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1996-001-Adopting Amended Cafeteria Plan, Plan For Town Employees And Approving Summary Plan DescriptionsRESOLUTION 1996 - i RESOLUTION OF THE TOWN OF LOS GATOS ADOPTING AMENDED CAFETERIA PLAN (IRC SECTION 125) PLAN FOR TOWN EMPLOYEES AND APPROVING SUMMARY PLAN DESCRIPTIONS WHEREAS, the Town of Los Gatos has adopted a Cafeteria Plan under Internal Revenue Code Section 125 to provide medical reimbursement, health insurance, and dependent care reimbursement benefits to Town employees; and WHEREAS, the Plan needs to be updated and clarified to ensure proper administration, RESOLVED, by the Town Council of the Town of Los Gatos, County of Santa Clara, State of California, that the Town of Los Gatos adopts the amended Cafeteria Plan attached hereto as Exhibit A, and the Town Manager is authorized and directed to execute the Adoption Agreement by and on behalf of the Town. BE IT FURTHER RESOLVED that the Summary Plan Description attached hereto as Exhibit B is approved. PASSED AND ADOPTED at a regular meeting of the Town Council of the Town of Los Gatos, California, held on the 16th day of January, 1996 by the following vote: COUNCIL MEMBERS: AYES: Joanne Benjamin, Steven Blanton, Linda Lubeck, Patrick O'Laughlin Mayor Randy Attaway NAYS: None ABSENT: None ABSTAIN: None SIGNED: —` MAYOR THE TO OF LOS GATOS LOS GATOS, CALIF IA ATTEST: CLERK OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA TOWN CLERK 4GR: �L 49-3 IHH:� RECW_Z r BID: LIMITATION OF LEGAL LIABILITY The Employer or Sponsor of this Plan understands and agrees that HICKS & COMPANY is in no way liable for the legal and tax aspects of this Plan. Full legal and tax responsibility is assumed by the undersigned Organization establishing this Plan, which acknowledges that it has reviewed the terms and conditions of the Plan with its legal and tax advisors with respect to the adoption of this Plan and the various options available under the Plan. t EMPLOYER: ADOPTION AGREEMENT I.R.C. SECTION 125 CAFETERIA PLAN TOWN OF LOS GATOS 110 E. MAIN STREET LOS GATOS, CA 95032 TRUST ID NUMBER 94- 6001435 PLAN ADMINISTRATOR: TOWN OF LOS GATOS 110 E. MAIN STREET LOS GATOS, CA 95032 (408) 354 -6829 THE UNDERSIGNED EMPLOYER DOES HEREBY ADOPT THE FOLLOWING CAFETERIA PLAN FOR THE EXCLUSIVE USE AND BENEFIT OF ITS EMPLOYEES. IN CONNECTION HEREWITH, THE EMPLOYER MAKES THE FOLLOWING STATEMENTS AND SELECTIONS. THE NAME OF THE PLAN SHALL BE: TOWN OF LOS GATOS CAFETERIA PLAN Plan Number 501 TERMS AND CONDITIONS OF TOWN OF LOS GATOS CAFETERIA PLAN ARTICLE I GENERAL PROVISIONS 1.1 EFFECTIVE DATES. The Effective Date of this Plan shall be July 1, 1992 as amended on July 1, 1995. 1.2 PLAN YEARS. The First Plan Year shall begin on the Effective Date and end of June 30, 1993. Each subsequent Plan Year shall begin on July 1st and end of June 30th of each successive Year. 1.3 ELIGIBILITY REQUIREMENTS. All employees who meet the participation requirements are eligible to participate in this plan. To qualify as a participant under this , plan you must be: a. An employee appointed to the competitive service, who is working at least 20 hours per week on a regular basis as a probationary or regular employee; or b. A confidential or provisional employee, working at least 20 hours per week on a regular basis; or c. The Town Manager, the Town Attorney, a department head, or a management employee, working at least 20 hours per week on a regular basis. 1.4 ENTRY DATES. Each Employee shall begin participation on the first day of the month following date of hire. 1.5 LEGAL CONSTRUCTION. This Plan shall be construed according to the Laws of the State of California. ARTICLE II INTRODUCTION 2.1 PURPOSE OF THE PLAN. This document constitutes the Cafeteria Plan for TOWN OF LOS GATOS pursuant to the Adoption Agreement. The purpose of the Cafeteria Plan (hereinafter referred to as the Plan) is to allow the Employees of the Employer to select among various taxable and nontaxable Benefit programs, as adopted under the Adoption Agreement and described in Article X offered under this Plan to the employees by the Employer; said Benefits may include (but are not limited to) Medical, Disability, Dental and Group Term Life Insurance, Medical and Dependent Care Assistance and Reimbursement Programs, and other Benefits as the Employer may offer from time to time. pursuant to the provisions of I.R.C. Section 125, and such other Internal Revenue Code Sections as may apply at any given time. 2.2 PLAN ADMINISTRATION. The Administration of the Plan shall be the sole responsibility of the Employer and /or the appointed Plan Administrator. The Plan shall be administered on the basis of the Plan Year. 2.3 TERM OF PLAN. This Plan is intended to be ongoing and perpetual and for an indefinite period of time. ARTICLE III PARTICIPATION 3.1 ELIGIBILITY. Every Employee who has requirements as set out in Section 1.3, shall participate in the Plan as of his Entry Date, Section 1.4. To participate in the Cafeteria be required to file an Agreement to Participa Section 4.3). met the Eligibility be eligible to -as described in Plan employees will to (as described in 3.2 TERM OF COVERAGE OF PARTICIPANTS. Each Participant and his Covered Dependents (as described in Section 3.3), if covered under the Plan, shall be covered for the entire Plan Year (or such portion of the Plan Year remaining after the Participant's Entry Date, if later than the first day of the Plan Year). The Benefits provided to any Participant or his Covered Dependents for any Plan Year shall cease on the first date following the occurrence of any of the following: (a) The Participant ceases to be a participant under this Plan due to his death, resignation or termination; (b) The Participant fails to make his required contributions, if any, under the Plan; (c) The Participant ceases to be a member of a class of employees who are eligible for benefits under this Plan; (d) With respect to a Covered Dependent, the date that Covered Dependent ceases to be a Covered Dependent as defined in Section 3.3; (e) The date a specific Benefit provided under this Plan is discontinued;or otherwise no longer provided; or (f) The date this Plan is terminated. F 3.3 COVERED DEPENDENT. A Covered Dependent is defined as the spouse or any other dependent of the Participant. Any dependent who has or could have been elected as a dependent of the Participant on his Federal tax return shall qualify hereunder as a Covered Dependent under this Plan. 3.4 EXCEPTION FOR CERTAIN HEALTH PLANS. Notwithstanding any other provisions in this Article III, any Participant or Covered Dependent who is eligible for Health Care Continuation Coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985, commonly referred to as COBRA, shall be allowed to continue to receive health benefits under this Plan, so long as such Participant or Covered Dependent complies with the provisions set out in COBRA. The Employer shall adopt rules relating to continuation coverage, as provided under Code Section 4980(B), or applicable state laws, as may be required from time to time, and shall advise affected individuals of the terms and conditions of such continuation coverage. 3.5 NOTICE OF ELIGIBILITY. The Employer, or the designated Plan Administrator, shall notify the Employees of the Employer of their eligibility to participate in the Plan, and shall inform them of the terms and their rights under the Plan. Each Participant shall be provided with a copy of the Summary Plan Description. ARTICLE IV CONTRIBUTIONS 4.1 PARTICIPANT CONTRIBUTIONS. All Participant contributions shall be derived from the Participants salary, either through reduction of his present salary or by foregoing all or a part of an increase in his salary, and shall be made pursuant to a Salary Reduction Agreement, which is attached to and made a part of the Employee's Agreement to Participate, as described in Section 4.3 below. All Participant contributions become the property of the Employer, to be used for the exclusive benefit of each Participant as set forth in Section 8.2. 4.2 FUND LIMITATIONS. All Participant contributions may, at the Employer's (or the designated Plan Administrator's) election, be placed in a fund, as described in Article VIII. At the end of the Plan Year, any interest, income, or excess funds attributable to Participants' contributions shall become the sole property of the Employer, and the Employer shall use said funds as set forth in Section 8.2. 4.3 AGREEMENT TO PARTICIPATE /SALARY REDUCTION AGREEMENT. Before any Participant is allowed to participate in the Cafeteria Plan, he must file with the Employer, or its designated Plan Administrator, an Agreement to Participate. This Agreement shall 3 contain a Salary Reduction Agreement which will authorize, by agreement of the parties, the Employer to reduce the Participant's salary in an amount sufficient to pay the Benefit the Participant elects on his own behalf. The Salary Reduction Agreement shall specify the amount the Participant authorizes to be reduced from his salary. Pursuant to the Salary Reduction Agreement, the Employer shall withhold the agreed amount from the Participant's paycheck for each pay period beginning with the first pay period for which the Participant is participating in the Plan. The Participant must, before his first Plan Year ends and for every Plan year after his first Plan Year, execute a new Salary Reduction Agreement with the Plan Administrator. Each new Salary Reduction Agreement shall specify the benefit and the amount of salary the Participant authorizes to be withheld from his paycheck. Should the participant fail to return the Salary Reduction Agreement for any Plan Year before the start of the Plan Year, said Participant shall be ineligible to participate in the Plan for that Plan Year. 4.4 CHANGE IN PARTICIPANT'S RATE OF CONTRIBUTION. No Participant in the Plan shall be allowed to alter or discontinue his contributions to the Plan during a Plan Year unless one of the following events takes place: (a) There is a change in the Participant's family status. Such change may include, but is not limited to, the marriage or divorce of the Participant; the adoption, birth or death of a child or other Covered Dependent (as defined under Section 3.3) of the Participant or his spouse; the emancipation or coming of age of a child of the Participant so that the child is no longer eligible as a Covered Dependent under the Plan; the employment of the Participant's spouse; etc. Upon the occurrence of any of the aforementioned events, or such other event as may qualify as a change in family status in the opinion of the Plan Administrator, and in accordance with any applicable Federal laws, the Participant may file a New Salary Reduction Agreement, which will serve to revoke the Participant's previous Salary Reduction Agreement. The New Salary Reduction,Agreement shall be effective prospectively and apply only to those Benefits accruing to the Participant or his Covered Dependents after the effective date of the New Salary Reduction Agreement. (b) The Participant's Salary Reduction Agreement for a given Plan Year shall terminate and contributions from the Participant shall cease upon the date a Participant is no longer eligible to participate under the terms of the Plan. 4.5 INCREASES OR DECREASES IN PREMIUMS. Should a third party benefit provider, such as an Insurance Company, increase or decrease premiums for any health benefits being offered under 4 this Plan during the Plan Year, any Participant participating in such benefit shall have his Salary Reduction increased or decreased automatically in an amount sufficient to pay for such increase or decrease. However, in the case of an increase in premium, if there is a similar benefit offered under the Plan at the time of said increase, the Participant may select such similar benefit rather than pay the increase. 4.6 LIMITATION ON REHIRED EMPLOYEES. Any Employee who is a Participant under this Plan who separates from service from the Employer shall terminate participation under this Plan. If such Employee should later be rehired by the Employer in the same Plan Year as the Plan Year in which he separated from service, such Employee shall be barred from participating in the Plan for the remainder of that Plan Year. ARTICLE V PARTICIPANT'S ACCOUNTS; PAYMENT OF BENEFITS 5.1 PARTICIPANT'S BENEFIT ACCOUNT. It shall be the duty of the Plan Administrator to establish separate Benefit Accounts for each Benefit option a Participant elects. Participant Contributions which have been deferred by Salary Reduction shall be deposited into the proper Benefit Account(s) of the Participant in a timely fashion. Each Account shall be designated as either a "Premium Account" or as a "Reimbursement Account ". Deposits shall be made by the Employer as soon as is possible after the pay period for which Participant Contributions have been deducted from the Participant's paycheck, but in no case longer than 90 days. 5.2 PREMIUM ACCOUNT. A "Premium Account" is an account established with the intent to pay for Premium -type Benefits selected by the Participant, which includes, but are not limited to: Medical Insurance, Group Term Life Insurance, Dental Insurance and Disability Insurance. In all cases, money contributed to a Premium Account becomes the property of the Employer to be used for the benefit of the Participants under the Plan. 5.3 REIMBURSEMENT ACCOUNT. A "Reimbursement Account" is an account used to reimburse a Participant for Qualified Expenses that are not Premium -type expenses as defined by the appropriate Benefit established under the Plan and so elected by the Participant. Reimbursement Accounts are authorized only for those expenses recognized under the Internal Revenue Code as allowable Reimbursable Benefits, and may include, but are not limited to, Unreimbursed Medical Expenses and Dependent Care Assistance Expense Reimbursement. In all cases, money 5 contributed to a Reimbursement Account becomes the property of the Employer to be used for the benefit of the Participants under the Plan. 5.4 PAYMENT OF BENEFITS. It shall be the responsibility of the Plan Administrator to pay the Benefits authorized under the Plan other than insurance benefits administered by a third -party benefit provider. 5.5 PAYMENT OF PREMIUM -TYPE BENEFITS. The Participant's portion of Premium -type Benefit premiums shall be paid out of the Participant's Premium Account. Payment shall be made by the Employer, (or the designated Plan Administrator), in a timely manner upon receipt of a Premium Notice from the Benefit Provider providing such benefit. 5.6 PAYMENT OF REIMBURSABLE BENEFITS. It shall be the duty of the Plan Administrator to construe what are and are not Qualified Expenses subject to reimbursement from the Reimbursement Accounts. Such determinations shall be made in accordance with the applicable Federal laws that apply to the expenses being considered. If the Plan Administrator determines that an expense is a Qualified Expense subject to reimbursement, the Plan Administrator shall reimburse the Participant for his Qualified Expense as soon as is reasonably possible. The Plan Administrator may require proper evidence that a Qualified Expense has been incurred and that such expense is authorized under applicable Federal law and that the expense was incurred during the time the Participant was participating under the Plan. The Plan Administrator shall be the sole arbiter of what constitutes a Qualified Expense subject to reimbursement. Payment shall be made directly to the Plan Participant. 5.7 QUALIFIED EXPENSE. A Qualified Expense is any expense subject to reimbursement under the Plan and as authorized under any applicable Federal law as a reimbursable expense not subject to income taxation. 5.8 DESIGNATION OF BENEFICIARIES. Each Participant or Covered Dependent shall be afforded the opportunity from time to time to name any person as his beneficiary in case of death. Any named beneficiary shall be entitled to any Benefits having accrued to the Participant or Covered Dependent at the time of death. The Participant or Covered Dependent may, in addition, name concurrent, contingent and /or successive beneficiaries. Any beneficiary designation must be filed with the Employer (or the designated Plan Administrator) on a form approved by the aforementioned party and must be filed prior to the Participant's or Covered Dependent's death. In those cases where a Participant or Covered Dependent fails to designate a beneficiary, or the designated beneficiary predeceases the Participant or Covered Beneficiary, the Plan, Administrator shall pay any Benefits due to the deceased Participant or Covered Dependent to either: 6 (a) one or more of the Participant's or Covered Dependent's relatives by blood, adoption or marriage, in such proportions as the Plan Administrator sees fit; or (b) the legal representative or representative of the estate of the last to die of the Participant or Covered Dependent and his designated beneficiary. 5.9 INCAPACITY OF PARTICIPANT. The Plan Administrator is empowered to make payments directly to a Participant's legal representative or blood relative in cases where the Plan Administrator determines the Participant is under a legal disability or is incapacitated in such a way as to be unable to manage his own affairs in a competent manner. ARTICLE VI PLAN ADMINISTRATION 6.1 THE PLAN ADMINISTRATOR. The Employer or the designated Plan Administrator (herein referred to as "the Plan Administrator "), as named in the Adoption Agreement, shall be responsible for the administration of the Plan. 6.2 THE PLAN ADMINISTRATOR'S DUTIES. In addition to any rights duties or powers specified throughout the body of this Plan, the Plan Administrator shall have the following rights, duties, and powers: (a) To interpret the Plan, to determine the amount, manner and time for payment of any Benefits under the Plan, and to construe or remedy any ambiguities, inconsistencies or omissions under the Plan. (b) To adopt and apply any rules or procedures to insure the orderly and efficient administration of the Plan. (c) To determine the rights of any Participant or Covered Dependent or designated beneficiary to a Benefit under this Plan. (d) To develop appellate and review procedures for any Participant, Covered Dependent or designated beneficiary who is denied a Benefit under the Plan. (e) To provide the Employer with such tax or other information it may require in connection with the Plan. (f) To employ any agents, attorneys, accountants or other parties (who may also be employed by the Employer) and to allocate or delegate to them such powers or duties as is 7 necessary to assist in the proper and smooth administration of the Plan, provided that such allocation or delegation and the acceptance thereof is in writing. (g) To report to the Employer, or any party designated by the Employer, after the end of each Plan year regarding the administration of the Plan, and to report any significant recommendations for modifications as to procedures, Benefits or Benefit Providers or any other change which might insure the smooth administration of the Plan. However, nothing in this paragraph is meant to confer upon the Plan Administrator any powers to amend the Plan or change any administrative procedure or contract with Benefit Providers or adopt any other procedure involving the Plan without the express written approval of the Employer regarding any amendment, change in administrative procedure, or Benefit Provider. Notwithstanding the preceding sentence, the Plan Administrator is empowered to take any actions he sees fit to assure that the Plan complies with the nondiscrimination requirements of Internal Revenue Code Section 125. 6.3 INFORMATION TO BE PROVIDED TO PLAN ADMINISTRATOR. The Employer, or any of its agents, shall provide to the Plan Administrator any employment records of any employee eligible to participate under the Plan. Such records shall include, but will not be limited to, any information regarding period of employment, leaves of absence, salary history, termination of employment, or any other information the Plan Administrator may need for the proper administration of the Plan. Any Participant or Covered Dependent or any other person entitled to Benefits under the Plan shall furnish to the Plan Administrator his correct post office address, his date of birth, the names, correct addresses and dates of birth of any designated beneficiaries, with proper proof thereof, or any other data the Plan Administrator might reasonably request to insure the smooth and proper administration of the Plan. 6.4 DECISION OF PLAN ADMINISTRATOR FINAL. Subject to applicable State or Federal law, and the provisions of Section 6.5, below, any interpretation of any provision of this Plan made in good faith by the Plan Administrator as to any Participant's rights or benefits under this Plan is final and shall be binding upon the parties. Any misstatement or other mistake of fact shall be corrected as soon as reasonably possible upon notification to the Plan Administrator and any adjustment or correction attributable to such misstatement or mistake of fact shall be made by the Plan Administrator as he considers equitable and practicable. 6.5 REVIEW PROCEDURES. In cases where the Plan Administrator denies a Benefit for any Participant or Covered Dependent or any other person eligible to receive benefits under 8 the Plan, the Plan Administrator shall furnish in writing to said party the reasons for the denial of benefits. The written denial shall be provided to the party within 30 days of the date the Benefit was denied by the Plan Administrator. The written denial shall refer to any Plan or Internal Revenue Code Section upon which the Plan Administrator relied in making such denial. The denial may include a request for any additional data or material needed to properly complete the claim and explain why such data or material is necessary, and explain the Plan's claim review procedures. If requested in writing, and within 30 days of the claim denial, the Plan Administrator shall afford any claimant whose request for claim was denied a full and fair review of the Plan Administrator's decision, and within 30 days of the request for review of the denied claim, the Plan Administrator shall notify the claimant in writing of his final decision on the reviewed claim. Claim review procedures under the Cafeteria Plan apply except to the extent that claims and review procedures are provided under Benefits administered by a third party Benefit Provider. 6.6 EXTENSIONS OF TIME. In any case where the Plan Administrator determines special circumstances apply, the Plan Administrator may extend the amount of time any Participant, Covered Dependent or designated beneficiary may need to appeal a claim, upon proper application to the Plan Administrator. 6.7 RULES TO APPLY UNIFORMLY. The Plan Administrator shall perform his duties on a reasonable and nondiscriminatory basis and shall apply uniform rules to all Participants similarly situated under the Plan. 6.8 INDEMNITY. Government Code 825 governs the rights and obligations of the Employer with regard to indemnification of its officers and employees for employee activities within the course and scope of their employment, including administration of this Plan. The Employer shall comply with the provisions of Section 825 in determining whether to indemnify its officers and employees in administering this Plan, unless Employer's obligations are otherwise governed by a memorandum of understanding adopted pursuant to Government Code 3500 and following. ARTICLE VII FUNDING, AMENDMENT AND TERMINATION OF THE PLAN 7.1 FUNDING. This Plan shall be funded by Employer contributions attributable to Participants' Salary Reductions. 7.2 AMENDMENT. The Employer shall have the right to amend this Plan at any time, or from time to time, at its discretion, and with the approval of the Board of Directors, subject to the 9 limitation that no Amendment shall change the terms and conditions of payment of any Benefit a Participant, Covered Dependent or designated beneficiary was or might have been entitled to under the Plan, except to the extent such Amendment is necessary to comply with any Federal, State or local law or regulation. The Employer may also make Amendments apply retroactively to the extent necessary so that the Plan remains in compliance with Internal Revenue Code Section 125 or any other provision of the Internal Revenue Code applicable to the Plan. The Employer may amend any Benefit available under the Plan, may add Benefits or combine Benefits, so long as such amendment does not eliminate any obligation owed to a Participant, Covered Dependent or designated beneficiary that arose during the time the Plan was in force. 7.3 TERMINATION. The Employer shall have the right to terminate this Plan at any time, so long as such termination does not eliminate any obligation owed to a Participant, Covered Dependent or designated beneficiary that arose during the period the Plan was in force. ARTICLE VIII ACCOUNTFUND 8.1 ACCOUNT FUND. The term "Account Fund" means all assets held under the Plan by the Employer. The Employer shall receive, hold, distribute and administer the assets of the Fund in accordance with the terms of the Plan as set forth in this Plan document. The assets of this Account Fund shall be the Employer's for the sole benefit of the Participants of the Plan. 8.2 REVERSION TO EMPLOYER. At the end of the Plan Year, any interest, income, or excess funds attributable to Participant's contributions shall become the sole property of the Employer, and the Employer shall use said funds in any way it sees fit. In no case, however, shall the excess funds, or the income from the account, be used to reduce Participant contributions for a future Plan Year. Should the Plan be terminated by the Employer during or after the end of a Plan Year, the Employer shall have full right to any assets in this Fund, after all obligations owed to Participants, Covered Dependents, or designated beneficiaries under the Plan have been fulfilled. 8.3 RECORDS AND ACCOUNTS OF EMPLOYER. The employer shall maintain accurate and complete record and accounts of all transactions under the Plan, which shall be available at all reasonable times for inspection or audit by any person designated by the Employer or the Plan Administrator, if different from Employer and by any other person or entity to the extent required by law. 10 V ARTICLE IX GENERAL PROVISIONS 9.1 NON - ASSIGNABILITY. Any Benefits to any Participants under this Plan shall be nonassignable and for the exclusive benefit of Participants, Covered Dependents and designated beneficiaries. No Benefit shall be voluntarily or involuntarily assigned, sold or transferred. 9.2 NO EMPLOYMENT CONTRACT. By creating this Cafeteria Plan, and the payment of Benefits under said Plan, the Employer in no way guarantees employment for any Employee or Participant under this Plan. Participation in this Plan shall in no way assure continued employment with the Employer. 9.3 PARTICIPANT LITIGATION. In any action or proceeding against the Plan, or the administration thereof, Employees or former Employees of the Employer or any other Person having or claiming to have an interest under the Plan shall not be necessary parties to such action or proceeding. The Employer, the Plan Administrator, or their registered representative shall be the sole source for service of process against the Plan. Any final judgment which is not appealed or appealable shall be binding on the Employer and any interested party to the Plan. 9.4 GENDER AND NUMBER. Words in this document denoting the masculine shall include the feminine and neutral genders and words denoting the singular shall include the plural wherever by context. 9.5 ADDRESSES, NOTICE, WAIVER OF NOTICE. Each Participant shall furnish the Employer with his correct post office address. Any communication, statement or notice addressed to a Participant at his last post office address as filed with the Employer will be binding on such person. The Employer or Plan Administrator shall be under no legal obligation to search for or investigate the whereabouts of any person benefiting under this Plan. Any notice required under the Plan may be waived by such person entitled to such notice. 9.6 REQUIRED INFORMATION. Each Participant or Covered Dependent shall furnish to the Employer such documents, evidence or information as the Employer considers necessary or desirable to ensure the smooth operation and administration of the Plan and for the protection of the Employer or any Benefit Providers under the Plan. 9.7 MISTAKE OF FACT. Any mistake of fact or misstatement of fact shall be corrected when it becomes known and any adjustments due to such mistakes or misstatements shall be made promptly. it 9.8 WITHHOLDING OF TAXES. The Employer or any Benefit Provider under the Plan may withhold from any payments to Participants, Covered Dependents or designated beneficiaries any amounts necessary to comply with any tax withholding provisions of the Internal Revenue Code or any State's Income Tax Act or any applicable similar laws. 9.9 SEVERABILITY. In any case where any provision of this Plan is held to be illegal or invalid, such illegality or invalidity shall apply only to that part of the Plan and shall not apply to any remaining provisions of the Plan, and the Plan shall be construed as if such illegal or invalid provision had never existed under the Plan. 9.10 APPLICABLE LAW. This Plan shall be construed under the Internal Revenue Code of 1986, as amended from time to time and as construed, interpreted and modified by any regulations, rulings, or court decisions affecting said Code. The Plan is intended to constitute a Cafeteria Plan as provided under Internal Revenue Code Section 125. This Plan shall be construed under the laws of the State of CALIFORNIA. ARTICLE X BENEFITS PROGRAMS 10.1 INTRODUCTION. The following Benefit Programs shall be available under this Plan. The Employer reserves the right to amend, revoke or add any additional Benefit Programs from time to time as it sees fit, subject to any applicable Federal laws. The Participant shall file with the Plan Administrator before the start of each Plan Year a Salary Reduction Agreement designating the Benefit Programs he wishes to participate in. As part of the Agreement, the Participant shall designate an amount necessary to pay for each elected Benefit Program. 10.2 HEALTH INSURANCE PROGRAMS. These Programs are intended to allow Participants to pay their portion of any Health Insurance Policy offered under this Cafeteria Plan with Participant Salary Reductions. The definition of "Health Insurance Policy" includes, but is not limited to, any policy covering Medical, Dental, Psychological or Psychiatric Services, Vision Care or Prescription Drugs. Any Health Insurance Program offered under this Plan shall be available on a nondiscriminatory basis to any Participant and his dependents. Any Benefit provided under this Program is to be considered a Premium type Benefit, as describedunder Section 5.2 of this Plan, and shall be paid from a Premium Account. The specific provisions of the Health Insurance Programs as set forth in a contract(s) or policy(s) issued by an Insurance Company and /or a(ny) Health Maintenance Organization(s) are hereby incorporated herein by reference. 12 10.3 DEPENDENT CARE ASSISTANCE PROGRAM. This Program is intended to provide Participants and members of his family unit reimbursement of certain dependent care assistance expenses incurred during the course of the Plan Year. Claims may be made up to 90 days following the end of the plan year for expenses incurred during the plan year. Any monies paid to Participants shall be paid from a Reimbursement Account, as described in Section 5.3. Each Participant shall elect, before the start of a Plan Year, or before his Entry Date, if after the start of a Plan Year, a specific amount to be placed in a Reimbursement Account for the purpose of reimbursement of Dependent Care Assistance Expenses. A Participant shall not be eligible for further Dependent Care Assistance reimbursements once he has received reimbursements equal to the amount he elected to defer for the Plan Year, or, if he ceased to be a Participant during the Plan Year, the amount actually deferred during the Plan Year, to the Dependent Care Assistance Program. This Program shall provide reimbursement for certain eligible expenses incurred in the care of a dependent. Only those expenses which are considered Dependent Care Assistance expenses within the meaning of Internal Revenue Code Sections 129 and 21(b)(2) shall be eligible for reimbursement under this Program. Funds for this Program shall be held in the Fund Account as described in Article VIII, and payment shall be made from the Account Fund, at the direction of the Plan Administrator. No Participant shall be allowed to defer more than $5000, if married filing jointly, or $2500 if married filing separately, in income for any Calendar Year. If the participant has a working spouse, the maximum amount that can be deferred under this program shall be the lesser of $5000 or the earned income of the participant's spouse. The Plan Administrator shall only make reimbursement payments under this Program when presented with satisfactory evidence that the Participant actually incurred a reimbursable expense covered under this Plan. A Participant who terminates employment or otherwise ceases to be a Participant under this Plan prior to the end of the Plan Year shall only be eligible for reimbursement of expenses incurred during the term of his employment during his last Plan Year. The Participant has three months in which to file claims for reimbursement after termination of participation. Any funds remaining in his Reimbursement Account after the three month period shall revert to the Employer to be donated as stated in Section 8.2 of this Plan. 10.4 MEDICAL REIMBURSEMENT PROGRAM. This program is intended to provide Participants and members of their family unit reimbursement of certain health expenses incurred during the 13 course of the Plan Year. Claims may be made up to 90 days following the end of the plan year for expenses incurred during the plan year. This program is separate from any Health Insurance Program mentioned in Section 10.2. Any monies paid to Participants shall be paid from a Reimbursement Account, as described in Section 5.3. Each Participant shall elect, before the start of a Plan Year, an amount to be placed in a Reimbursement Account for reimbursement of health expenses. A Participant will not be eligible for further health reimbursements once he has received reimbursements equal to the amount he elected to defer if he ceased to be a Participant during the Plan Year, in the Medical Reimbursement Program. Health expenses incurred by Covered Dependents of Participants shall be considered expenses reimbursable under the Plan. Funds for this Program shall be held in the fund account as described in Article VIII, and payments shall be made from the account, at the direction of the Plan Administrator. The Plan Administrator shall only make reimbursement payments under this Program when presented with satisfactory evidence that the Participant or his Covered Dependents actually incurred a reimbursable expense covered under this plan. Qualified reimbursable expenses include, but are not limited to, deductible amounts, co- payments, amounts not paid by a Health Insurance Program because of an exclusion, etc. In no event shall a reimbursable expense include any item which is not intended to be a Medical Care expense within the meaning of I.R.C. Section 213 (d) for a Participant or a Covered Dependent. only health expenses incurred during the Plan Year are eligible for reimbursement. A Participant who terminates employment or otherwise ceases to be a Participant under this Plan prior to the end of the Plan Year shall be eligible for reimbursement of expenses incurred during the last Plan Year he was a Participant, without regard to the date he ceased to be a Participant. Although a Participant may elect to make his annual deferral on a periodic basis, other than annually, the Plan shall be obligated to pay out any amount up to the annual amount the Participant agreed to defer under this Program at any time. Thus, should the Participant incur an expense under this Program that is greater than the amount in the Participant's account at the time the expense is incurred, the Plan shall be obligated to pay the actual amount incurred within a reasonable time, up to the amount the Participant agreed to defer for the annum. The Employer reserves the Program for any Plan Year for the next Plan Year to Program for the next Plan Section 8.2. right to apply any excess in this into the Medical Reimbursement Program reduce Participant premiums under this year notwithstanding the provisions of 14 Participants shall be limited to a maximum deferral of $2.500.00 per year to this Program. ARTICLE XI LIMITATIONS ON KEY EMPLOYEES 11.1 KEY EMPLOYEE DEFINED. A "Key Employee" is any Employee who, at any time during the Plan Year, or any of the four preceding Plan Years, is: (a) an officer of the Employer who received compensation from the employer greater than $45,000 for the Plan Year; (b) one of the ten Employees having compensation from the Employer greater than $30,000 and owning the largest interests of the Employer; (c) a shareholder owning (directly or indirectly) more than five percent of the voting power or all classes of stock of the Employer; or (d) a shareholder owning (directly or indirectly) more than one percent of the voting power or all classes of the stock of the Employer and having an annual compensation from the employer of more than $150,000. 11.2 LIMITATION OF BENEFITS FOR KEY EMPLOYEES. Notwithstanding anything herein to the contrary, not more than twenty five percent of the benefits provided hereunder during the Plan Year to or on behalf of all Employees shall be provided to Key Employees. Any payment to a Key Employee in excess of such limitation shall not be treated as a payment pursuant to the Plan. 11.3 HIGHLY COMPENSATED EMPLOYEES DEFINED. As of 1995, a Highly Compensated Employee is one who is a 5% (percent) or more owner, has an annual salary is excess of $100,000, or an annual salary in excess of $66,000 AND in the top 20% (percent) of employees salary, or an annual salary in excess of $60,000 AND an officer, or family members (spouse of lineal descendant under the age of 19). 11.4 LIMITATION OF BENEFITS FOR HIGHLY COMPENSATED EMPLOYEES. Notwithstanding anything herein to the contrary, not more than twenty five percent of the benefits provided hereunder during the Plan Year to or on behalf of all Employees shall be provided to Highly Compensated. Any payment to a Highly Compensated Employee in excess of such limitation shall not be treated as a payment pursuant to the plan. 15 BENEFITS AVAILABLE UNDER THE PLAN As part of this Adoption Agreement, the Employer hereby elects that the following Benefit Programs be available for the benefit of the Employees of the Employer, herewith: MEDICAL, AND DENTAL INSURANCE DEPENDENT CARE REIMBURSEMENT PLAN UNREIMBURSED MEDICAL EXPENSES IN WITNESS THEREOF, The Parties affix their signatures this day of TOWN OF LOS GATOS 19 by, Signature and Title APPROVED AS TO FORM: LARRY ANDERSON, TOWN ATTORNEY ATTEST: MARIAN V. COSGROVE, TOWN CLERK - -- SUMMARY PLAN DESCRIPTION - -- TOWN OF LOS GATOS CAFETERIA PLAN PREPARED BY: HICKS & COMPANY 55 Independence Circle, Suite 206 Chico, CA 95973 (916) 891 -4975 � s TOWN OF LOS GATOS CAFETERIA PLAN SUMMARY PLAN DESCRIPTION I. INTRODUCTION TO YOUR PLAN TOWN OF LOS GATOS has instituted a Cafeteria Plan as part of your employee benefits' program. Your Cafeteria Plan will allow you to pay your share of Medical and Dental Insurance Premiums, your Dependent Care Expenses (ie. Childcare) and /or Unreimbursed Medical Expenses on a pre -tax basis. All premiums under this plan are paid for out of your salary reductions. This is an agreement between you and your Employer allowing the Employer to take money out of your paycheck each pay period. This money is taken from your check before you pay taxes on it. Thus, the government is giving you a tax incentive to participate in this Cafeteria Plan. Your benefit costs are substantially reduced by paying for your benefits this way. The following example illustrates this principle: EXAMPLE: Employer Z has a health insurance program, under which all employees receiving Dependent Health Insurance benefits must pay their own premiums. Employee A's monthly take -home pay, before paying his Dependent Health Insurance premium is $1661.87. The premium for his Dependent Health Insurance is $150 per month. After paying this, he is left with $1511.87. Next January 1, Employer Z will install a Cafeteria Plan. Let's assume Employee A makes the same salary and taxes don't increase, but now Employee A can pay his premium with before -tax dollars. Employee A will get a $33.77 monthly raise! His take home pay after paying for his Dependent Health Insurance premium will be $1,545.64. The pay raise represents the taxes he would have paid on the $150 per month Dependent Health Insurance premiums. 2 If you elect to participate in the Reimbursement Program, (Dependent Care Expenses and /or Unreimbursed Medical Expenses) on the Salary Reduction Agreement, the money that is withheld from your paycheck is then reimbursed to you when you submit verification of expenses. Any money you contribute to pay for your benefits is not subject to taxation. Thus, your benefit costs are quite low, and in most cases, will result in a net increase in spendable income to you. This can be illustrated by the following example: EXAMPLE: Employee B elects to participate in the Cafeteria Plan and elects Dependent Care expenses. She elects to have her salary reduced by $100 per month. Then each month she is reimbursed $100 when she submits her Dependent Care bill. Before the Cafeteria Plan was installed, Employee B was paying that same $100 per month, but on an after tax basis. This meant Employee B had to earn about $125 to pay her dependent care expenses of $100. Thus, by participating in the Cafeteria Plan, Employee B will have an extra $25 each month to spend. II. PARTICIPATION IN YOUR PLAN All employees who meet the participation requirements are eligible to participate in this plan. To qualify as a participant under this Plan you must work at least 20 hours per week on a regular non - seasonal basis. Your Entry Date, the date you may actually join the Plan, is on the first day of the month following the date of hire. AGREEMENT TO PARTICIPATE /SALARY REDUCTION AGREEMENT You will be required to file an Agreement to Participate a few weeks before your Entry Date. The Agreement to Participate is an agreement between you and your Employer. It says that you agree to be a participant in this Plan and states which benefits you've selected under your Plan. It will also specify the amount you've agreed to contribute towards the cost of these benefits. Any money you contribute to this Plan will not be subject to state, federal or social security income taxation. 3 Each year after your first Plan Year, you will be required to file a new Salary Reduction Agreement. It must be filed with the Plan Administrator before the start of the new Plan Year. It will state the amount you wish to have your salary reduced by for the new Plan Year. If you do not file a new Agreement to Participate and a new Salary Reduction Agreement with the Plan Administrator before the start of the new Plan Year, it will be assumed that you elected not to participate in the Plan for the new Plan Year. CHANGE IN CONTRIBUTIONS /CHANGE IN FAMILY STATUS The laws governing Cafeteria Plans DO NOT allow you to change your contribution during the Plan Year. There are, however, a few exceptions to this rule. You may change your contribution if there is a change in your family status. Change in Family Status includes: Change in Premium Costs (automatic) Marriage or Divorce Birth, Death or Adoption of a Dependent Child is no longer a Dependent Change in a Spouse's Employment Change of Employee's job status This list is only a partial list of what might be considered a change in family status. It is up to the Plan Administrator to determine what is and isn't a change in family status, and his judgment must be made in reliance with the laws governing Cafeteria Plans. Note that the new reductions can start only after your change in family status has taken place and the New Salary Reduction Agreement has been filed. To illustrate this principle, let's assume you are engaged to be married. You want to cover your spouse -to -be under the Medical Insurance program. You will not be able to have additional salary reductions made and receive coverage for your spouse -to -be until after your wedding takes place. Also, you will not be required to make further contributions to the Plan once you have died, retired, terminated employment or have a change in job status so that you are no longer eligible to participate under this Plan. ONCE YOU'VE ELECTED TO DEFER MONEY TO ONE OF THE PROGRAMS BELOW, YOU CANNOT CHANGE THAT ELECTION, SUBJECT TO THE EXCEPTION REGARDING A CHANGE IN- FAMILY STATUS. ANY MONEY LEFT OVER AT THE END OF THE PLAN YEAR IN THESE PROGRAMS BECOMES THE PROPERTY OF THE EMPLOYER. SHOULD YOU FAIL TO SPEND ALL THE MONEY YOU DEFER TO A REIMBURSEMENT PROGRAM BEFORE THE END OF A PLAN YEAR, YOU CANNOT CARRY THAT MONEY 4 OVER TO THE NEXT PLAN YEAR. IT IS, THEREFORE, VERY IMPORTANT THAT YOU DETERMINE AS ACCURATELY AS POSSIBLE HOW MUCH YOU WISH TO DEFER TO A REIMBURSEMENT PROGRAM. THE BENEFITS COORDINATOR WILL BE GLAD TO ASSIST YOU IN MAKING AN ACCURATE ASSESSMENT OF YOUR NEEDS UNDER THESE PROGRAMS. III. BENEFITS UNDER YOUR CAFETERIA PLAN HEALTH AND DENTAL CARE BENEFITS Your Cafeteria Plan allows you to pay for your share of Health, and Dental Care Insurance premiums on a pre -tax basis. For specific coverage, consult the Summary Plan Description of the basic health insurance policy, available from the Benefits Coordinator. PAYMENT OF PREMIUMS Your net take home pay will INCREASE as a participant, because you will no longer be paying your Insurance premiums on an after tax basis. REIMBURSEMENT PROGRAMS CARE ASSISTANCE PROGRAM Qualified expenses under the Dependent Care Assistance Program include any expenses that you could take as a credit against tax on your income tax form for the care of a dependent. A dependent eligible for these expenses includes a child or any other relative for whom you take a tax deduction on your tax form. A person is a dependent of yours if you provide them with at least 50% of their living expenses over the course of the year. Of course, the person must be related to you by blood or marriage or adoption. Dependents eligible under this program include children under the age of 13, and physically or mentally incapacitated individuals who are in need of supervised care. The government recognizes your need to work to help support the household. Before deciding to participate in the Dependent Care Assistance Program, you should know that there is a provision in the Federal Income Tax Code that allows you to take a credit against taxes for Dependent Care Assistance Expenses. Internal Revenue Code Section 21 allows taxpayers to take a credit against tax of up to $2400 per qualified dependent (up to a maximum of $4800 per year) for dependent care assistance expenses. This allowable tax credit is more advantageous for many lower -paid Participants in this Plan. 5 The Plan Administrator or a Tax Advisor will be glad to discuss whether participating in this Program or taking the tax credit under Internal Revenue Code Section 21 would be better for you. Also, the tax laws further limit how much you can contribute to this Program. Under the terms of the Plan, you can defer no more than the lesser of your actual (or, if you are married and if less, your spouse's) income for the year or $5000 per year to this Program. Generally, you can't receive reimbursements under this Program if you are married and your spouse doesn't work (however, if your spouse is a full -time student or unable to work, then your spouse is deemed to have a monthly income of $200, if you have one dependent, $400 if you have two or more dependents). You can apply for reimbursement for household service expenses, including payments to baby - sitters, maids, nurses and cooks who work in your house, at least to the extent their services are for the care of a qualified individual. Household service expenses would not include payments to a gardener or chauffeur. Out -of -home expenses would include payments for well -being and protection of qualified individuals. This would include nursery school, day -care centers, and certain summer camp expenses. This does not include expenses for educational expenses for children in first grade or beyond, or food, clothing and transportation expenses. Out -of -home care expenses for your spouse or dependents over the age of 12 who are unable to care for themselves qualify under this Program only if those individuals regularly spend at least eight hours each day in your home. Therefore, nursing home expenses do not qualify under this Program. However, in -house expenses for these individuals would. You cannot receive reimbursement to be paid to a child of yours under the age of 19 as a provider of Dependent Care services, even if that child is providing you with otherwise - qualified dependent care assistance. The law requires that you give the name, address and taxpayer identification number for any person or organization that you use for dependent care assistance on your tax return. If you fail to get this information from any party who provided dependent care assistance to you, you will have to include any amounts you paid through reimbursement under the Dependent Care Assistance Program to that party in your gross income for the year. Thus, it is very important that you get this information as soon as possible from those parties providing dependent care assistance to you or your family. It is your responsibility to get this information. The Plan Administrator will not be liable for any additional taxable income 3 to you that might have been avoided if the proper information had been furnished. MEDICAL EXPENSES You can defer money under the Medical Reimbursement Program. This money will be returned to you, tax free, to pay for any qualified medical expenses that are not covered by medical insurance. You have a maximum deferral of $2,500.00 per year. Qualified expenses under the Medical Reimbursement Program would include any viable medical expenses that are not covered under your medical insurance program. Thus, co- payments, deductibles, excluded coverage, expenses for prescriptions or medical supplies that are not paid for by insurance are considered expenses that can be reimbursed under your Medical Reimbursement Program. Examples of expenses eligible for reimbursement under this Program would include: membership fees in associations furnishing medical services, hospitalization and clinical care; fees for health institute memberships prescribed by a doctor as medically necessary; transportation expenses (such as an ambulance) incurred to get medical services; home improvement costs that are recommended by a doctor and necessary for treatment or rehabilitation, to the extent such improvement does not increase the value of your home. The following examples would not qualify as expenses eligible for reimbursement, even though recommended by a doctor: expenses for cosmetic items, maternity items or wigs (unless ordered by a doctor as essential to health); vacation or travel expenses, even if for rehabilitation or prescribed by a doctor; meals and lodgings (unless included as part of a hospital bill or while traveling between distant hospitals) at a location away from home, even if prescribed by a doctor or received as an outpatient. The Plan is required to pay you any benefits you incur, up to the maximum you elected, at any time. For example, assume Sue elected to have $1200 in medical reimbursement money put in her reimbursement account, taken out of her pay at the rate of $100 per month. The plan is on a calendar year. In February, Sue breaks her leg, and has $600 of medical expenses that are not covered under basic health insurance, but are eligible for reimbursement under this program. The plan must pay her the $600 even though she had deferred only $200 at that point in time. Should Sue quit her job that month, the Plan cannot require that she pay the additional $400. That risk is taken by the Plan. ENDING PARTICIPATION BEFORE THE END OF A PLAN YEAR Should you end participation in this Plan by either separating from service or failing to make required contributions under this Plan, you will not be allowed to rejoin the Plan until the following Plan Year. For example, Joe works for the employer. The Plan Year is the calendar year. Joe participates in the employer's Cafeteria Plan, until May 1, when he starts a new job with another company. On August 1, Joe is rehired by his old employer. Joe will not be able to participate in the Cafeteria Plan until January 1 of the next year, which is the first day of the new Cafeteria Plan Year. IV. GENERAL INFORMATION You may need the following information if you have any questions about your Plan. 1. GENERAL PLAN INFORMATION The name of this Plan is TOWN OF LOS GATOS CAFETERIA PLAN. Your Employer has assigned Plan Number 501 to this Plan. The provisions of your Plan became effective on July 1, 1992 as amended on July 1, 1995. This Plan's records are maintained on a 12 -month period known as the Plan Year. The Plan Year for your Plan is July through June. The assets of your Plan are held by the Employer. Your Plan shall be governed by the Laws of the State of California. 2. EMPLOYER INFORMATION Your Employer name, address and tax identification number are: TOWN OF LOS GATOS 110 E. MAIN STREET LOS GATOS, CA 95032 ID NUMBER 94- 6001435 3. PLAN ADMINISTRATOR INFORMATION The name, address and telephone number of your Plan Administrator are: TOWN OF LOS GATOS 110 E. MAIN STREET LOS GATOS, CA 95032 (408) 354 -6829 Your Plan Administrator is responsible for the administration of Li your Plan. Should you need to see any records or have any questions regarding the Plan, contact the Plan Administrator. 4. BENEFITS COORDINATOR Carla Turner has been named as the Plan's Benefits Coordinator. If you need additional information about the plan or the benefits offered, the Benefits Coordinator will be able to assist you. 5. LEGAL REPRESENTATIVE The following entity has been named your Plan's agent for service of legal process: TOWN OF LOS GATOS 110 E. MAIN STREET LOS GATOS, CA 95032 (408) 354 -6829 Service of process can also be made to the Employer or Plan Administrator. V. ADMINISTRATION OF YOUR PLAN Hicks & Company, acting for the Plan Administrator, is responsible for the administration of your Cafeteria Plan. Duties include determining who is eligible to participate, interpreting laws and regulations and how they apply to your Plan and whether or not certain expenses should be allowed under the Plan. After you've become a participant in the Plan, you'll file all of your claims with the Plan Administrator. Hicks & Company will determine, in accordance with the various laws that apply to Cafeteria Plans, whether the expense is an allowable one. If it is, you'll be reimbursed for that expense by the Plan Administrator. The Plan Administrator can demand any documents or evidence deemed necessary to properly administer your Plan. If it appears that you've submitted insufficient data to make a determination, or if Hicks & Company feels that the claim you've made is not allowed under the Plan, the claim can by denied. After the claim has been denied, you will be allowed an opportunity to appeal. You will be given 30 days to appeal the decision. If your claim was denied due to a lack of sufficient documentation, the Plan Administrator will give you a Chance to get the necessary information. If your claim was denied because the Plan Administrator felt your claim was for an expense not covered under the Plan, you will be given the chance to show why it should have been allowed under the Plan. If the Plan Administrator rejects your reasons, you will not be able to appeal again. In addition to interpreting the plan and processing claims and paying benefits, the Plan Administrator also keeps all the records of the Plan. Should you need a copy of anything you've filed with the Plan Administrator, contact them directly. This Summary Plan Description is a brief description of the Plan and your rights, benefits and obligations under the Plan. This Summary Plan Description is not meant to interpret, extend or change any provisions contained in the main Plan Document. The provisions of TOWN OF LOS GATOS CAFETERIA PLAN can only be accurately understood by reading the Plan Document. This Document is on file with the Employer and may be read by you or your dependents or your legal representative by contacting the Benefits Coordinator. Hicks & Company will make the Document available to you at any reasonable time. You may request a copy of the Plan from the Plan Administrator. Hicks may charge you a fee for copying the Plan for you. VI. ACCOUNT PROVISIONS All of your salary reduction money is in an account to pay for your benefits. However, once placed in the account, that money becomes the property of your Employer. This does NOT mean your Employer can spend the money any way at all. The account assets must be used to pay for your benefits. The law does require that, if the account earns interest, that money must remain the property of your Employer. Otherwise, this Plan would become disqualified, and you would lose the special tax advantages that your Cafeteria Plan offers you. The account is managed by the Employer. it is the Employer's duty to manage the assets for your benefit. Since the primary purpose of this plan is to provide you benefits, and not to earn money for the participants, the Employer's main purpose is to preserve assets. RIE