HomeMy WebLinkAboutC-2951 - IRC (International Revenue Code) Section 125 Plan AdministrationCITY OF NEWPORT BEACH
PERSONNEL DEPARTMENT
Interdepartmental Memorandum .
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June 1, 1993 j
APPROVED h
TO: HONORABLE MAYOR AND MEMBERS OF THE CIT1
COUNCIL
FROM: Duane Munson, Personnel Director
SUBJECT: AWARD OF CONTRACT FOR IRC SECTION 125 PLAN
ADMINISTRATION
FACTS:
• 1. Internal Revenue Code Section 125 (Section 125) provides that certain
insurance premiums and out of pocket medical and child care expenses
may be made with pre -tax dollars on behalf of employees.
2. To accomplish this pre -tax payment, an employee must choose to reduce
his /her gross pay and have the employer make the payments to the
insurance company, or medical or child care provider.
3. Presently the City of Newport Beach has what is called a 'Premium Only
Plan", whereby employees may choose to reduce their income by an
amount necessary to pay the employee's share of medical and disability
insurance premiums.
4. As part of this year's MOUs with the employee associations, it was agreed
to expand the Section 125 plan to include reimbursements for out of
pocket medical and dependent care expenses.
• 5. Because of the complexity of an expanded Section 125 plan it was decided
to seek an expert administrator of such plans at little or no cost to the City.
Accordingly, an RFP was issued for plan administration.
6. Two replies to the RFP were received, one from AFLAC Insurance
Company, and one from Colonial Insurance Company. Colonial bid the
plan administration with BenefitsAmerica, a flexible benefits manager.
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AWARD OF CONTRACT - IRC SECTION 125 PLAN ADMINISTRATION
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• 7. It was decided that a committee made up of members from each
employee association would interview the administrators and make a
recommendation to the City Council as to which administrator to accept.
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8. To coincide with most employees tax year, the City has established a plan
year of January through December. Therefore, the first plan year will be
abbreviated and run from September 1, 1993 through December 31, 1993.
Thereafter all plan years will be 12 months.
9. To reduce the City's exposure for any reimbursed medical plans that may
be paid in excess of a members contribution, initially the City has chosen
to cap the annual medical reimbursement at $2,000. This cap will be
reviewed annually.
10. No revisions to the City's Municipal Code are required to expand this
plan.
DISCUSSION:
As indicated above, a committee made up of employee association members and
staff interviewed AFLAC and Colonial, to determine which administrator to
recommend to the City Council. Of importance to the committee were such
questions as: who would be responsible for plan administration, where are the
administration offices located, and how frequently would the administrator
remit checks to the employees.
Both administrators made very good presentations to the committee and the
choice of which one to accept was difficult. Ultimately, the one deciding factor
was the location of the administrator's office. AFLAC's local office is located in
Mission Viejo, while Colonial's local office is in Newport Beach. The proximity
of Colonial's office to the City employees was the deciding factor in choosing
Colonial.
• Neither company would charge the City or the employee an administration fee.
Colonial would charge $8.00 per year per participant for postage to mail the
checks to the employee's home. There would be no charge if the checks are
mailed to the City for distribution to the employee.
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AWARD OF CONTRACT - IRC SECTION 125 PLAN ADMINISTRATION
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• RECOMMENDATION:
That the City Council approve an agreement with Colonial Life Insurance
Company to administrate the plan for Dependent Care Reimbursement and
Medical Reimbursement. The 'Premium Only" portion of the IRC Section 125
plan will continue to be administered by City staff.
In addition, it is recommended that the City Council approve the attached
agreement between BenefitAmerica and the City for administration of the City's
flexible benefits plan.
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