HomeMy WebLinkAbout070720-06.4
ADMINISTRATIVE STAFF REPORT 6.4
TO: Mayor and Town Council July 7, 2020
SUBJECT: Resolution No. 52-2020, approving amendments to the Town’s Health
Care and Dependent Care Reimbursement Plans
BACKGROUND
As authorized by Section 125 of the Internal Revenue Code, the Town of Danville offers
its employees both a Health Care Reimbursement Plan and a Dependent Care
Reimbursement Plan. These plans allow employees to set aside portions of their salary
to pay for certain medical/dental and dependent care expenses on a pre-tax basis. Every
eligible employee makes an irrevocable decision in December determining the amounts
they would like withheld for the following calendar year. Federal law requires that any
amounts withheld are done so on a “use it or lose it” basis, meaning that if an employee
doesn’t spend everything they set aside, they forfeit those funds.
Both plans are administered by the Town’s Finance and Human Resources divisions. The
plans were last reviewed and amended by the Town Council in 2006.
DISCUSSION
In response to the COVID-19 pandemic, the Internal Revenue Service has authorized
employers to offer a series of one-time amendments to these Section 125 Reimbursement
Plans. These amendments (explained in more detail below) are intended to recognize
that employees may either have greater medical or dependent care costs than anticipated
or, in the alternative, may not have been able to receive the medical services or dependent
care services they anticipated and thus have over withheld.
The changes proposed (contained in Exhibit 1 to the resolution) are as follows:
• Each of the Plans has a “grace period” running through March 15. For calendar
year 2019, that meant that employees who had salary withheld in 2019 had until
March 15, 2020, to incur expenses and submit them for reimbursement using the
2019 funds. The first amendment allowed by the IRS extends that grace period
until December 31, 2020, thereby allowing employees more time and avoiding the
loss of those funds.
Amendments to Health Care and 2 July 7, 2020
Dependent Care Reimbursement Plans
• The second amendment allows those employees who were participating in the
Plans for 2020 to either increase or reduce their contributions for the remainder of
the year. The guidance from the IRS notes that due to the pandemic, employees
may have needed more medical care or more dependent care than they anticipated
last December or they may have used less and would be penalized by losing those
funds if they were unable to spend them by the end of the year.
Both of these amendments provide greater flexibility to the Town’s employees and do
not cost the Town anything, as these are the employees own funds.
PUBLIC CONTACT
Posting of the meeting agenda serves as notice to the general public. Affected employees
will be contacted to inform them of their options.
FISCAL IMPACT
None. All funds in the Plans come out of employee salaries.
RECOMMENDATION
Adopt Resolution No. 52-2020, approving amendments to the Town’s Health Care and
Dependent Care Reimbursement Plans.
Prepared by:
Lani Ha
Finance Manager/Treasurer
Reviewed by:
Jed Johnson
Administrative Services Director
Attachment: Resolution No. 52-2020
Exhibit 1 – Amendments to Health Care and Dependent Care
Reimbursement Plans
RESOLUTION NO. 52-2020
APPROVING AMENDMENTS TO THE TOWN’S HEALTH CARE
AND DEPENDENT CARE REIMBURSEMENT PLANS
WHEREAS, the Town of Danville offers its employees Health Care and Dependent
Care Reimbursement Plans pursuant to Section 125 of the Internal Revenue Code,
which allow employees to set aside portions of their salary to pay for medical and
dependent care on a pre-tax basis; and
WHEREAS, in response to the COVID-19 Pandemic, the Internal Revenue Service has
authorized employers with such Plans to make one-time amendments to allow
participating employees to adjust their contributions and expenditures for 2020; and
WHEREAS, the Town Council wishes to adopt such amendments to assist the Town’s
employees; now, therefore, be it
RESOLVED, that the Danville Town Council hereby approves the amendments to the
Town’s Health Care and Dependent Care Reimbursement Plans as provided in Exhibit
1, which is incorporated into this Resolution.
APPROVED by the Danville Town Council at a special meeting on July 7, 2020 by the
following vote:
AYES:
NOES:
ABSTAINED:
ABSENT:
______________________________
MAYOR
APPROVED AS TO FORM: ATTEST:
_______________________________ ______________________________
CITY ATTORNEY CITY CLERK
DocuSign Envelope ID: C7BE658E-7545-4ED4-A6F3-EA8284784A7A
EXHIBIT 1
AMENDMENTS TO TOWN OF DANVILLE
HEALTH CARE REIMBURSEMENT PLAN
The Town of Danville Health Care Reimbursement Plan (as amended and restated
effective January 1, 2006) is hereby amended as follows pursuant to Section 9.2 of the
Plan:
Section 1.10 Grace Period. With respect to a Member who is a Member in the Plan on
December 31 of any Plan Year beginning with the 2006 Plan Year, the fifteenth day of
the third calendar month after the end of the immediately preceding year. For the 2019
Plan year only, the grace period shall be extended to December 31, 2020, as provided for
in IRS Notice 2020-29.
Section 3.5 Irrevocability of Election by the Member.
(c) COVID-10 Permitted Changes for 2020. Pursuant to IRS Notice 2020-29,
Members may make the following elections to be effective only for Plan Year 2020:
(i) Any Member who elected to participate in the Plan for Plan Year
2020 at an amount less than the Plan maximum may increase their Contributions to the
maximum.
(ii) Any member who elected to participate in the Plan for Plan Year
2020 may prospectively reduce their Contributions for the remainder of the Plan Year,
provided however, that any such reduction must take into account any Medical
Expenses already reimbursed from the Plan.
DocuSign Envelope ID: C7BE658E-7545-4ED4-A6F3-EA8284784A7A
EXHIBIT 1
AMENDMENTS TO TOWN OF DANVILLE
DEPENDENT CARE REIMBURSEMENT PLAN
The Town of Danville Dependent Care Reimbursement Plan (as amended and restated
effective January 1, 2006) is hereby amended as follows pursuant to Section 8.2 of the
Plan:
Section 1.12 Grace Period. With respect to a Member who is a Member in the Plan on
December 31 of any Plan Year beginning with the 2006 Plan Year, the fifteenth day of
the third calendar month after the end of the immediately preceding year. For the 2019
Plan year only, the grace period shall be extended to December 31, 2020, as provided for
in IRS Notice 2020-29.
Section 3.5 Irrevocability of Election by the Member.
(e) COVID-10 Permitted Changes for 2020. Pursuant to IRS Notice 2020-29,
Members may make the following elections to be effective only for Plan Year 2020:
(i) Any Member who elected to participate in the Plan for Plan Year
2020 at an amount less than the Plan maximum may increase t heir Contributions to the
maximum.
(ii) Any member who elected to participate in the Plan for Plan Year
2020 may prospectively reduce their Contributions for the remainder of the Plan Year,
provided however, that any such reduction must take into account any Dependent Care
Expenses already reimbursed from the Plan.
DocuSign Envelope ID: C7BE658E-7545-4ED4-A6F3-EA8284784A7A