Agenda Item
City Council
Item #: 7.2. 2/14/2023 File #: 23-0089
TO: Honorable Mayor and Members of the City Council
THRU: Tom Kisela, Interim City Manager
FROM: Monica Espinoza, Human Resources Director
1. SUBJECT
A follow-up report on healthcare and retirement benefit options for elected City Councilmembers.
2. SUMMARY
Additional analysis on healthcare and retirement benefit options for elected City Councilmembers, and an assessment of permissible options for Councilmembers.
3. RECOMMENDED ACTION
Provide direction to staff regarding healthcare and retirement benefits for elected City Councilmembers and direct staff to incorporate any decisions into a future Orange Municipal Code (OMC) Ordinance amendment, California Public Employees’Retirement System (CalPERS) contract amendment, and a Section 125 premium only plan document, if applicable.
4. FISCAL IMPACT
The total expenditure for this proposal is estimated at $96,500 per year and will be funded through General Fund (100). Cost may be less based on the number of Councilmembers who elect to decline healthcare and retirement benefit(s). The costing projections for both employer and employee are attached.
5. STRATEGIC PLAN GOALS
Goal 2: Be a fiscally healthy community
a: Expend fiscal resources responsibly.
Goal 4: Provide outstanding public service
e: Attract, retain and develop quality employees dedicated to public service.
6. DISCUSSION AND BACKGROUND
At the January 23rd special meeting of the City Council, staff presented options that included Health Benefits, Life Insurance, and Pension/Retirement. Staff requested additional time to further research details of the City’sSection 125 Employer Cafeteria Plan. Details of the analysis and findings are included for Council consideration:
Health Benefits
In a Section 125 Cafeteria Plan, employees must be permitted to choose among at least one taxable benefit and one qualified benefit. Within the City’sEmployer plan, the only taxable benefit that is City of Orange Printed on 2/9/2023Page 1 of 2
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Item #: 7.2. 2/14/2023 File #: 23-0089
benefit and one qualified benefit. Within the City’sEmployer plan, the only taxable benefit that is available is a taxable waiver or “cash in lieu” amount for benefitted employees who waive medical insurance or do not use their entire monthly health benefits allotment.
Government Code 36516(a)(2)(D) which sets the maximum compensation of $600 payable to Councilmembers precludes receiving any “cash in lieu” benefit and the Internal Revenue Code Section 125(d)(2)(A) precludes any deferred compensation option. As such, neither payment of a waiver amount as “cashin lieu”nor placement of the waiver amount into deferred compensation for Councilmembers is permissible.
It is permissible, however, for Council to elect to offer healthcare benefits to Councilmembers on a premium only plan basis. This is allowed under both the Government Code and the Internal Revenue Code. Offering health benefits to Councilmembers on a premium only basis could entail covering the full cost of single-party health benefits of any combination of medical, dental, and/or vision as selected by Councilmembers, with no option of a taxable waiver or “cash in lieu” amount.
Pension/Retirement Plan
At the January 23rd special meeting of the City Council, staff noted Council’s desire to pursue CalPERS membership for City Councilmembers, which is a defined benefit plan that would exempt City Councilmembers from mandatory Federal Insurance Contributions Act (FICA) tax.
To restate CalPERS membership costing information, Councilmembers who elect to receive the $600 per month compensation would be required to pay the CalPERS employee contribution amount based on their membership status (i.e., Classic members or New members), currently 8% or 6.75% respectively. For Councilmembers receiving the $600 per month compensation, this would amount to a $48.00 monthly paycheck deduction for Classic CalPERS members, or a $40.50 monthly deduction for New CalPERS members. The CalPERS employer contribution amount per Councilmember would be 11.53%, which amounts to $69.17 per month per Councilmember to be paid for by the City. These CalPERS percentages and costs are subject to change each fiscal year. To confirm, Councilmembers who waive the $600 per month compensation would not gain CalPERS membership.
Pursuant to Council direction, city staff may need to amend the OMC, the City’semployer contract with CalPERS, and create a Section 125 premium only plan document. Following these amendments, staff’s recommendation is to incorporate the agreed upon terms into a future independent Resolution for City Council.
7. ATTACHMENTS
· 2023 Monthly Premium Rates
· Council Benefits Costing Projections
City of Orange Printed on 2/9/2023Page 2 of 2
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