HomeMy WebLinkAbout13-004 Flexible Spending Account Salary Reduction Resolution 13-004
Allowing AWC-Insured Employees Flexible Spending Account
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RESOLUTION NO. 13-004
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF PORT TOWNSEND,
WASHINGTON PROVIDING A FLEXIBLE SPENDING ACCOUNT SALARY
REDUCTION OPTION FOR AWC-INSURED EMPLOYEES
RECITALS:
A. This matter comes before Council to take action on the recommendation of the City
Manager that provides full time non-represented City employees an option that reduces a
portion of their taxable salary and directs it into a"flexible spending account" (FSA).
B. The election allows this group of employees to have 5% of their medical insurance
premium co-pay directed into FSA. The FSA can only be used to pay for uninsured
medical expenses (for example, insurance deductibles or items not covered by insurance)
and/or dependent care coverage.
C. The average value of this election to the employee group is $820/year or$70/month
(rounded). (Different employees pay different co-pays depending on number of
dependents.)
D. Federal law provides for"cafeteria"benefit plans as a way for employees to use pre-tax
earnings to pay for uninsured medical expenses and dependent care expenses (FSAs) and
to pay insurance premiums. (The plans are called "section 1245 plans" after the section
of the IRS code or"cafeteria plans"because the plans allow for different elections.)
These plans allow employees the benefit of reducing taxes. If the employee's tax rate is
15%, and he or she pays $1,000 of uninsured medical expense with pre-tax dollars
through an FSA, this reduces his or her federal taxes by$150. This is somewhat offset by
the fact that the amount paid with pretax dollars is not considered taxable income, and not
included in Social Security earnings so would reduce retirement income.
E. The concept of cafeteria plans is that, with more of the cost of health care for both public
and private entities being shifted to employees, the company or public agency can offer
the plan as a benefit to give employees the option of saving on taxes, and covering—with
pretax dollars—insurance premiums, deductibles, co-pays, and other uninsured medical
expenses. The City has established an FSA plan for all employees. (Represented
employees are currently limited to electing to pay insurance premiums only with pre-tax
dollars; future bargaining could allow further benefits as part of a new contract.)
F. The City Manager's proposal is based on:
1. Non-represented employees
a. Have not seen any increase in salary or benefits since 2008 (unlike represented
employees).
b. Now pay a greater percentage of total insurance premium costs (15% instead of
10%), in addition to overall increased premium costs.
Resolution 13-004
Allowing AWC-Insured Employees Flexible Spending Account
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c. Have reduced benefits under the current medical plan(higher deductible).
d. Face increased payroll taxes with the resumption of full payroll taxes in 2013.
2. The City should encourage employees to set up personal medical savings accounts
because it makes it more likely the employee will use the monies that he or she sets
aside to stay healthy. (Employees can contribute additional pre-tax amounts into an
FSA beyond the 5% salary reduction.)
3. A similar plan could be negotiated with represented employees, resulting in savings to
the City—employees bargain to accept less or give back in other areas to gain the
benefit).
4. The City has realized savings in medical premiums from employee efforts. Though
the wellness committee and employee participation in health surveys and activities,
the City has saved 2% of the total cost of insurance for all employees, or
approximately$12,000.
5. The program—which encourages participation in FSAs—helps maintain the City in
the reduced premium category for future health insurance premiums.
6. The cost to the City if 100% of non-represented employees participate (this is not
likely) is about $17,000. After deducting for the 2%premium reduction, this nets out
to $5,000, which will be offset by the reduction in the City's contribution to FICA
(social security tax).
G. For the reasons set forth, the City Council determines it appropriate to adopt the plan
recommended by the City Manager.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of Port
Townsend as follows:
1. The City Manager is authorized to provide for the program as outlined in the Recitals.
2. The City Manager is authorized to incorporate the program into the Personnel Policies
Manual.
ADOPTED by the City Council of the City of P rt Townsend at a regular
meeting thereof. held this 4th day of February 2013.
r
Davi King, Mayor
A Approved as to form:
Pamela Kolacy, MMC John P. Watts
City Clerk City Attorney