CR 12-20-04 06
DATE: TO: FROM: COUNCIL AGENDA REPORT . December 14, 2004 MAYOR AND TOWN COUNCIL DEBRA J. FIGONE;TOWN MANAGER MEETING DATE: 12/20/04 ITEM NO. SUBJECT: ADOPTRESOLUTION OF THETOWN COUNCIL
OF THETOWN OF LOS GATOS ESTABLISHING A RETIREE HEALTH SAVINGS PLAN AND ADOPTING THE PLAN IN THE FORM OF THE ICMA RETIREMENT CORPORATION'S VANTAGECARE RETIREMENT HEALTH SAVINGS PROGRAM
-RECOMMENDATION: Adopt resolution of the Town Council of the Town of Los Gatos establishing a Retiree Health Savings Plan and Adopting the Plan in the form oftheICMARetirement Corporation's
VantageCare Retirement Health Savings Program. BACKGROUND: The recent settlements with the TEA and AFSCME bargaining units and the resolutions adopting the Confidential and Management
Compensation Plans include a provision for the Town to implement a Retirement Health Savings Plan. This report presents a Retirement Health Savings Plan offered by ICMA Retirement Corporation,
for Council consideration and adoption. ICMA-RC was selected because ofthe employee's employee's familiarity with ICMA investment options, administrative PREPARED BY: GARY ROGERS Human
Resources Director GR:pg N:\MGR\AdminWorkFiles\cnclrpts\12-20 lCMA Retirement Plan TC Report.wpd Reviewed by: Town Manager Jt)/2.Town Attorney __Clerk Administrator
tl/finance__Community Development Revised: 12/16/04 2:04 pm Reformatted: 5/30/02
PAGE 2 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION OF THE TOWN OF LOS GATOS ESTABLISHING A RETIREE HEALTH SAVINGS PLAN AND ADOPTING THE PLAN IN THE FORM OF THE ICMA RETIREMENT CORPORATION'S
VANTAGECARE RETIREMENT HEALTH SAVINGS PROGRAM . December 14, 2004 efficiencies (ICMA-RC is the Town's provider of 457 and 401 deferred compensation plans), and because ICMA-RC is an
independent corporation created to manage and administer plans exclusively for the benefit of public sector employers and employees. Finding retirement plan solutions for public sector
employees and employers has been the core mission of the ICMA Retirement Corporation since 1972. DISCUSSION: VantageCare Retirement Health Savings (RHS) Plan is the ICMA Retirement Corporation's
employer-sponsored health benefit savings vehicle that allows employees to accumulate assets to pay for medical expenses (e.g. health insurance, co-pays, prescription expenses, etc.)
at retirement, or upon meeting other eligibility criteria, on a tax-free basis. The plan provides a new tool for retiree health care savings in the public sector and is offered through
a concept pioneered by ICMA Retirement Corporation. RHS is similar to the 457 Deferred Compensation Plan offered to Town employees, in that it allows . an employee to invest dollars
on a pre-tax basis for financial needs during retirement. RHS offers a number ofbenefits, including tax-deferred accumulation ofearnings, and ifaccount assets are used to pay for tax
qualified medical benefits for participants, their spouses and/or dependents, the additional benefit of tax-free withdrawals. The plan allows for flexibility to meet employee and Town
needs, and permits significant employee choice. Other than the limited time needed to administer the program, there are no direct Town costs anticipated with this program. The cost of
medical care continues to increase every year, while escalating long-term care and prescription drug expenses are not fully covered by Medicare. Continuing medical inflation, particularly
particularly for services not covered by Medicare or retiree health plans offered by CalPERS, means that retirees are increasingly responsible for growing medical costs. The RHS Program
enables employees to save in preparation for these costs. This program is of value to the Town for the following reasons: • No unfunded liability. This program does not increase or create
any unfunded liability for the Town. No direct Town Costs. As proposed, the plan does not create any additional direct CQsts to the Town. There will be additional administrative oversight,
however the staff time spent on program administration is not expected to be significant.
PAGE 3 MAYOR AND TOWN COUNCIL SUBJECT: ADOPT RESOLUTION OF THE TOWN OF LOS GATOS ESTABLISHING A RETIREE HEALTH SAVINGS PLAN AND ADOPTING THE PLAN IN THE FORM OF THE ICMA RETIREMENT CORPORATION'S
VANTAGECARE RETIREMENT HEALTH SAVINGS PROGRAM December 14, 2004 • Easy administration. The Town already has a working relationship with ICMA and experience using their on-line administrative
program. • The program may help attract and retain valued employees. • The program allows the Town to provide additional security to employees saving for their retirement health needs.
Employees will also benefit from a RHS for the following reasons: • Eligible 'employees simply elect to enroll and make decisions regarding investment of RHS funds. • Most contributions
are pre-tax. • Contributions grow on a tax-deferred basis. • Withdrawals are tax-free when used for the employee's (including spouse and dependent) qualified medical expenses covered
by the Town's RHS Plan (pursuant to Section 213 of the Internal Revenue Code). • RHS allows investment in the ICMA-RC's Vantagepoint Mutual Funds and Index Funds. Employees are already
familiar with these programs offered through the Town's 457 Deferred Compensation Program. • The RHS account balance is not forfeited upon death. Upon death, the account balance is transferred
to an account for the spouse and/or dependents, orJor a beneficiary, to use for their own medical expenses. Benefits paid to anyone other than a surviving spouse or dependent will be
taxable. To establish the Vantagecare Retirement Health Savings (RHS) Plan with the ICMA Retirement Corporation (lCMA-RC), it is recommended that the Town Council adopt the attached
resolution. The resolution will establish a Retiree Health Savings Plan and adopt the Plan in the form of the ICMA Retirement Corporation's VantageCare Retirement Health Savings Program.
It is also recommended that the' Town Manager be authorized to complete and execute an Employer Vantagecare Retirement Health Savings Plan Adoption Agreement, an amendment to the existing
Administrative Services Agreement betweenthe TownofLos Gatos (the "Employer") and theICMA Retirement Corporation ("ICMA-RC"), and the Town of Los Gatos Retiree Medical and Dental Reimbursement
Plan. The IRS has issued a private letter ruling regarding the ICMA-RC RHS Trust Document. The private letter ruling'did not include certain features that have been added to the RHS,
however, ICMA-RC has obtained legal counsel opinion that the added features should be allowed as long as the requirements outlined in the Trust' and Adoption Agreement are met.
RESOLUTION NO. RESOLUTION OF THE TOWN COUNCIL OF THE TOWN OF LOS GATOS ESTABLISHING A RETIREE HEALTH SAVINGS PLAN AND ADOPTING THE PLAN IN THE FORM OF THE ICMA RETIREMENT CORPORATION'S
VANTAGECARE RETIREMENT HEALTH SAVINGS PROGRAM WHEREAS, the Town of Los Gatos has employees rendering valuable services; and WHEREAS, the establishment of a retiree health savings plan
for such employees serves the interests ofthe Town ofLos Gatos by enabling it to provide reasonable security regarding such employees' health needs during retirement, by providing increased
flexibility in its personnel management system, and by assisting in the attraction and retention of competent personnel; and WHEREAS; the Town of Los Gatos has determined that the establishment
of the retiree health savings plan (the "Plan") serves the above objectives; RESOLVED, by the Town Council ofthe Town ofLos Gatos, CoUIity ofSanta Clara, State of California, that the
Town of Los Gatos hereby adopts the Plan in the form of the ICMA Retirement Corporation's Vantagecare Retirement Health Savings program. BE IT FURTHERRESOLVED; that the assets ofthe
Plan shall be held in trust, with the Employer serving as trustee, for the exclusive benefit ofPlan participants and their beneficiaries, and the assets of the Plan shall not be diverted
to any other purpose prior to the satisfaction of all liabilities ofthe Plan. The Employer will execute the Declaration ofTrust ofthe Town ofLos Gatos integral Part Trust in the form
of the model trust made available by the ICMA Retirement Corporation.BE IT FURTHER RESOLVED, that the Town Manager is authorized to prepare and execute the Employer Vantagecare Retirement
Health Savings Plan Adoption Agreement, an amendment to the existing Administrative Services Agreementbetween the Town ofLos Gatos (the "Employer") and the ICMA Retirement Corporation
("ICMA-RC"), and the Town of Los Gatos Retiree Medical and Dental Reimbursement Plan; Page 1
SIGNED: BE IT FURTHER RESOLVED, that the Assistant Town Manager shall be the coordinator and contact for the Plan and shall receive necessary reports, notices, etc. PASSED AND ADOPTED
at a meeting ofthe Town Council of the Town of Los Gatos, California, held on the __day ofDecember, 2004 by the following vote: COUNCIL MEMBERS: AYES: NAYES: ABSENT: ABSTAIN: MAYOR OF
THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA ATTEST: CLERK ADMINISTRATOR OF THE TOWN OF LOS GATOS LOS GATOS, CALIFORNIA N:\MGR\AdminWorkFiles\cnclrpts\12-20 leMA Retirement Plan Reso.wpd
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