, participation in the Dependent Care Flexible Spending
Account component of the Plan will continue until the end of the current plan year. The
Employer Plan Administrator will continue to reimburse the Participant, for any remaining
eligible Dependent Care expenses incurred prior to the Participant’s separation, to the extent
that sufficient funds exist in the Participant’s Dependent Care Spending Account.
Spouse Attending School Full-Time or Incapable of Self-Care.
k.
If a Participant’s spouse is a full-time student or is incapable of taking care of himself or
herself, the spouse will be regarded as having income of $200 per month if there is one
dependent, or $400 per month if there are two or more dependents, for each month that the
spouse qualifies for this exception.
Separate Written Plan.
l.
For purposes of the IRC, this Section 7 will constitute a separate written plan providing for the
reimbursement of Dependent Care expenses. To the extent necessary, other provisions of the
Plan are incorporated by reference in this Section.
8. Claims
FilingClaims
a.
If a participant has a claim for any benefits under this Plan, a claim must be filed on a form
provided by the Plan Administrator. If a participant fails for file a claim, the Plan Sponsor
shall not be required to take further steps to secure the Participant’s potential benefits under
the Plan.
Claims Denial
b.
The Plan Administrator will make all determinations as to the right of any person to the
payment of a claim for benefits in compliance with federal regulations. Employees may file
an appeal in accordance with the appeal process below, if the plan is administered by City
Staff. If the plan is administered by an outside company, employees must first file an appeal
with the outside company acting as the Plan Administrator.
Plan Administered by City Staff
Any denial by the Plan Administrator of the claim for benefits by a Participant will be stated in
writing by the Plan Administrator and delivered or mailed to the Participant. Such notice will
set forth the specific reasons for the denial, written to the best of the Plan Administrator’s
ability, in a manner that may be understood without legal counsel. Such notice will be given
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within 90 days after the claim is received by the Plan Administrator. If notification is not
given within this period, the claim will be considered denied as of the last day of the period,
and the Participant may request a review of the claim.
Petition for Review
c.
If a person deemed not eligible, or if a person believes that he/she is entitled to greater or
different benefits, he/she will have the opportunity to have his/her claim reviewed by the Plan
Administrator by filing a petition for review with the Plan Administrator within sixty (60)
days after receipt by him/her of the notice issued by the Plan Administrator. The petition will
state the specific reasons the person believes he/she is entitled to benefits, or greater or
different benefits.
Petition Response
d.
Within sixty (60) days after receipt of the petition, the Plan Administrator will allow the
person (and his/her counsel, if any) a hearing to present his/her position to the Plan
Administrator orally or in writing. The person or his/her counsel will have the right to review
pertinent documents. Within thirty (30) days after the hearing, or after the date the
Administrator receives the written petition for review (if a hearing is waived), the person will
be notified in writing of the final decision.
9. Plan Administration
Compliance
a.
The City of Hastings determines who will act as the Plan Administrator. The Plan
Administrator has the duty to ensure compliance with plan implementation and administration.
As the Plan Sponsor, the City of Hastings has all the powers necessary to administer and/or to
delegate all aspects for successful administration of the plan, including, The Plan
Administrator has all powers necessary to administer the Plan, including, without limitation,
powers:
i. to construe and interpret the Plan, decide all questions of eligibility, and determine
the amount, manner, and time of payment of any benefits.
ii. to prescribe uniform procedures to be followed by Participants in making elections,
filing applications for benefits, and other tasks necessary to properly administer the
Plan;
iii. to prepare and distribute information explaining the Plan;
iv. to receive from Participants all information necessary for the proper administration
of the Plan;
v. to prepare and file reports and returns for the Plan as required under applicable law;
vi. to receive, review, and keep on file (in compliance with records retention
requirements) reports of benefit payments by the Employer and reports of
disbursements for expenses; and
vii. to appoint experts, including actuaries, accountants, consultants, and legal counsel,
to assist in the administration of the Plan, to perform services required by regulatory
bodies, and to render advice upon request regarding matters arising under the Plan.
Annual Statement of Benefits
b.
The Employer will provide to each Participant, on or before January 31 of each calendar year
and on the IRS W-2 form, a statement of all salary redirection amounts during the prior plan
year.
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Right of Interpretation.
c.
All determinations, interpretations, rules, and decisions of the Plan Administrator will be
conclusive and binding upon all persons having or claiming to have any interest of right under
the Plan.
Examination of Records.
d.
The Plan Administrator will make records available to Participants for examination at
reasonable times during normal business hours.
Nondiscrimination.
e.
Whenever any discretionary action is required of the Plan Administrator, the Plan
Administrator will exercise its authority in a nondiscriminatory manner so that all persons
similarly situated will receive substantially the same treatment.
10. Miscellaneous Provisions
Amendments
a.
The Plan Sponsor reserves the right at any time and from time to time, and retroactively if
deemed necessary or appropriate to meet the requirements of Code Sections 105, 125 and/or
129, to modify or amend in whole or in part any or all of the provisions of the Plan by
execution of a resolution to that effect. Any such amendment will be filed with the Plan
documents.
Applicable Law.
b.
The Plan will be governed by the laws of the State of Minnesota, except to the extent that such
laws are preempted by the laws of the United States of America.
Finances.
c.
The costs of the Plan will be borne by the Plan Sponsor. For purposes of this Plan, annual
allocations will be deemed contributions by the Employer.
Non-Alienation.
d.
No benefit payable at any time under this Plan will be subject in any manner to alienation,
sale, transfer, assignment, pledge, attachment, or encumbrance of any kind.
Non-Guarantee of Employment.
e.
Nothing contained in this Plan will be construed as a contract of employment between the
Employer and any Employee, or as a right of any Employee to continue working for the
Employer, or as a limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
Plan Termination.
f.
While the Plan Sponsor intends to continue the Plan indefinitely, it assumes no contractual
obligation as to its continuance and the Plan Sponsor may terminate the Plan at any time
through a resolution by the City Council to that effect. Neither the Employer, nor any of its
Employees, will have any further financial obligation after the Plan termination, except such
that have accrued up to the date of termination and have not been satisfied.
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