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December 6, 2022
ITEM TITLE
Employee Benefits: Adopt the 2023 Cafeteria Benefits Plan Reflecting Health Insurance and Voluntary Insurance Benefits for Eligible City Employees
Report Number: 22-0302
Location: No specific geographic location
Department: Human Resources
Environmental Notice: The activity is not a “Project” as defined under Section 15378 of the California Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
Recommended Action
Adopt a resolution adopting the City of Chula Vista Cafeteria Benefits Plan for 2023, including a description of available benefits, participation rules, election procedures, manner of contributions, the maximum amount of contributions, the plan year, and the plan’s provisions for complying with flexible spending arrangements (FSAs).
SUMMARY
The Internal Revenue Code requires that the Section 125 Cafeteria Benefits Plan offered by the City to its employees be in a written document and that the document be formally adopted by the City Council on or before the first day of the plan year. Staff is requesting Council’s approval to adopt the 2023 Cafeteria Benefits Plan document by resolution to fulfill the City’s obligation for the 2023 plan year.
ENVIRONMENTAL REVIEW
The activity is not a “Project” as defined under Section 15378 of the C alifornia Environmental Quality Act State Guidelines; therefore, pursuant to State Guidelines Section 15060(c)(3) no environmental review is required.
BOARD/COMMISSION/COMMITTEE RECOMMENDATION
Not applicable.
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DISCUSSION
In June 1998, the City established its first Section 125 Cafeteria Benefits Plan. In compliance with Internal Revenue Code §125(d) the City Council annually adopts a written plan document prior to the first day of the plan year. The first day of the Cit y’s plan year is January 1, 2023. This Cafeteria Plan Document is a written plan that describes how the City offers eligible employees certain benefits on a pretax basis (such as health insurance) while having the option to choose among at least one taxable benefit (such as cash). Having an approved written plan is critical under cafeteria plan regulations . Without a written Plan or if the written Plan does not comply with applicable requirements regarding content and timing of adoption, the Plan is not a Section 125 C afeteria Plan and employees’ benefit elections will be taxable. The City timed its open enrollment period in 2022 to comply with these regulations and to meet provider cutoff deadlines for enrollment which will ensure employees have benefits coverage without interr uption. The City’s Plan includes the following required information and incorporates all of the operating rules prescribed in Code §125 and the regulations thereunder.
Description of available benefits
Participation rules
Benefit election procedures
Plan Year
Manner of contributions
Maximum amount of contributions
Plan provisions for complying with flexible spending accounts (FSAs)
Specific health plans offered and their structure are not part of this Cafeteria Plan Document and instead defined in what is known as the Summary of Benefits and Coverage (SBC). Employees are provided the SBCs as part of open enrollment materials to assist them in making their benefits elections. The determination of the health plans available and their structure are based on an annual review after our broker, Marsh and McLennan Agency, LLC., extensively markets with benefit plan providers for coverage comparable to the prior year while keeping the increase in costs to the City and its benefited employees to a minimum . All employee groups are advised of the offers and the plan structures that will provide the least increase in premium costs.
Cafeteria Benefits Flex Allotments for unrepresented employees and elected officials are included in both the Cafeteria Plan Document and the Compensation Summary. Staff is requesting Council’s approval to adopt the 2023 Cafeteria Benefits Plan document by resolution to fulfill the City’s obligation for the 2023 plan year (Attachments 1-4).
DECISION-MAKER CONFLICT
Staff is not independently aware, and has not been informed by any City Council member, of any other fact that may constitute a basis for a decision-maker conflict of interest in this matter.
CURRENT-YEAR FISCAL IMPACT
2023 Cafeteria Benefits Plan
Staff a ssumed a 12.5% increase in medical premiums in the 2022/23 budget based on preliminary information from the City’s insurance brokers. The City spent $14.8 million in fiscal year 2021/22 on Cafeteria Plan benefits for all funds. In fiscal year 2022/23 based on current projection the City is anticipated to spend $18.7 million. As a result of the final health insurance premiums negotiated by the City’s broker for P a g e | 3
the 2023 Benefits Plan Year, anticipated vacancies, and changes in employee benefits selections th e City is expecting an overall savings of $704,272 in fiscal year 2022/23.
ONGOING FISCAL IMPACT
Flex Allotments are negotiated with the City’s bargaining groups. Unrepresented employees and elected officials also receive Flex Allotments. With the exception of Public Safety bargaining groups, the City shares the cost of medical insurance premium increase on a 50/50 basis. The 50/50 cost sharing formula utilizes the average cost increase of family premiums of non -indemnity health plans. Then to determin e the next plan year’s Flex Allotment, 50% of the average increase is added to the current year’s Flex Allotment amount.
For Public Safety bargaining groups, the City assumes the full cost of the medical premium increases. As a result of the negotiated pr emium changes for the 2023 Benefits Plan Year , the 2023 Flex Allotments are increasing by an annual amount of $504. This increase will not impact Flex Allotments for employees who waive medical insurance or elect Employee Only medical coverage since those amounts are capped at amounts specified in the Compensation Summary or Memorandum of Understanding.
The table below illustrates the Cafeteria Flex Allotments for the 2023 Plan Year. The impact to future budgets and the five -year financial forecast will d epend on the outcome of negotiations with the City’s bargaining groups and the changes in medical insurance premiums.
ATTACHMENTS
1. 2023 City of Chula Vista Cafeteria Benefits Plan Document
2. Exhibit A – 2023 Health Care & Dependent/Child Care Flexible Spending Accounts
3. Exhibit B – Hartford Voluntary Insurance Plan
4. Exhibit C – Employee Assistance Program (EAP)
Staff Contact: Courtney Chase, Director of Human Resources/Risk Management