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Council Communication

Title:	Resolution adopting a Premium Conversion Plan for employees and authorization for the Interim City Administrator to sign the Personal Choice Account Agreement.
Dept:	Administration
Date:	December 10, 2002
Submitted By:	Tina Gray, Administrative Services/HR Manager
Reviewed By: ...........................	Brian Almquist, Interim City Administrator

Synopsis:	The City has taken a proactive approach toward containment of employee benefit costs through an employee cost share. Beginning on January 1, 2003, all non-represented management employees and members of the International Brotherhood of Electrical Workers (IBEW) will pay 5% of their monthly health insurance premium. As labor negotiations ensue with the other bargaining units, the city will work toward attaining a similar cost-share arrangement. To make the cost share as palatable as possible to the affected employee groups, the city can offer a pre-tax program called the Personal Choice Account (PCA). The Personal Choice Account is an IRS-sanctioned program that provides a mechanism to allow the 5% contribution to be deducted from employee's gross wages before taxes are deducted. Employee participation in the pre-tax program is optional, but the 5% employee cost share is non-negotiable. Employees who opt to participate in the Personal Choice Account will benefit through pre-tax savings and less out-of-pocket cost for their health benefits.
Recommendation:	Staff recommends the Council adopt a resolution establishing a premium conversion plan for employees who are required to pay for a portion of their monthly health insurance premiums and authorize the Interim City Administrator to sign the Personal Choice Account Agreement.
Fiscal Impact:	The initial set-up cost for Administration of the plan is $300.00, and renewal each year thereafter is $150.00. Establishing this program will not result in any fiscal impact. In fact, the city will realize substantial cost savings in the first year, with just the Management and IBEW employees participating. In addition to the $27,667.80 that will be generated by the employee's 5% contributions to health insurance, the city will save an additional 8% in payroll taxes on the money that is taken out pre-tax for the employee's contribution. As other employee groups begin to pay a percentage of their health insurance, the savings to the city will increase.
Background:	It is anticipated that rising health insurance rates will be a central factor in future labor negotiations. By putting a pre-tax foundation in place, it softens the financial impact to the employee and puts the city on the path to current and future cost containment on health benefits.

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RESOLUTION NO. 2002-_______

A RESOLUTION OF THE CITY OF ASHLAND ADOPTING A PREMIUM CONVERSION PLAN FOR ITS EMPLOYEES

Recitals:

A. The governing body of the City of Ashland (City) finds and determines that it is in the interest of the City and the City's employees that the City offer an Internal Revenue Code Section 125 Premium Conversion Plan to its employees; and

B. The Premium Conversion Plan, set forth in Exhibit "A" (hereafter "the Plan") provides sufficient flexibility to permit employees of the City to select benefits that most suit their needs by providing a choice between cash wages and the option to set aside wages to cover premiums in order to cover their insurance contributions; and

C. The Plan as set forth will allow the employees and the City to establish a partnership to educate employees and their families about appropriate health care utilization and to share responsibility for health care.

THE CITY COUNCIL OF THE CITY OF ASHLAND, OREGON, RESOLVES:

SECTION 1. That the governing body of the City hereby adopts the Premium Conversion Plan attached hereto as Exhibit "A" and fully incorporated by reference.

SECTION 2. This resolution takes effect upon signing by the Mayor.

This resolution was read by title only in accordance with Ashland Municipal Code §2.04.090 duly PASSED and ADOPTED this _____ day of December, 2002.

ATTEST: Barbara Christensen, City Recorder

SIGNED and APPROVED this _____ day of December, 2002.  Alan W. DeBoer, Mayor

Reviewed as to form: Paul Nolte, City Attorney

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PERSONAL CHOICE ACCOUNT
ADMINISTRATION AGREEMENT

THIS AGREEMENT is made and entered into between Associated Administrators, Inc., ("AAI") and City of Ashland ("Employer").

RECITALS

A. Employer has adopted a salary reduction employee benefit plan which is intended to be a cafeteria plan under Section 125 of the Internal Revenue Code of 1986, as amended; and

B. Employer desires that AAI help administer the plan by providing Employer its package of services and materials collectively known as the "Personal Choice Account", as hereinafter set forth.

AGREEMENT

IN CONSIDERATION of the mutual covenants contained in this agreement, AAI and Employer agree as follows:

1. Spending Accounts. AAI agrees to provide administrative services for the following options (as checked) included in Employer's Personal Choice Account:

X Group Insurance Premium
    Dependent Care Spending Account
    Health Care Spending Account

2. Definitions.

a. The "Committee" is Employer's Employee Benefits Committee designated by Employer to be the Plan Administrator.
b. The "Plan" is Employer's Personal Choice Account Plan and the EBS Health Expense Layaway Plan for which AAI will provide services and materials specified by this Agreement and that agreement between EBS and Associated Administrators, Inc.
c. The "Initial Plan Year" commences on 01-01-03 and ends on 07-31-03.
d. A "Renewal Plan Year" is a twelve (12) month period which follows the Initial Plan Year or any Renewal Plan Year.
e. "Participant" is a non-represented employee, employee represented by IBEW, or the employee's eligible dependent who is enrolled for benefits available under the Employer's Personal Choice Account Plan.

3. Plan Installation Services. AAI will assist Employer in installing its Personal Choice Account by providing the following materials and services:

a. Provide for Employer's guidance a Model Plan Document and Employee Summary Plan Description.
b. Perform required Nondiscrimination Tests, inform Employer of the results and suggest methods for eliminating discrimination, both initially and later in the plan year if requested.

4. Enrollment and Plan Materials. AAI will provide sufficient quantities of the following for Employer's use:

a. Enrollment Affidavits;
b. Status Change Forms;

5. Administrative Services. AAI shall perform the following administrative services:

a. Provide a processing unit to give direct service to Participants;
b. Provide a toll-free telephone number for inquiries by Participants;
c. Accumulate basic statistics; and

6. Reports. Upon request AAI shall provide the following reports at a reasonable frequency within ten (10) days after the end of a period for which a report is due.

a. Employer Reports.

1) Account Summaries;
2) Annual Activity Analysis;
3) Activity Detail Listing;
4) Enrollment Confirmation Summary;

b. Participation Reports.

1) Enrollment Confirmation Statement;

7. Duties of the Employer.

a. Employer shall report to AAI all Participants who are to be added to or deleted from the Plan by the last day of the month in which the additions or deletions occur.
b. Employer shall provide for AAI all information necessary to perform its duties in accordance with this Agreement.

8. Fees.

a. In consideration of the services performed and the materials provided by AAI under this Agreement, Employer will pay AAI the following fees:

1) A Set-up Fee in the amount of $300.00 for the Initial Plan Year and a Renewal Fee in the amount of $150.00 for any Renewal Plan Year
1) For an increase of services caused by any Plan change or other change which materially affects the extent of AAI's obligations under this Agreement; or
2) For services and/or materials requested by Employer or the Committee which are in addition to those AAI is required to provide by this Agreement.

c. The Service Fee and Administration Fee may be amended at the start of any Renewal Plan Year upon sixty (60) days prior written notice by AAI to Employer.

9. Plan Approval.

a. AAI's performance of this agreement is subject to Employer adopting the Cafeteria Plan contained in the AAI Model Plan Document or adopting a Cafeteria Plan which has been approved by AAI and which has been attached to this agreement as Cafeteria Plan Company's Plan Document".
b. In the event that Employer shall adopt a Cafeteria Plan or amendments to its cafeteria plan which are not first approved by AAI, AAI shall have the right to immediately terminate this agreement upon written notice of termination to Employer or the Committee.

10. Commencement, Duration and Termination of Agreement.

a. This Agreement shall become effective on the first day of the Initial Plan Year and shall be automatically renewed from Renewal Plan Year-to-Renewal Plan Year until terminated, except as fees may be amended by endorsement by AAI or as is otherwise amended by written agreement of the parties.
b. This Agreement will terminate automatically and without further notice in the event Employer fails to pay AAI any fees due hereunder within fifteen (15) days after any fee due date. In addition, this Agreement will terminate on:

1) The date agreed to in writing by the parties
2) The last day of the Initial Plan Year or any Renewal Plan Year by either party giving written notice to the other party not less than thirty (30) days prior to the intended date of termination; or
3) As provided by paragraph 12b. of this agreement.

11. Services Past Termination. In the event this Agreement is terminated for other than nonpayment of fees or the adoption of an unapproved Cafeteria Plan and Employer desires to provide for an orderly transition without renewing this Agreement, Employer may arrange with AAI to provide continued services covered by this Agreement for a period not to exceed ninety (90) days beyond the termination date, provided that:

a. AAI agrees in writing with Employer to such continued provision of services for a fee acceptable to AAI; and
b. AAI's fee for continued services is paid by Employer.

12. Liability, Indemnity and Waiver.

a. The parties acknowledge that the legal and tax status of the Plan has been determined by Employer and the Committee based upon the advice of its own consultants, if any, and not by AAI.
b. The Employer and the Committee waive all claims against AAI for the expense, prosecution or defense of any legal action by or against the Employer or the Committee involving any dispute under the Plan.
c. Employer and the Committee shall indemnify and hold AAI, its officers, agents or employees, harmless against any and all loss, damage, interest, costs and expense, including attorney's fees, occasioned by demands or lawsuits brought against AAI for its performance of its duties hereunder, except those resulting from the negligent or wrongful acts or omissions of AAI, its agents, officers or employees.

13. General Provisions.

a. Non-Waiver. Failure by either party to enforce any provision of this Agreement shall not be a waiver of its right to enforce the provision at any other time.
b. Entire Agreement. This Agreement cancels, replaces and supersedes any and all previous agreements between the parties regarding the administration of the Plan and contains the entire understanding of the parties.
c. Modification. This Agreement may be modified only by written agreement of the parties.
d. Assignment. This agreement may be assigned only upon the written consent of the parties.
e. Governing Law and Venue. The rights and obligations of the parties under this Agreement shall be governed by the laws of the State of Oregon. Any action brought by either party to enforce any provision of this Agreement shall be filed and heard in Multnomah County, Oregon.

IN WITNESS WHEREOF, the undersigned parties have executed this Agreement in duplicate.

City of Ashland
By: ____________________________
Title: ___________________________
Date: __________________________

ASSOCIATED ADMINISTRATORS, INC.
By: ____________________________
Scott D. Haas
Date: November 21, 2002

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