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REQUEST FOR COUNCIL ACTION Date: 8/410 Item No.: IX 13� Department Approval Manager Reviewed Agenda Section + r . - tm, 111111 1111111111 XTrjWW i �.. ~ i ■ 4 is ■ it +f !! �• r r r ! r Back ground The Post retirement Health Care Savings plan is a City-sponsored program that requires qualifying employees to set aside money tax -free for those health and dental insurance premiums and out of pocket expenses that employees will incur after tennination of employment. Honey is deposited into various provided investment options chosen by the employee. Assets in the account will accumulate tax -free and payouts for approved medical and dental expenses will be paid tax- free. It is primarily intended to provide a source of non - taxable funds to a former employee, subsequent to the end of City employment, for the pose of paying for eligible health care expenses. with the rising costs of such expenses this plan will help to allow employee to better manage these expenses during years when they may be on a fixed income* On July 15, 2002, the IRS ruled on the favorable tax treatment for Health Reimbursement Accounts in notice 00-45. Of 24 Stanton V Cities surveyed, 7 are currently offering this plan benefit. In addition, the City is aware of its ability to establish an associated funding vehicle (e.g., trust) for the pose of providing funds for reimbursement. It is presently understood that the IRS recognizes Health. Reimbursement Accounts with the following characteristics: Employer funded, including but not limited to employer f coding determined through collective bargaining. Such employer finding includes conversion of other employer funds (e.g., sick leave, severance, early retirement subsidies) and mandatory employee contributions through salary reduction. . Employer contributions are not taxable under Section 106 of the Code. Reimbursements made to the employee are not taxable under Section 105 of the Code, provided certain requirements are met including but not limited to reimbursement is limited to qualified medical expenses and applicable nondiscrimination requirements are satisfied. It is further understood that the IRS recognizes associate investment vehicles with the following characteristics: Funds may be invested on behalf of the employee with no tax on the investment Meld.