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6.5. ERMUSR 01-15-2008~/ Elk River ~"' Municipal Utilities 13069 Orono Parkway • P.O. Box 430 Elk River, MN 55330-0430 January 7, 2008 To: Elk River Municipal Utilities commission Jerry Takle Jim Tralle Jerry Gumphrey From: Theresa Slominski Subject: ERMU Flexible Benefits Plan Document Phone: 763.441.2020 Fax: 763.441.8099 Since 1988, Elk River Municipal Utilities has offered a Flexible Benefits Plan to its employees to be able to exclude from tax medical and dental premiums, and also participate in dependent care and medical expense reimbursement plans that offer tax savings. These plans fall under the IRS regulations for Section 125 Cafeteria Plans. On August 3, 2007 the IRS released a comprehensive set of proposed regulations that apply to Section 125 Cafeteria Plans. These new regulations replace and consolidate prior guidance released since the 1980's. The effective date of the new regulations is generally plan years beginning 1/1/2009 or later. Employers also have the option to rely on these new regulations prior to the effective date. Implementing these regulations requires, in our case, a new plan document. This plan document is attached for your review, and approval. Please note, the IRS accepted comments on the new~egulations through November 2007 and it is expected that the IRS will release final regulations in 2008 which will incorporate these comments and related meetings. Some items addressed in the proposed regulations will have to wait until the final regulations are issued before they can be included in the plan document, and have not been addressed in this plan document. In other words, next year there will probably be another revision of this document to consider. ELK RIVER MUNICIPAL UTILITIES FLEXIBLE BENEFITS PLAN (including the fol%wing component plans: Group Medica/Benefits, Group Denta/ Benefits, Medica/ Expense Reimbursement P/an, and Dependent Care Expense Reimbursement P/an) Amended and Restated Effective January 1, 2008 Prepared by: ~HITESMAN 12900 - 63rd Avenue North Maple Grove, MN 55369 Tele. 763-503-6620 TABLE OF CONTENTS ARTICLE I. INTRODUCTION ............................................................. Illustration 1 ............................................................................. ARTICLE II. DEFINITIONS ............................................................... ARTICLE III. ELIGIBILITY AND PARTICIPATION ................................ ARTICLE IV. CONTRIBUTIONS ......................................................... ARTICLE V. ELECTION OF AVAILABLE BENEFITS ............................... ARTICLE VI. ADMINISTRATION ........................................................ ARTICLE VII. PLAN AMENDMENT AND TERMINATION ......................... ARTICLE VIII. GENERAL PROVISIONS ............................................... ARTICLE IX. GROUP MEDICAL BENEFITS ........................................... ARTICLE X. GROUP DENTAL BENEFITS .............................................. ARTICLE XI. MEDICAL EXPENSE REIMBURSEMENT PLAN .................... ARTICLE XII. DEPENDENT CARE EXPENSE REIMBURSEMENT PLAN...... ARTICLE XIII. HIPAA PROVISIONS .................................................... ARTICLE XIV. CONTINUATION COVERAGE ......................................... Exhibit A -Insurance Carrier /Third Party Provider Information ........... ©2007 Hitesman & Associates, P.A. 122707 ..............................................1 .............................................. 2 .............................................. 3 .............................................. 6 .............................................. 8 .............................................. 9 ............................................ 14 ........................................... 17 ........................................... 18 ........................................... 20 ........................................... 22 ........................................... 24 ........................................... 27 ........................................... 32 ........................................... 35 ........................................... 38 Elk River Municipal Utilities Flexible Benefits Plan ARTICLE I. INTRODUCTION 1.1 Establishment. Elk River Municipal Utilities (hereinafter the 'Employer"), hereby amends and restates, effective January 1, 2008, the Elk River Municipal Utilities Flexible Benefits Plan (the "Plan'. 1.2 Purpose. The purpose of the Plan is to provide Participants with a choice between cash and certain "qualified benefits" as defined in Section 125 of the Code. [See Illustration 1 on Page 2 of this Plan.] The Plan is intended to qualify as a "cafeteria plan" under Section 125 of the Code so that Optional Benefits a Participant elects to receive under the Plan will be eligible for exclusion from the Participant's gross income to the fullest extent possible under the Code. 1.3 HIPAA Privacy and Security Rules. Portions of this Plan are "covered entities" for purposes of the Privacy Rules and the Security Rules. 1.4 Gender and Number. Pronoun references in this Plan shall be deemed to be of any gender relevant to the context, and words used in the singular may also include the plural. ©2007 Hitesman & Associates, P.A. 1 Elk River Municipal Utilities 122707 Flexible Benefits Plan ILLUSTRATION 1: Elk River Municipal Utilities Flexible Benefits Plan Employee Contribution Elk River Municipal Utilities Flexible Benefits Plan Group Medical Group Dental Medical Dependent Benefits Benefits Expense Care Expense Reimbursement Reimbursement Plan Plan *use or lose rule applies (no rollover) ©2007 Hitesman & Associates, P.A. 2 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE II. DEFINITIONS The following words and phrases are used in this Plan and shall have the meanings set forth in this Article unless a different meaning is clearly required by the context or is defined within an Article. 2.1 Change in Status means the situations recognized by this Plan and permitted under applicable law, as reflected in Section 5.3, that permit a Participant to make a change in his or her Election mid-Plan Year. 2.2 Claims Administrator means the entity described under Section 6.1(c). 2.3 Code means the Internal Revenue Code of 1986, as amended from time to time. 2.4 Compensation means all of an Employee's earnings from the Employer which are subject to withholding for federal income tax purposes. 2.5 Covered Individual means a person, including a Participant, a Dependent of a Participant, a Spouse of a Participant, and any other person, appropriately covered under an Optional Benefit subject to the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA', as amended, and as reflected in the Public Health Services Act ("PHSA'~, as amended. 2.6 Dependent means "Dependent" as defined in each Optional Benefit provision in which such term is used. Unless specifically stated otherwise, Dependent is not necessarily the same as a dependent for tax purposes. 2.7 Effective Date means the effective date of this amendment and restatement, which is January 1, 2008. 2.8 Election means the choice of Optional Benefits and means of payment made by the Participant, as described in Article V. 2.9 ePHI means PHI maintained or transmitted in electronic media including, but not limited to, electronic storage media (i.e., hard drives, digital memory medium) and transmission media used to exchange information in electronic storage media (i.e., Internet, extranet, and other networks). PHI transmitted via facsimile and telephone is not considered to be transmissions via electronic media. 2.10 Election Period means the period of time identified by the Plan Administrator prior to the start of a Plan Year during which a Participant may change his or her Election. For a Participant who enters the Plan other than at the start of a Plan Year, Election Period means the period of time identified by the Plan Administrator during which an Eligible Employee may make an Election or change a deemed Election. 2.11 Eligible Employee means each Employee who has met the eligibility requirements of Section 3.1. 2.12 Employee means any person employed by the Employer on or after the Effective Date, except that it shall not include: (a) any self-employed individual as described in Section 401(c) of the Code; (b) any employee included within a unit of employees covered by a collective bargaining unit unless such agreement expressly provides for coverage of the employee under this Plan; ©2007 Hitesman & Associates, P.A. 3 Elk River Municipal Utilities 122707 Flexible Benefits Plan (c) any employee who is a nonresident alien and receives no earned income from the Employer from sources within the United States; or (d) any employee who is a leased employee as defined in Section 414(n)(2) of the Code. All employees who are treated as employed by a single employer under subsections (b), (c) or (m) of Section 414 of the Code are treated as employed by a single employer for purposes of this Plan. Employee also includes any elected official of the Employer employed by the Employer on or after the Effective Date. 2.13 Employer means Elk River Municipal Utilities. 2.14 Employer Contribution means amounts, if any, that have not been actually or constructively received by the Participant made available to the Participant by the Employer for the purpose of electing Optional Benefits under the Plan as described in Section 4.4, in accordance with the Election requirements. No Employer Contribution shall be credited to any Employee during a period of leave of absence, whether authorized or unauthorized, unless required by the Family Medical Leave Act ("FMLA'~. Employees who are not eligible for participation on the first day of the Plan Year shall have their annual Employer Contribution pro-rated by multiplying the annual available Employer Contribution by a fraction, the numerator of which is the number of months the Employee is eligible for participation for the Plan Year, the denominator which is twelve. The Employer Contribution, including any additional limitations or restrictions thereon, shall be communicated to Participants prior to the start of the Plan Year as part of the Election materials. 2.15 Entry Date means the date(s) as of which Eligible Employees may become Participants in this Plan provided all necessary forms have been completed. The initial Entry Date for an Eligible Employee is the first day on which the Employee first becomes an Eligible Employee. Thereafter, the Entry Date is the first day of each Plan Year unless a Change in Status occurs. 2.16 Highly Compensated Individual means individuals who are highly compensated as defined in Section 125(e)(2) of the Code. 2.17 Highly Compensated Participant means Participants who are highly compensated as defined in Section 125(e)(1) of the Code. 2.18 HIPAA means Health Insurance Portability and Accountability Act of 1996, and regulations thereunder, as amended from time to time. 2.19 Insurer means any insurance company, licensed to do business in the state of Minnesota, that has issued a policy through which benefits are made available under this Plan. 2.20 Optional Benefits means the benefits made available through this Plan as follows: (a) group medical benefits; (b) group dental benefits; (c) medical expense reimbursement plan; and (d) dependent care expense reimbursement plan. 2.21 PHI means health information that: ©2007 Hitesman & Associates, P.A. 4 Elk River Municipal Utilities 122707 Flexible Benefits Plan (a) is created or received by a health care provider, health plan, public health authority, employer, life insurer, school or university, or health care clearinghouse; (b) relates to the past, present, or future physical or mental health or condition of an individual; the provision of health care. to an individual; or the past, present, or future payment for the provision of health care to an individual; and (c) either identifies the individual or reasonably could be used to identify the individual. PHI includes ePHI. 2.22 Participant means an Eligible Employee who participates in the Plan in accordance with Article III and has not ceased to be a Participant under Section 3.4. 2.23 Plan means the Elk River Municipal Utilities Flexible Benefits Plan, as it may be amended or restated from time to time. 2.24 Plan Administrator means the entity determined under Section 6.1. 2.25 Plan Year means, except as otherwise specifically described with respect to an Optional Benefit, the twelve-month period commencing on the first day of January and ending on the last day of December. 2.26 Privacy Rules means the Standards and Privacy of Individua//y Identifiab/e Hea/th Information at 45 C.F.R. Part 160 and Part 164 at subparts A and E. 2.27 Security Incident means "security incident" as defined in 45 C.F.R. Section 164.304, which generally defines "security incident" to include attempted or successful unauthorized access, use, disclosure, modification, or destruction of ePHI. 2.28 Security Rules means the Security Standards and Imp/ementation Specifications at 45 C.F.R. Part 160 and Part 164, subpart C. 2.29 Spouse means an individual who is legally married to a Participant and who is treated as a "spouse" under the Code. 2.30 Summary Health Information means "summary health information" as defined in 45 C.F.R. Section 164.504, which generally defines "summary health information" to include information, which may be PHI, that summarizes claims history, claims expenses, or the type of claims experienced by individuals receiving benefits under the Plan from which certain identifiers have been deleted. ©2007 Hitesman & Associates, P.A. 5 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE III. ELIGIBILITY AND PARTICIPATION 3.1 Eligibility Requirements. (a) Initial Eligibility Requirements. In general, an Eligible Employee is (1) an Employee employed by the Employer, and (2) an Employee scheduled to work a normal work week of forty (40) hours or more per week in a continuous twelve (12) month period. (b) Ongoing Eligibility Requirements. In order to maintain eligibility, an Eligible Employee must continue to meet the requirements described above for initial eligibility. 3.2 Notification of Participants. The Plan Administrator shall provide each Eligible Employee written notice of the Employee's eligibility to participate in the Plan in sufficient time to enable such Eligible Employee to submit an application for participation in the Plan on or before the applicable Entry Date. The amount of time that is "sufficient" shall be determined by the Plan Administrator. 3.3 Application for Participation. In general, to become a Participant, an Eligible Employee shall execute and deliver to the Plan Administrator prior to the applicable Entry Date, a written application signed by the Eligible Employee in which the Eligible Employee applies to participate in the Plan, designates the required portion of Compensation for the pre-tax and after-tax (if any) contributions, makes a benefit Election, and supplies any other pertinent information that the Plan Administrator may reasonably require. For new hires, an Eligible Employee shall execute and deliver to the Plan Administrator within thirty (30) days of employment, such written application. In this situation, participation in this Plan is retroactive to the date of hire pursuant to Section 1.125-2(d) of the proposed regulations. By signing such application or agreement, the Eligible Employee shall be deemed for all purposes to have agreed to participate and to conform to the requirements of the Plan. Such application or agreement may be the same as, or separate from, the application or agreement required to participate in any Optional Benefit under this Plan. Alternatively, or in addition to, the Plan Administrator may require or permit application of same scope by electronic means. 3.4 Termination of Participation. A Participant automatically ceases to be a Participant at midnight of the earliest of the following dates: (a) The death of the Participant; (b) The date of termination of the Participant's employment with the Employer; (c) The date of the Participant's failure to meet the eligibility requirements of Section 3.1, as may be amended from time to time; or (d) The date of termination of the Plan in accordance with Article VII. In the event the Plan does not learn that a Participant has automatically ceased to be a Participant until a date after the date participation ceased, participation will be terminated retroactively and the Plan shall be entitled to recover any benefits paid after the date participation is terminated. Termination of participation in this Plan shall not prevent a former Participant from continuation coverage, conversion coverage or benefits under the respective Optional Benefit plans if and to the extent provided by such plans. 3.5 Conditions of Participation. As a condition of participation and receipt of benefits under this Plan, the Participant agrees to: ©2007 Hitesman & Associates, P.A. 6 Elk River Municipal Utilities 122707 Flexible Benefits Plan (a) Observe all Plan rules and regulations; (b) Consent to inquiries by the Plan Administrator with respect to any provider of services involved in a claim under this Plan; and (c) Submit to the Plan Administrator all notifications, reports, bills, and other information required by the Plan or which the Plan Administrator may reasonably require. Failure to do so relieves the Plan, Plan Administrator, and Claims Administrator from any and all obligations under this Plan. 3.6 Participation in Optional Benefit Plans. In order to elect a specific Optional Benefit provided under this Plan, a Participant must elect that Optional Benefit on such forms as the Plan Administrator may require (unless the benefit is provided to all Participants) and, if the cost of Optional Benefit is not fully paid by the Employer, shall be required to share the cost of the Optional Benefit as provided in Article IV. Further, the Participant must meet any eligibility, participation, etc., requirements applicable to that Optional Benefit in accordance with the terms of the Plan through which the Optional Benefit is provided. ©2007 Hitesman & Associates, P.A. 7 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE IV. CONTRIBUTIONS 4.1 Salary Reduction Contributions. To the extent the cost of an Optional Benefit exceeds the Employer Contribution (if any), a Participant may elect in accordance with the Election procedures described in Article V to receive his or her full Compensation in cash, or to have a portion of such Compensation applied by the Employer toward the Participant's share of the cost of Optional Benefits. If so elected, the Participant's Compensation will be reduced, and an amount equal to the reduction shall be allocated by the Employer to the Optional Benefits designated by the Participant. A Participant's Compensation shall be reduced per pay period by pro-rata amounts of the Participant's total salary reduction Election with the exception of the calendar months in which there are three pay periods. Salary reduction is done on a pre-tax basis before any withholdings have been made. Only two paychecks per calendar month will reflect the salary reduction. 4.2 Imputation of Income. Pursuant to Section 1.125-1(h) of the proposed regulations, the entire cost of coverage for which the Participant is responsible may be paid pre-tax through this Plan. To the extent that payment includes coverage for anon-tax Dependent, the value of the coverage for that non-tax Dependent shall be imputed as income to the Participant as the coverage is provided. This provision applies regardless of whether the cost of coverage is paid by salary reduction or allocation of available Employer Contributions. The preceding notwithstanding, if the cost of the coverage for anon-tax Dependent is paid with after-tax dollars, there shall be no imputation of income. Refer to Section 9.5 for a definition of "non-tax Dependent." 4.3 Salary Deduction Contributions. The Employer may permit amounts for which the Participant is responsible, but (1) cannot be paid with pre-tax dollars through salary reduction, or (2) cannot be paid with pre-tax dollars without a corresponding imputation of income described above, be funded with after-tax dollars pursuant to a salary deduction agreement. Such salary deductions shall be made on a periodic basis and relate to a Participant's Compensation after taxes and withholdings have been made. 4.4 Employer Contribution. The Employer may make a fixed dollar contribution per Plan Year, or portion of a Plan Year (e.g., month, pay period), per Participant. The amount of the Employer Contribution shall be communicated to the Participants prior to the start of each Plan Year so that they may consider it in making their Elections. The amount of the Employer Contribution may change from year to year as announced by the Employer prior to the Plan Year start. The Employer may designate different amounts for different groups of Eligible Employees. Where a Participant begins participation during the Plan Year rather than at the start of a Plan Year, the Employer Contribution shall be prorated based upon the number of complete calendar months remaining in the Plan Year and the number of calendar days remaining in the calendar month in which the Participant begins participation. 4.5 Maximum. Under no circumstances may a Participant's total salary reduction exceed the sum of (a) the cost of benefits provided through insurance or insurance types of benefits plus (b) the maximum Election amounts permitted under reimbursement plans minus (c) the Employer Contribution, if any. 4.6 No Trust. Nothing in this Plan is intended to require the establishment of a trust. The benefits paid under this Plan attributable to Employer Contributions and Participant contributions including, but not limited to, salary reductions amounts are paid from the Employer's general assets. ©2007 Hitesman & Assaiates, P.A. $ Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE V. ELECTION OF AVAILABLE BENEFITS 5.1 Initial Elections. An Election must be made during the initial Election Period. An affirmative Election to participate is required. If the Election Period ends and an Eligible Employee has not returned an Election form to the Plan Administrator, the Eligible Employee will be deemed to have elected not to participate in Optional Benefits. To the extent there is an Employer Contribution, the Eligible Employee will forfeit the entire Employer Contribution. 5.2 Subsequent Elections. During the Election Period prior to each subsequent Plan Year, each Participant shall be given the opportunity to change his or her Election. Such changes include the following: (a) an Eligible Employee who is not participating may elect to begin participating by electing Optional Benefits during the Election Period; (b) a Participant may terminate participation in the Plan; or (c) a Participant may elect different Optional Benefits or different levels of Optional Benefits. An affirmative election is required. If the Election Period ends and an Eligible Employee has not returned an Election form to the Plan Administrator, the Eligible Employee will be deemed to have elected not to participate in Optional Benefits. 5.3 Elections Irrevocable. Once an Election becomes effective, such Election shall be irrevocable for the Plan Year or the remainder of the Plan Year except under the following circumstances: (a) Change in Status. A Participant may change or terminate his or her actual or deemed Election under the Plan upon the occurrence of a Change in Status, but only if such change or termination is made on account of and corresponds with a Change in Status that affects coverage eligibility of a Participant, a Participant's Spouse, or a Participant's Dependent (referred to as the general consistency requirement). The Plan Administrator (in its sole discretion) shall determine, based on prevailing IRS guidance, whether a requested change is on account of and corresponds with a Change in Status. Assuming that the general consistency requirement is satisfied, a requested change must also satisfy the following specific consistency requirements in order for a Participant to be able to alter his or her Election based on that change. (1) Loss of Dependent Eligibility. For a Change in Status involving a Participant's divorce, annulment or legal separation from a Spouse, the death of a Spouse or a Dependent, or a Dependent ceasing to satisfy the eligibility requirements for coverage, a Participant may only elect to cancel accident or health insurance, or insurance type, coverage for the Spouse involved in the divorce, annulment, or legal separation, the deceased Spouse or Dependent, or the Dependent that ceased to satisfy the eligibility requirements. Canceling coverage for any other individual under these circumstances would fail to correspond with that Change in Status. Notwithstanding the foregoing, if the Participant, the Participant's Spouse (but not ex-Spouse) or the Participant's Dependent becomes eligible for COBRA (or similar health plan continuation coverage under state law) under the Employer's Plan, the Participant may increase the Election for that Optional Benefit to pay for such coverage provided the Participant is still eligible under the Plan and still receiving Compensation. (2) Gain of Coverage Eligibility Under Another Employer's Plan. For a Change in Status in which a Participant, a Participant's Spouse, or a Participant's Dependent gains eligibility for coverage under another employer's cafeteria plan 02007 Hitesman & Associates, P.A. 9 Elk River Municipal Utilities 122707 Flexible Benefits Plan (or another employer's qualified benefit plan) as a result of a change in marital status or a change in employment status, a Participant may elect to cease or decrease coverage only if that coverage becomes effective or is increased under the other employer's plan. (3) Dependent Care Expense Reimbursement Plan. With respect to the Dependent Care Expense Reimbursement Plan, a Participant may change or terminate his or her Election only if (i) such a change or termination is made on account of and corresponds with a Change in Status that affects eligibility for coverage under an employer's plan; or (ii) the Election change is on account of and corresponds with a Change in Status that affects eligibility of dependent care expenses for the tax exclusion available under Code § 129 of the Code. (b) HIPAA Special Enrollment Rights. If a Participant's Spouse or a Participant's Dependent is entitled to special enrollment rights under a group health plan, as required by Code § 9801(f), medical coverage was declined under the group health plan because of outside medical coverage, and eligibility for the outside medical coverage is subsequently lost due to legal separation, divorce, death, termination of employment, reduction in hours, or exhaustion of the maximum COBRA period, then a Participant may revoke a prior Election for health or accident coverage and make a new Election (including salary reduction Election), provided that the Election corresponds with the exercise of such special enrollment right. For purposes of this provision (1) an Election to add previously eligible Dependents as a result of the acquisition of a new Spouse or Dependent child, subject to the provisions of the underlying group health plan, shall be considered consistent with the special enrollment right (a/k/a the Tag-along Rule); and (2) a HIPAA special enrollment Election attributable to the birth or adoption of a new Dependent child may, subject to the provisions of the underlying group health plan, be effective retroactive (up to thirty (30) days). (c) Certain ]udgments, Decrees and Orders. If a judgment, decree, or order (an "Order") resulting from a divorce, legal separation, annulment or change in legal custody (including a qualified medical child support order) requires accident or health coverage for a Participant's Dependent child (including a foster child who is a Dependent of the Participant), a Participant may: (1) change his or her Election to provide coverage for the Dependent child (provided that the Order requires the Participant to provide coverage and subject to the provisions of the underlying group health plan); or (2) change his or her Election to revoke coverage for the Dependent child if the Order requires that another individual (including the Participant's Spouse or former Spouse) provide coverage under that individual's plan. (d) Medicare and Medicaid. If a Participant, a Participant's Spouse, or a Participant's Dependent who is enrolled in a health or accident benefit under this Plan becomes entitled to Medicare or Medicaid (other than coverage consisting solely of benefits under Section 1928 of the Social Security Act providing for pediatric vaccines), the Participant may prospectively reduce. or cancel the health or accident coverage of the person becoming entitled to Medicare or Medicaid. Further, if a Participant, a Participant's Spouse, or a Participant's Dependent who has been entitled to Medicare or Medicaid loses eligibility for such coverage, then the Participant. may prospectively elect to commence or increase the health or accident coverage. (e) Change in Cost. (1) Automatic Increase or Decrease for Insignificant Cost Changes. If the cost of an Optional Benefit (other than the Medical Expense Reimbursement Plan) increases or decreases during a Plan Year by an insignificant amount, then the pre-tax contributions or after-tax contributions (as applicable) under each ©2007 Hitesman & Associates, P.A. 10 Elk River Municipal Utilities 122707 Flexible Benefits Plan affected Participant Election shall be prospectively increased or decreased to reflect such change. The Plan Administrator, on a reasonable and consistent basis, will automatically effectuate this prospective increase or decrease in Participant contributions in accordance with such cost changes. The Plan Administrator (in its sole discretion) will decide, in accordance with prevailing IRS guidance, whether increases or decreases in costs are "insignificant" based upon all the surrounding facts and circumstances (including, but not limited to, the dollar amount or percentage of the cost change). (2) Significant Cost Increases. If the Plan Administrator determines that the cost of an Optional Benefit (other than the Medical Expense Reimbursement Plan) significantly increases during a Plan Year, the Participant may either (a) make a corresponding prospective increase in his or her contributions, or (b) simply revoke his or her Election, and in lieu thereof, receive coverage under another Plan option which provides similar coverage. If no similar coverage is available, the Participant may revoke his or her Election. The Plan Administrator (in its sole discretion) will decide, in accordance with prevailing IRS guidance, whether a cost increase is significant and what constitutes "similar coverage" based upon all the surrounding facts and circumstances. (f) Change in Coverage. (1) Significant Curtailment. If the Plan Administrator determines that an Optional Benefit (other than the Medical Expense Reimbursement Plan) under this Plan is significantly curtailed or ceases during a Plan Year, the Participant may revoke his or her Election under the Plan. To the extent there is similar coverage, the Participant may prospectively elect such coverage. If no similar coverage is available, the Participant may simply revoke his or her Election. Coverage under an accident or health plan is deemed "significantly curtailed" only if there is an overall reduction in coverage provided to Participants under the Plan so as to constitute reduced coverage to Participants in general. The Plan Administrator (in its sole discretion) will decide, in accordance with prevailing IRS guidance, whether a curtailment is "significant", and whether a substitute Optional Benefit constitutes "similar coverage" based upon all the surrounding facts and circumstances. (2) Addition or Elimination of a Benefit Providing Similar Coverage. If during a Plan Year, the Plan adds or eliminates an Optional Benefit (other than the Medical Expense Reimbursement Plan), an affected Participant may elect a newly-added option or elect another Optional Benefit (where a Plan option has been eliminated), and may do so prospectively on a pre-tax basis by making corresponding Election changes with respect to coverage under another Optional Benefit that provides similar coverage. The Plan Administrator (in its sole discretion) will decide, in accordance with prevailing IRS guidance, whether a substitute Optional Benefit constitutes "similar coverage" based upon all the surrounding facts and circumstances. (3) Change in Coverage of Spouse or Dependent Under Their Employer's Plan. A Participant may make a prospective Election change (other than under the Medical Expense Reimbursement Plan) that is on account of and corresponds with a change made under the plan of the Spouse's, former Spouse's, or Dependent's employer, so long as (a) the cafeteria plan or qualified benefits plan of the Spouse's, former Spouse's, or Dependent's employer permits its participants to make an Election change that would be permitted under the proposed or final IRS regulations; or (b) the Plan permits Participants to make an Election for a Plan Year period of coverage which is different from the elan vear UZ007 Hitesman & Associates, P.A. 11 Elk River Municipal Utilities 122707 Flexible Benefits Plan period of coverage under the cafeteria plan or qualified benefits plan of the Spouse's, former Spouse's or Dependent's employer. The Plan Administrator shall determine, based on prevailing IRS guidance, whether a requested change is on account of and corresponds with a change made under the plan of the Spouse's, former Spouse's, or Dependent's employer. (4) Loss of Governmental or Educational Coverage. A Participant may prospectively change his or her Election to add group health coverage for the Participant or his or her Spouse or Dependent, if such individual(s) loses coverage under any group health coverage sponsored by a governmental or educational institution, including (but not limited to) the following: a state children's health insurance program (SCRIP) under Title XXI of the Social Security Act; a medical care program of an Indian Tribal government (as defined in Code § 7701(a)(40)), the Indian Health Service, or a tribal organization; a state health benefits risk pool; or a foreign government group health plan, subject to the terms and limitations of the applicable benefit package option(s). (g) Other. The Plan Administrator shall have the discretion to allow a change to or termination of an Election to the extent such change or termination is the result of any other situation informally recognized by the Internal Revenue Service as providing an exception to the general rule that Elections are irrevocable (e.g., corrections of mistakes, changes to meet nondiscrimination requirements). A Participant entitled to make a new Election under this Section must do so within thirty (30) days of the event. An Employee who is eligible to elect benefits but declined to do so during the initial Election period, or during a subsequent Election period, may file a new Election within thirty (30) days of the occurrence of an event described above, but only if the new Election is made on account of and corresponds with the event. Subject to the provisions of the underlying group health plan, Elections made to add medical coverage for a newborn or newly adopted Dependent child pursuant to a HIPAA special enrollment right may be retroactive for up to thirty (30) days. All other new Elections shall be effective prospectively immediately following the date the Participant files the new Election with the Plan Administrator. Elections made pursuant to this Section shall be effective for the balance of the Plan Year in which the Election is made unless a subsequent event (described above) allows a further Election change. For purposes of Section 5.3, the term "Dependent" shall mean an individual who is a "dependent" under Section 152 of the Code, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof. 5.4 Rehire and Eligibility Loss. Termination of employment shall automatically revoke any Election. Except as otherwise limited by applicable Optional Benefits, former Participants who are rehired: (a) After thirty (30) days following a termination of employment, shall have two "periods of coverage;" that period prior to the termination of employment and that period following the re-employment of the terminated Employee. Expenses incurred prior to the termination of employment shall be subject to the Election in effect upon termination; while the Employee shall have an opportunity to make a new Election and expenses incurred after re-employment shall be subject to the Election made upon re-employment. (b) Within thirty (30) days following a termination of employment, shall have the Election in effect prior to the termination of employment reinstated upon re-employment. 5.5 Benefit Descriptions. While an Election to receive one or more of the Optional Benefits may be made under this Plan, the benefits themselves may be provided in accordance with Plan documents or contracts which describe the types and amounts of benefits available, the ©2007 Hitesman & Associates, P.A. 12 Elk River Municipal Utilities 122707 Flexible Benefits Plan requirements for participation, procedures for submitting claims, and the other terms and conditions of coverage. Such underlying Plan documents or contracts, if any, are incorporated into this Plan by reference. 5.6 Forfeiture. Any amounts, whether obtained through salary reduction, salary deduction, Employer Contributions (if any), or otherwise, under this Plan which cannot be distributed by the Plan Administrator to cover the cost of Benefits for the applicable Plan Year, shall be forfeited by the Participant. The Plan Administrator may use such forfeited amounts to defray the reasonable administrative costs of the Plan. To the extent forfeited amounts remain, the Plan Administrator shall arrange for the provision of a benefit for a broad cross section of Participants of the same type as the benefit which resulted in the forfeitures. Under no circumstances shall the Plan Administrator establish an outside formal or informal arrangement under which the forfeited amounts will be "currently available" (as defined in Internal Revenue Service proposed or final regulations) to the Participant who experienced the forfeiture. This forfeiture requirement shall be applied separately for each Optional Benefit. 5.7 Limitations on Benefits. Benefits shall be limited in a manner which will prevent the Plan from discriminating in favor of Highly Compensated Individuals as to eligibility to participate and Highly Compensated Participants as to contributions and benefits. As provided in Section 6.13, the Plan Administrator shall determine the manner of adjusting eligibility, benefits, and contributions, if necessary, and may do so with or without the consent of such Participants. ©2007 Hitesman & Associates, P.A. 13 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE VI. ADMINISTRATION 6.1 Plan Administrator. (a) The Plan Administrator shall be responsible for the general supervision of the Plan. The Plan Administrator shall perform any and all acts necessary or appropriate for the proper management and administration of the Plan. (b) The Employer shall be the Plan Administrator unless the Employer's managing body designates a person or persons other than the Employer to be the Plan Administrator. The Employer shall also be the Plan Administrator if the person or persons so designated cease to be the Plan Administrator. (c) The Plan Administrator may designate an individual or entity to act on its behalf with respect to certain powers, duties, responsibilities, etc. with respect to the operation and administration of this Plan. Where benefits under this Plan are provided through an insurance company, Health Maintenance Organization ("HMO's, or Dental Maintenance Organization ("DMO"), that insurance company, HMO or DMO shall be the Claims Administrator with respect to those benefits. In all other situations, the Plan Administrator shall be the Claims Administrator unless the Plan Administrator contracts with another entity to act on its behalf. 6.2 Agent for Service of Legal Process. The agent for service of legal process for the Plan is the Plan Administrator. 6.3 Allocation of Responsibility for Administration. The Plan Administrator shall have the sole responsibility for the administration of this Plan as is specifically described in this Plan. The designated representatives of the Plan Administrator shall have only those specific powers, duties, responsibilities, and obligations as are specifically given to them under this Plan. The Plan Administrator warrants that any directions given, information furnished, or action taken by it shall be in accordance with the provisions of the Plan authorizing or providing for such direction, information or action. It is intended under this Plan that the Plan Administrator shall be responsible for the proper exercise of its own powers, duties, responsibilities, and obligations under this Plan and shall not be responsible for any act or failure to act of another Employee of the Employer. Neither the Plan Administrator (including any designee) nor the Employer makes any guarantee to any Participant in any manner for any loss or other event because of the Participant's participation in this Plan. 6.4 Rules and Decisions. Except as otherwise specifically provided in the Plan, the Plan Administrator may adopt such rules and procedures as it deems necessary, desirable, or appropriate. All rules and decisions of the Plan Administrator shall be uniformly and consistently applied to all Participants in similar circumstances. When making a determination or calculation, the Plan Administrator shall be entitled to rely upon information furnished by a Participant, the Employer, or legal counsel. 6.5 Procedures. The Plan Administrator may act at a meeting or in writing. The Plan Administrator may adopt by-laws and regulations as it deems desirable for the conduct of the Plan's affairs and as are consistent with the terms of the Plan. 6.6 Records and Reports. The Plan Administrator shall be responsible for complying with all reporting, filing and disclosure requirements for the Plan. 6.7 Notice of Claim. In the event a Participant has a claim for any benefits under this Plan, the Participant shall file a claim with the Claims Administrator on forms provided for such purpose. Upon request, the Claims Administrator shall provide the Participant or Participant's designated ©2007 Hitesman & Associates, P.A. 14 Elk River Municipal Utilities 122707 Flexible Benefts Plan representative with any and all necessary forms. Prior to making any payment of benefits under this Plan, the Claims Administrator may require the Participant to provide such information to complete such appropriate documents or forms as necessary for the proper administration of this Plan. The Claims Administrator may rely upon all such information furnished to it, including Participant's mailing address. 6.8 Claims Review Procedure. (a) Third Party Benefits. The claims requirements and appeal procedures regarding benefits available from third parties shall be handled in accordance with the governing documents for those benefits. (b) Other Benefits. For benefits other than those described in (a), the Claims Administrator shall notify the claimant within thirty (30) days after a claim for benefits is filed, the claim will either have been paid or the Claims Administrator will notify you that it has been denied. If the Claims Administrator denies the claim, the individual shall be provided with the following information in writing: (1) the specific reasons for the denial; and (2) a description of any additional material or information necessary to complete the claim, and an explanation of why such material or information is necessary. 6.9 Authorization of Benefit Payments. The Plan Administrator shall issue directions to the Employer concerning all benefits which are to be paid from the Employer's assets, pursuant to the provisions of the Plan, and warrants that all such directions are in accordance with the Plan. 6.10 Facility of Payment. Whenever, in the Plan Administrator's opinion, a person entitled to receive any payment of a benefit or installment under the Plan is under a legal disability or is incapacitated in any way so as to be unable to manage their financial affairs, the Plan Administrator may request the Employer to make payments to such person, or the Plan Administrator may request the Employer to apply the payment for the benefit of such person in such manner as the Plan Administrator considers advisable. Any payment of a benefit, or installment, in accordance with the provisions of this Section, shall be a complete discharge of any liability for the making of such payment under the provisions of the Plan. 6.11 Other Powers and Duties of the Administrator. The Plan Administrator shall also have such other duties and powers as may be necessary to discharge its duties under the Plan including, but not limited to, the following: (a) discretion to construe and interpret the Plan in anon-discriminatory manner, to decide all questions of eligibility, except to the extent the eligibility determinations are governed by an insurance policy, and to determine all questions arising in the administration and application of the Plan; (b) to receive from the Employer and from Participants such information as shall be necessary for the proper administration of the Plan; (c) to furnish the Employer, upon request, such annual reports with respect to the administration of the Plan as are reasonable and appropriate; and (d) to appoint individuals to assist in the administration of the Plan and any other agents he or she deems advisable, including legal and actuarial counsel. The Plan Administrator shall not have the power to add to, subtract from, or modify any of the terms of the Plan, to change or add to any benefits provided by the Plan, or to waive or fail to apply any requirements of eligibility for a benefit under this Plan. 6.12 Indemnification. To the maximum extent allowed by, and in accordance with, applicable law, the Employer shall indemnify and hold harmless any Employee that is deemed to be a fiduciary ©2007 Hitesman & Associates, P.A. 15 Elk River Municipal Utilities 122707 Flexible Benefits Plan against any and all losses, claims, damages, expense (including court costs and attorneys' fees), and liability arising from the Employee's duties and responsibilities in connection with the Plan, unless the same is determined to be intentional or willful. 6.13 Changes by the Administrator. If the Plan Administrator determines before or during any Plan Year, that the Plan may fail to satisfy any nondiscrimination requirement imposed by the Code or any limitation on benefits provided to Key Employees, the Plan Administrator shall take such action as the Plan Administrator deems appropriate, under rules uniformly applicable to similarly situated Participants, to assure compliance with such requirements or limitation. Such action may include, without limitation, a modification of Elections by Highly Compensated Participants or Key Employees with or without consent of such Employees and/or a recharacterization within the Plan Year of benefits provided under the Plan as taxable income with or without consent of such Employees. ©2007 Hitesman & Assaiates, P.A. 16 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE VII. PLAN AMENDMENT AND TERMINATION 7.1 Employer Amendments. The Employer reserves the right to make, from time to time, any amendment or amendments to this Plan, and the Employer expressly may make any amendment it determines necessary or desirable, with or without retroactive effect, to comply with the law. Such amendments shall not affect any right to benefits that accrued prior to such amendments. Such amendment shall be made in writing. 7.2 Employer's Right to Terminate. Although the Employer expects the Plan to be maintained for an indefinite time, the Employer reserves the right to terminate the Plan or any portion of the Plan at any time. In the event of the dissolution, merger, consolidation, or reorganization of the Employer, the Plan shall terminate unless the Plan is continued by a successor to the Employer in accordance with the resolution of such successor's managing body. Such termination shall not affect any right to benefits that accrued prior to such termination. Such action shall be taken in writing. v~uui hitesman t~ Associates, P.A. 17 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE VIII. GENERAL PROVISIONS 8.1 Plan Not a Contract of Employment. The Plan is not an employment agreement and does not assure the continued employment of any Employee or Participant for any period of time. Nothing contained in the Plan shall interfere with the Employer's right to discharge an Employee or Participant at any time, regardless of the effect such discharge may have upon the individual as a Participant in this Plan. 8.2 No Right to Employer's Assets. No Employee, Participant or beneficiary thereof shall have any right to, or interest in, any assets of the Employer upon termination of employment, or otherwise except as provided from time to time under this Plan, and then only to the extent of the benefits payable under the Plan to such Employee, Participant or beneficiary thereof. In addition, the Claims Administrator shall not be liable in any manner for such payments. 8.3 Non-Alienation of Benefits. Benefits payable under this Plan shall not be subject to anticipation, alienation, sale, transfer, execution, or levy of any kind either voluntary or involuntary, including any such liability which is for alimony or other payments for the support of a Spouse or former Spouse, or for any other relative of the Participant, prior to actually being received by the person entitled to the benefit under the terms of the Plan. Any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of any right to benefits payable under the Plan shall be void. The Employer, Plan Administrator and/or Claims Administrator shall not in any manner be made liable for, or subject to, the debts, contracts, liabilities, engagements or torts of any person entitled to benefits under the Plan. 8.4 Action by Employer. Whenever the Employer, under the terms of this Plan, is permitted or required to do or perform any act or matter or thing, it shall be done and performed by the managing body of the Employer or such representatives of the Employer as the managing body may designate. 8.5 No Guarantee of Tax Consequences. Notwithstanding any provision in this Plan to the contrary, neither this Plan nor the Employer make any commitment or guarantee that any amounts paid to or on behalf of a Participant under this Plan will be excludable from the Participant's gross income for federal or state income tax purposes. It shall be the obligation of each Participant to determine whether each payment is excludable from the Participant's gross income for federal and state income tax purposes, and to notify the Employer if the Participant has reason to believe that any such payment is not so excludable. 8.6 Indemnification of Employer by Participants. If any Participant receives one or more payments or reimbursements under this Plan that are not for eligible expenses, such Participant shall indemnify and reimburse the Employer for any liability it may incur for failure to withhold federal or state income tax or Social Security tax from such payment or reimbursements. However, such indemnification and reimbursement shall not exceed the amount of additional federal and state income tax that the Participant would have owed if the payments or reimbursements had been made to the Participant as regular cash compensation, plus the Participant's share of any Social Security tax that would have been paid on such compensation, less any such additional income and Social Security tax actually paid by the Participant. 8.7 Benefits Provided Through Third Parties. In the case of an Optional Benefit provided through a third party (e.g., an insurance company pursuant to a contract or policy with that third party), if there is any conflict or inconsistency between the description of benefits contained in this Plan and the contract or policy, the terms of the contract or policy shall control, unless prohibited by applicable law. The Employer does not guarantee benefits payable under any insurance contract or health maintenance organization policy incorporated by reference into the Plan. Any benefits payable thereunder shall be the exclusive responsibility of the insurer or health maintenance organization that is obligated under the contract or policy. ©2007 Hitesman & Associates, P.A. 18 Elk River Municipal Utilities 122707 Flexible Benefits Plan 8.8 Mistakes and Errors. It is recognized that in the administration of the Plan, certain administrative and accounting errors may be made or situations may arise by reason of factual errors in information supplied to the Employer or the Plan Administrator. The Employer and/or the Plan Administrator shall have the power to take such equitable steps as may be necessary to correct the mathematical, accounting or factual errors, as they, in their sole discretion, determine(s) to be appropriate. 8.9 Limitation on Liability. The Employer does not guarantee benefits payable under any insurance policy or other similar contract described or referred to herein, and any benefits thereunder shall be the exclusive responsibility of the Insurer or other entity that is required to provide such benefits under such policy or contract. 8.10 Governing Law. This Plan shall be construed and enforced according to the laws of Minnesota except to the extent preempted by federal law. 8.11 Family and Medical Leave Act of 1993. Notwithstanding any provision of this Plan to contrary, this Plan shall be operated and maintained in a manner consistent with the Family and Medical Leave Act of 1993 ("FMLA'~ and the Employer's FMLA policy required thereunder. 8.12 Uniformed Services Employment and Reemployment Rights Act of 1994. Notwithstanding any provision of this Plan to the contrary, this Plan shall be operated and maintained in a manner consistent with the Uniformed Services Employment and Reemployment Act of 1994 ("USERRA'~, and the Plan Administrator shall, within the parameters of the law, establish uniform policies by which to provide such continuation coverage required by USERRA. 02007 Hitesman & Associates, P.A. 19 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE IX. GROUP MEDICAL BENEFITS 9.1 Separate Written Plan. For purposes of Section 105 and 106 of the Code, this Article shall constitute a separate written plan, providing for the pre tax payment of Insurance Premiums for Group Medical Benefits to Participants. To the extent necessary, other provisions of the Plan are incorporated by reference. 9.2 Purpose. The Employer provides Group Medical Benefits through one or more "plans" within the meaning of Sections 105 and 106 of the Code. The purpose of this Article is to provide for the pre tax payment of Insurance Premiums for Group Medical Benefits to Participants. The DMO and/or Insurance Contracts and/or other health benefit agreements through which the Group Medical Benefits are provided are identified in Exhibit A. 9.3 Definitions. (a) Dependent means an individual who qualifies as a "dependent" under the terms and conditions of the applicable Insurance Contract, HMO agreement, or plan document governing the Group Medical Benefits. To the extent anon-tax Dependent is provided coverage, income shall be imputed to the Participant as described in Section 4.2. (b) Group Medical Benefits means the Medical coverage made available by the Employer to which the Insurance Premiums relate. It does not include individual Insurance Contracts. (c) Highly Compensated Employee means an individual who is highly compensated as defined in Section 105(h)(5) of the Code. (d) HMO means a Medical maintenance organization authorized to do business in the state in which an agreement has been entered for the purpose of providing benefits under this portion of the Plan. (e) Insurance Contract means any insurance contract secured from an insurance company authorized to do business in the State of Minnesota which has been obtained for the purpose of providing benefits under this portion of the Plan; or aself-insured plan administered by a third party. (f) Insurance Premiums means the amount that must be paid on a periodic basis in return for group coverage. Insurance Premiums includes amounts for insurance types of benefits, including but not limited to Insurance Contracts, HMO coverage and self-insured programs for which "premium equivalents" are charged. (g) Medical Plan means this Article of the Elk River Municipal Utilities Flexible Benefits Plan which constitutes a separate written plan as described in Section 9.1 above. 9.4 Terms, Conditions and Limitations. The Employer shall secure the necessary Insurance Contracks, HMO agreements, other health benefit agreements from third party providers with respect to the provision of Group Medical Benefits and/or establish the necessary self-insured program. Coverage shall begin, benefits shall be provided, and coverage shall terminate in accordance with the applicable Insurance Contracts, HMO agreements, other health benefit agreements, and/or self-insured plan documents described in Exhibit A. Such contracts, agreements, and plan documents are expressly incorporated into and made part of this Plan. 9.5 Payments. The Plan Administrator shall make Insurance Premium payments for the Group Medical Benefits on behalf of the Participant in an amount necessary to provide the benefit applicable to the Participant under this portion of the Plan for the applicable Plan Year. If the ©2007 Hitesman & Associates, P.A. 20 Elk River Municipal Utilities 122707 Flexible Benefits Plan Participant has elected to have the cost of their coverage paid under this portion of the Plan, the Plan Administrator shall also make such payments on behalf of the Participant's Spouse and Dependents. However, if the Dependent is not a "dependent" under Section 152 of the Code, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof (a "non-tax Dependent', the value of the coverage provided to such Dependent shall be included in the Participant's income as the coverage is provided. Such payments shall be made from Employer Contributions, if any, provided by the Employer under the Plan and, if necessary, contributions made in accordance with the salary reduction arrangement and other arrangements applicable to the Participant under the terms of the Plan. The appropriate portions shall depend on the coverage elected by the Participant. 9.6 Nondiscrimination. To the extent this portion of the Plan, is subject to Section 105(h) of the Code, it shall not discriminate in favor of Highly Compensated Individuals as to eligibility to participate or benefits. If the Plan Administrator determines that this portion of the Plan is or may be discriminatory, the Plan Administrator may take action permitted by law to avoid such a result. If this portion of the Plan fails any applicable nondiscrimination requirements, Highly Compensated Individuals shall have taxable income imputed to the extent required by law. 9.7 Medical Child Support Orders. Notwithstanding any provision of this Medical Plan to the contrary, this Medical Plan shall recognize child support orders regarding coverage under this Medical Plan to the extent required by applicable law. Participants involved in a divorce or child custody matter should be directed to have their legal counsel contact the Plan Administrator. 9.8 Continuation of Coverage. Continued coverage shall be provided if it is required under, and in accordance with, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA', as amended, and as reflected in the Public Health Services Act ("PHSA'~, as amended. To the extent not contained in Article XIV, the Plan Administrator shall, within the parameters of the law, establish uniform policies by which to provide such continuation coverage. There shall also be compliance with state laws concerning continuation of medical insurance coverage to the extent not preempted by federal law. ©2007 Hitesman & Associates, P.A. 21 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE X. GROUP DENTAL BENEFITS 10.1 Separate Written Plan. For purposes of Section 105 and 106 of the Code, this Article shall constitute a separate written plan, providing for the pre tax payment of Insurance Premiums for Group Dental Benefits to Participants. To the extent necessary, other provisions of the Plan are incorporated by reference. 10.2 Purpose. The Employer provides Group Dental Benefits through one or more "plans" within the meaning of Sections 105 and 106 of the Code. The purpose of this Article is to provide for the pre tax payment of Insurance Premiums for Group Dental Benefits to Participants. The DMO and/or Insurance Contracts and/or other health benefit agreements through which the Group Dental Benefits are provided are identified in Exhibit A. 10.3 Definitions. (a) DMO means a dental maintenance organization authorized to do business in the state in which an agreement has been entered for the purpose of providing benefits under this portion of the Plan. (b) Dental Plan means this Article of the Elk River Municipal Utilities Flexible Benefits Plan which constitutes a separate written plan as described in Section 10.1 above. (c) Dependent means an individual who qualifies as a "dependent" under the terms and conditions of the applicable Insurance Contract, DMO agreement, or plan document governing the Group Dental Benefits. To the extent anon-tax Dependent is provided coverage, income shall be imputed to the Participant as described in Section 4.2. (d) Group Dental Benefits means the dental coverage made available by the Employer to which the Insurance Premiums relate. It does not include individual Insurance Contracts. (e) Highly Compensated Employee means an individual who is highly compensated as defined in Section 105(h)(5) of the Code. (f) Insurance Contract means any insurance contract secured from an insurance company authorized to do business in the State of Minnesota which has been obtained for the purpose of providing benefits under this portion of the Plan; or aself-insured plan administered by a third party. (g) Insurance Premiums means the amount that must be paid on a periodic basis in return for group coverage. Insurance Premiums includes amounts for insurance types of benefits, including but not limited to Insurance Contracts, DMO coverage and self-insured programs for which "premium equivalents" are charged. 10.4 Terms, Conditions and Limitations. The Employer shall secure the necessary Insurance Contracts, DMO agreements, other health benefit agreements from third party providers with respect to the provision of Group Dental Benefits and/or establish the necessary self-insured program. Coverage shall begin, benefits shall be provided, and coverage shall terminate in accordance with the applicable Insurance Contracts, DMO agreements, other health benefit agreements, and/or self-insured plan documents described in Exhibit A. Such contracts, agreements, and plan documents are expressly incorporated into and made part of this Plan. 10.5 Payments. The Plan Administrator shall make Insurance Premium payments for the Group Dental Benefits on behalf of the Participant in an amount necessary to provide the benefit applicable to the Participant under this portion of the Plan for the applicable Plan Year. If the Participant has elected to have the cost of their coverage paid under this portion of the Plan, the ©2007 Hitesman & Associates, P.A. 22 Elk River Municipal Utilities 122707 Flexible Benefits Plan Plan Administrator shall also make such payments on behalf of the Participant's Spouse and Dependents. However, if the Dependent is not a "dependent" under Section 152 of the Code, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof, the value of the coverage provided to such Dependent shall be included in the Participant's income as the coverage is provided. Such payments shall be made from Employer Contributions, if any, provided by the Employer under the Plan and, if necessary, contributions made in accordance with the salary reduction arrangement and other arrangements applicable to the Participant under the terms of the Plan. The appropriate portions shall depend on the coverage elected by the Participant. 10.6 Nondiscrimination. To the extent this portion of the Plan, is subject to Section 105(h) of the Code, it shall not discriminate in favor of Highly Compensated Individuals as to eligibility to participate or benefits. If the Plan Administrator determines that this portion of the Plan is or may be discriminatory, the Plan Administrator may take action permitted by law to avoid such a result. If this portion of the Plan fails any applicable nondiscrimination requirements, Highly Compensated Individuals shall have taxable income imputed to the extent required by law. 10.7 Medical Child Support Orders. Notwithstanding any provision of this Dental Plan to the contrary, this Dental Plan shall recognize child support orders regarding coverage under this Dental Plan to the extent required by applicable law. Participants involved in a divorce or child custody matter should be directed to have their legal counsel contact the Plan Administrator. 10.8 Continuation of Coverage. Continued coverage shall be provided if it is required under, and in accordance with, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), as amended, and as reflected in the Public Health Services Act ("PHSA'~, as amended. To the extent not contained in Article XIV, the Plan Administrator shall, within the parameters of the law, establish uniform policies by which to provide such continuation coverage. There shall also be compliance with state laws concerning continuation of dental insurance coverage to the extent not preempted by federal law. v~uvi rnresman to Assoaates, V.A. 23 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE XI. MEDICAL EXPENSE REIMBURSEMENT PLAN 11.1 Separate Written Plan. For purposes of Section 105 of the Code, this Article shall constitute a separate written plan, the Medical Expense Reimbursement Plan ("ME Plan"), providing for the reimbursement of Medical Expenses. To the extent necessary, other provisions of the Plan are incorporated by reference. 11.2 Purpose. The purpose of this Article is to provide Participants with the option of being reimbursed for eligible Medical Expenses. This Article is intended to qualify as a medical reimbursement plan under Section 105(h) of the Code so that payments received under this portion of the Plan are excludable from the gross income of the Participant under Section 105(b) of the Code. 11.3 Definitions. (a) Dependent means an individual who is a "dependent" under Section 152 of the Code, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof. (b) Highly Compensated Individual means an individual who is highly compensated as defined in Section 105(h)(5) of the Code. (c) Medical Expense means an expense incurred during the applicable Plan Year by a Participant, Spouse, or Dependent for medical care as defined in Section 213 of the Code, excluding premiums for health coverage, health reimbursement arrangements ("HRAs"), medical savings accounts ("MSAs'~, and long-term care coverage. Medical care generally refers to the diagnosis, cure, treatment, or prevention of disease or for the purpose of affecting any structure or function of the body. Also included, are transportation expenses for and essential to medical care. (d) Medical Expense Account ("ME Account") means the record keeping account established by the Plan Administrator for each Plan Year for each Participant from whom an Election to create such an account is received. 11.4 Medical Expense Account. The ME Account will be credited with the amount elected by the Participant and the Employer Contribution, if any, at the beginning of the Plan Year. A Participant's ME Account will be decreased from time to time in the amount of payments made to the Participant for eligible Medical Expenses incurred during the Plan Year. 11.5 Claims for Reimbursement. A Participant who has made an Election for a Plan Year may apply to the Claims Administrator for reimbursement of eligible Medical Expenses incurred during such Plan Year by submitting a claim form provided by the Claims Administrator setting forth at least the following: (a) the amount, date and nature of the expense, (b) the name of the person or entity to which the expense was paid, (c) the Participant's statement that the expense has not been reimbursed or is not reimbursable from any other source, and (d) such other information as the Claims Administrator may require. Such claim form shall be accompanied by bills, invoices, receipts, or other statements from an independent third party stating the eligible Medical Expense has been incurred and the amount of ©2007 Hitesman & Associates, P.A. 24 Elk River Municipal Utilities 122707 Flexible Benefits Plan the expense. The Claims Administrator may, to the extent provided by law, rely on information provided by Participants. 11.6 Incurred Expenses. To be reimbursable, an eligible Medical Expense must have been incurred after participation in this portion of the Plan began and during the Plan Year for which reimbursement is claimed. An expense is "incurred" when the Participant is provided with the care which gives rise to the eligible Medical Expense, not when the service is billed or paid. Reimbursement shall not be made for future projected expenses. However, the Plan may reimburse expenses for orthodontia care in advance. 11.7 Reimbursement of Expense. The Participant shall be reimbursed at least either (a) once per month, or (b) when the total reimbursement for Eligible Medical Expenses first equals or exceeds $50.00. Reimbursements shall be made from the Participant's ME Account for eligible Medical Expenses incurred during the applicable Plan Year for which the Participant submits the documentation required under Section 11.5. An amount up to the sum of the Participant's Election and the Employer Contribution, if any, and reduced as of any particular time for prior reimbursements for the same Ptan Year, shall be available for reimbursement at all times during the Plan Year. 11.8 Maximum Reimbursement. The maximum reimbursement a Participant may receive for a Plan Year under this portion of the Plan shall be $3,000. The maximum reimbursement amount applies to the Participant, Spouse, and Dependent children on an aggregate basis, not an individual basis. 11.9 Reimbursement Upon Termination of Participation. If an individual ceases to be a Participant in this portion of the Plan, coverage shall cease (which means that reimbursements shall cease) unless benefits under the Plan are continued as provided in Section 11.14. If coverage ceases, reimbursements for eligible Medical Expenses incurred before participation stopped may be reimbursed within ninety (90) days following termination of participation. The remainder of the Participant's ME Account shall be forfeited in accordance with Section 5.6. 11.10 Participant's Death. In the event a Participant dies having incurred an eligible Medical Expense which would have been reimbursable out of the Participant's ME Account had the Participant not died and a person or the Participant's estate has paid for or assumed liability for the expense, reimbursement may be made to that person or the estate for that payment or assumption. The remainder of the Participant's ME Account shall be forfeited in accordance with Section 5.6. 11.11 Nondiscrimination. This portion of the Plan shall not discriminate in favor of Highly Compensated Individuals as to eligibility to participate or benefits. If the Plan Administrator determines that this portion of the Plan is or may be discriminatory, the Plan Administrator may take action permitted by law to avoid such result. If the Plan fails any applicable nondiscrimination requirements, Highly Compensated Individuals shall have taxable income imputed to the extent required by law. 11.12 ME Account Forfeitures. Amounts attributed to a Participant's ME Account for any Plan Year shall be used only to reimburse the Participant for eligible Medical Expenses incurred during the Plan Year. Any balance remaining in a Participant's ME Account for a Plan Year shall be forfeited on the first day following the last day of March immediately following the end of such Plan Year (the "claims run-out period's and shall be forfeited in accordance with Section 5.6. The Plan Administrator may extend this period in the event the Participant cannot obtain proper documentation until after the expiration of the period. Such forfeited amount shall not be distributed in cash, carried over to the next Plan Year or used by the Participant for any other purpose. ©2007 Hitesman & Associates, P.A. 25 Elk River Municipal Utilities 122707 Flexible Benefits Plan 11.13 Medical Child Support Orders. Notwithstanding any provision of this Plan to the contrary, this Plan shall recognize child support orders regarding coverage under this Plan to the extent required by applicable law. Participants involved in a divorce or child custody matter should be directed to have their legal counsel contact the Plan Administrator. 11.14 Continuation of Coverage. Continued coverage shall be provided it is required under, and in accordance with, the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA', as amended, and as reflected in the Public Health Services Act ("PHSA'~, as amended. To the extent not contained in Article XIV, the Plan Administrator shall, within the parameters of the law, establish uniform policies by which to provide such continuation coverage. 11.15 Further Limitations on Benefits. (a) This Article does not cover expenses incurred for any loss caused by or resulting from injury or disease for which benefits are payable under any worker's compensation law or other employer, union, association or governmental sponsored group insurance plan. (b) This Article does not cover expenses incurred for any loss caused by or resulting from injury or disease for which benefits are received by the Participant, the Participant's Spouse or the Participant's Dependent under any health and accident insurance policy or program, whether or not premiums are paid by the Employer or the Participant, the Participant's Spouse or the Participant's Dependent child. (c) Amounts reimbursed under a dependent care assistance program described in Section 129 of the Code shalt not be reimbursed under this Plan. (d) A Participant in the Plan may not participate under this Article and contribute to a health savings account ("HSA'~ within the meaning of Section 223 of the Code. ©2007 Hitesman & Associates, P.A. 26 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE XII. DEPENDENT CARE EXPENSE REIMBURSEMENT PLAN 12.1 Separate Written Plan. For purposes of Section 129 of the Code, this Article shall constitute a separate written plan providing reimbursement of Dependent Care Expenses. To the extent necessary, other provisions of the Plan are incorporated by reference. 12.2 Purpose. The purpose of this DC Plan is to provide Participants with the option of being reimbursed for eligible Dependent Care Expenses. The DC Plan is intended to qualify as a dependent care assistance program under Section 129 of the Code so that payments received under this portion of the Plan are excludable from the gross income of the Participant under Section 129(a) of the Code. 12.3 Definitions. (a) Dependent Care Account ("DC Account") means the record keeping account established by the Plan Administrator for each Plan Year for each Participant from whom an Election to create such an account is received. (b) Dependent Care Center shall have the meaning given such term in Sections 21(b)(2)(C) and 21(b)(2)(D) of the Code: a facility that (i) complies with all applicable laws and regulations of the state and town, city or village in which it is located; (ii) provides care for more than six individuals (other than individuals who reside at the facility); and (iii) receives a fee, payment or grant for providing services for any of the individuals (regardless of whether such facility is operated for profit). (c) Dependent Care Expenses means amounts paid by the Participant for services that if paid for by a Participant would be considered employment-related expenses under Section 21(b)(2) of the Code and under applicable proposed or final regulations issued thereunder. Employment-related expenses for purposes of this Plan include expenses incurred to enable a Participant to be Gainfully Employed during any period for which there are one or more Qualifying Individuals with respect to the Participant for (1) household services and (2) care of a Qualifying Individual. However, employment- related expenses which are incurred for services outside the Participant's household shall be considered Dependent Care Expenses only if incurred for the care of a Qualifying Individual described in Section 12.3(h)(1) below or a Qualifying Individual not described in Section 12.3(h)(1) below who regularly spends at least eight (8) hours each day in the Participant's household. Dependent Care Expenses do not include expenses which are incurred for services provided by a Dependent Care Center if such center does not comply with all applicable laws and regulations of the applicable State or other unit of local government which regulates the center. In addition, Dependent Care Expenses shall not include any amounts paid to an individual (i) who is a child of such Participant (within the meaning of Section 152(f)(1) of the Code) who is under the age of nineteen (19) at the close of such taxable year, or (ii) with respect to whom, for such taxable year, a deduction is allowable under Section 151(c) of the Code (relating to personal exemptions for Dependents) to such Participant or the Spouse of such Participant. (d) Earned Income shall have the meaning given such term in Section 32(c)(2) of the Code (which refers to wages, salaries, tips and other Employee compensation as well as net earnings from self-employment), but shall not include any amounts reimbursed by the Employer under this portion of the Plan. Further, if a Participant's Spouse is a Student or incapable of caring for himself or herself, the provisions of Section 21(d)(2) of the Code shall apply in determining the Earned Income of that Spouse. Generally, this Section provides that a Spouse of a Participant shall be deemed to have Earned Income of not less than $250 per month if there is one Qualifying Individual with respect to the ©2007 Hitesman & Associates, P.A. 27 Elk River Municipal Utilities 122707 Flexible Benefits Plan Participant or $500 per month if there are two or more Qualifying Individuals with respect to the Participant. (e) Gainfully Employed means the earning of income for services performed or the period of active search for gainful employment. Nominal reimbursement for volunteer work is not considered gainful employment. (f) Highly Compensated Employees means Employees who are highly compensated as defined in Section 414(q) of the Code. (g) Non-Highly Compensated Participants means Employees who are not Highly Compensated Employees. (h) Qualifying Individual means any individual who is: (1) A dependent (as defined in Section 152(a)(1) of the Code) of the Participant under the age of 13; or (2) A Spouse or a dependent (as defined in Section 152 of the Code, determined without regard to subsections (b)(1), (b)(2) and (d)(1)(B) thereof) of the Participant who is physically or mentally incapable of self-care and who has the same principal place of abode as the Participant for more than one-half of the year. Unless two people are married and file a joint tax return, only one person may request reimbursement of expenses incurred with respect to a particular child, even where the child satisfies the definition of "child" as to more than one person. Special rules apply to determine which person may receive the reimbursements where more than one person wants to receive reimbursement for expenses incurred with respect to a particular child. Special Tie-breaker Rules. In general, the parent who has custody for the longest period during the calendar year (i.e., the "custodial" parent) is entitled to receive reimbursement for Dependent Care Expenses. This is true even though the non- custodial parent may be allowed to receive the child tax credit and the dependency exemption for the child on their federal income tax return. However, if the custodial parent does not claim the child as a qualifying child for any purpose (i.e., a dependent care expense reimbursement program, the earned income credit, the dependency deduction, the child tax credit, and the dependent care credit), then the non-custodial parent may receive reimbursement for Dependent Care Expenses under a dependent care expense reimbursement program. If one person is the child's parent and the other is not, the child is the Qualifying Individual of the parent and the parent may receive reimbursement for the child's Dependent Care Expenses. If neither person is the child's parent, the person with the highest adjusted gross income for the year in question may receive reimbursement for Dependent Care Expenses. However, in both cases, if the person otherwise entitled to claim the child as a Qualifying Individual does not claim the child as a qualifying child for any purpose (i.e., a dependent care expense reimbursement program, the earned income credit, the dependency deduction, the child tax credit, and the dependent care credit), then the other person may do so and receive reimbursement for dependent care expenses under the DC Plan. It is assumed that all participants in the DC Plan will be entitled to treat the child as a Qualifying Individual for purposes of reimbursement under the DC Plan. ©2007 Hitesman & Assaiates, P.A. 28 Elk River Municipal Utilities 122707 Flexible Benefits Plan (i) Student shall have the meaning provided in Section 21(e)(7) of the Code which means an individual who during each of five (5) calendar months during the taxable year is a full time student at an educational organization which normally maintains a regular facility and curriculum and normally has a regularly enrolled body of students in attendance at the place where its educational activities are regularly carried on as provided in Sections 21(e)(8) and 170(b)(1)(A)(ii) of the Code. 12.4 DC Account. The DC Account will be credited as of each date Compensation is paid to the Participant with apro-rated portion of the Participant's Election for the Plan Year. A Participant's DC Account will be decreased from time to time in the amount of payments made to the Participant for eligible Dependent Care Expenses incurred during the Plan Year. 12.5 Claims for Reimbursement. A Participant who has made an Election for a Plan Year may apply to the Claims Administrator for reimbursement of eligible Dependent Care Expenses incurred during such Plan Year by submitting a claim form provided by the Claims Administrator setting forth at least the following: (a) the amount, date and nature of the expense, (b) the name of the person or entity to which the expense was paid, (c) the Participant's statement that the expense has not been reimbursed or is not reimbursable from any other source, and (d) such other information as the Claims Administrator may require. Such claim form shall be accompanied by bills, invoices, receipts, or other statements from an independent third party stating the eligible Dependent Care Expense has been incurred and the amount of the expense. The Claims Administrator may, to the extent provided by law, rely on information provided by Participants. 12.6 Incurred Expenses. To be reimbursable, an eligible Dependent Care Expense must have been incurred after participation in this portion of the Plan began and during the Plan Year for which reimbursement is claimed. An expense is "incurred" when the Participant is provided with the care which gives rise to the eligible Dependent Care Expense, not when the service is billed or paid. Reimbursement shall not be made for future or projected expenses. 12.7 Reimbursement of Expense. The Participant shall be reimbursed at least either (a) once per month, or (b) when the total reimbursement for Dependent Care Expenses first equals or exceeds $50.00. Reimbursements shall be made from the Participant's DC Account for eligible Dependent Care Expenses incurred during the applicable Plan Year for which the Participant submits the documentation required under Section 12.5. In no case shall a payment be made which exceeds the balance in the Participant's DC Account at the time reimbursement is requested. If a claim for reimbursement exceeds the balance in the Participant's DC Account, the excess part of the claim will be carried over into following pay periods, to be paid as the Participant's balance becomes adequate. However, under no circumstances will any balance remaining in a Participant's DC Account at the end of the Plan Year be carried over to the next Plan Year. 12.8 Maximum Reimbursement. The maximum reimbursement that a Participant may receive in a tax year under this portion of the Plan shall be the lesser of: ©2007 Hitesman & Associates, P.A. 29 Elk River Municipal Utilities 122707 Flexible Benefits Plan (a) the Participant's Earned Income for the tax year; (b) the actual or deemed Earned Income of the Participant's Spouse for the tax year; or (c) $5,000, or in the case of a Participant who is married and filing a separate income tax return from his or her Spouse, $2,500. This maximum includes the Employer Contribution (if any), DC Account forfeitures and the Participant's salary reduction. If a Participant is married and the spouse of the Participant also participates in a dependent care program under Section 129 of the Code, the combined reimbursements may not exceed the limits described above for the tax year. It shall be the Participant's responsibility to monitor the combined reimbursements. 12.9 Reimbursement Upon Termination of Participation. If an individual ceases to be a Participant in this portion of the Plan during a Plan Year, no further allocations will be credited to the DC Account. However, reimbursements shall continue for eligible Dependent Care Expenses incurred before participation stopped may be reimbursed within ninety (90) days following termination of participation. The remainder of the Participant's DC Account shall be forfeited in accordance with Section 5.6. 12.10 Participant's Death. In the event a Participant dies having incurred an eligible Dependent Care Expense which would have been reimbursable out of the Participant's DC Account had the Participant not died and a person or the Participant's estate has paid for or assumed liability for the expense, reimbursement may be made to that person or the estate for that payment or assumption. The remainder of the Participant's DC Account shall be forfeited in accordance with Section 5.6. 12.11 Nondiscrimination. Not more than twenty-five percent (25%) of the amounts paid or incurred by the Employer for Dependent care assistance during the Plan Year shall be provided to Participants who are shareholders or owners (or their Spouses or Dependents) of more than five percent (5%) of the stock or of the capital or profit interest in the Employer. This portion of the Plan shall not discriminate in favor of Highly Compensated Employees or their Dependents with respect to eligibility, contributions or benefits. The average eligible Dependent Care Expenses paid to Non-Highly Compensated Employees shall be at least fifty-five (55%) of the average eligible Dependent Care Expenses paid to Highly Compensated Employees. If benefits are provided through salary reduction agreements, Employees with annual compensation less than $25,000 may be excluded. If the Plan Administrator determines that the Plan is or will be discriminatory, the Plan Administrator may take any action permitted by law to avoid such result. If the Plan fails any of these requirements, benefits provided under this portion of the Plan will become taxable to the extent required by law. 12.12 DC Account Forfeiture. Amounts attributed to a Participant's DC Account for any Plan Year shall be used only to reimburse the Participant for eligible Dependent Care Expenses incurred during such Plan Year. Any balance remaining in a Participant's DC Account for a Plan Year shall be forfeited on the first day following the last day of March immediately following the end of such Plan Year (the "claims run-out period's and shall be forfeited in accordance with Section 5.6. Such forfeited amount shall not be distributed in cash, carried over to the next Plan Year or used by the Participant for any other purpose. 12.13 Dependent Care Limitations. Reimbursement or payment of eligible Dependent Care Expenses shall be made by the Employer only in the event and to the extent that such reimbursement or payment is: (a) not provided for under any insurance policy, whether the premium on such policy is paid by the Employer or an individual, and (b) not provided for or reimbursable under any other Plan or policy. ©2007 Hitesman & Associates, P.A. 30 Elk River Municipal Utilities 122707 Flexible Benefits Plan 12.14 Reporting and Disclosure. Each Participant must be furnished with a written statement showing the amounts paid under this portion of the Plan by an Employer on behalf of the Participant for a calendar year. The statement must be furnished before January 31st of the following year. For calendar years beginning after December 31, 1988, the law requires that this information be placed on Internal Revenue Service Form W-2 for the applicable year. ©2007 Hitesman & Associates, P.A. 31 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE XIII. HIPAA PROVISIONS The Privacy Rules and Security Rules under the HIPAA apply to certain Optional Benefits that constitute "covered entities" within the meaning of HIPAA (e.g., employer-sponsored health plans). 13.1 Use and Disclosure of PHI. The Plan will use PHI to the extent of and in accordance with the uses and disclosures permitted by HIPAA. Specifically, the Plan will use and disclose PHI for purposes related to health care treatment, payment for health care and health care operations. (a) Payment includes activities undertaken by the Plan to obtain premiums or determine or fulfill its responsibility for coverage and provision of Plan benefits that relate to an individual to whom health care is provided. These activities include, but are not limited to, the following: (1) Determination of eligibility, coverage and cost sharing amounts (for example, cost of a benefit, plan maximums and co-payments as determined for an individual's claim); (2) Coordination of benefits; (3) Adjudication of health benefits claims (including appeals and other payment disputes); (4) Subrogation of health benefit claims; (5) Establishing employee contributions; (6) Risk adjusting amounts due based on enrollee health status and demographic characteristics; (7) Billing, collection activities and related health care data processing; (8) Claims management and related health care data processing, including auditing payments, investigating and resolving payment disputes and responding to participant inquiries about payments; (9) Obtaining payment under a contract for reinsurance (including stop-loss and excess of loss insurance); (10) Medical necessity reviews or reviews of appropriateness of care or justification of charges; (11) Utilization review, including pre-certification, preauthorization, concurrent review and retrospective review; (12) Disclosure to consumer reporting agencies related to the collection of premiums or reimbursement (the following PHI may be disclosed for payment purposes: name and address, date of birth, Social Security number, payment history, account number and name and address of provider and/or health plan; and (13) Reimbursement to the Plan. (b) Health care operations include, but are not limited to, the following activities: (1) Quality assessment; ©2007 Hitesman & Associates, P.A. 32 Elk River Municipal Utilities 122707 Flexible Benefits Plan (2) Population-based activities relating to improving health or reduction health care costs, protocol development, case management and care coordination, disease management, contacting health care providers and patients with information about treatment alternatives and related functions; (3) Rating provider and plan performance, including accreditation, certification, licensing or credentialing activities; (4) Underwriting, premium rating and other activities relating to the creation , renewal or replacement of a contract of health insurance or health benefits, and ceding, securing or placing a contract for reinsurance of risk relating to health care claims (including stop-loss insurance and excess of loss insurance); (5) Conducting or arranging for medical review, legal services and auditing function, including fraud and abuse detection and compliance programs; (6) Business planning and development, such as conducting cost-management and planning-related analyses related to managing and operating the Plan, including formulary development and administration, development or improvement of payment methods or coverage policies; (7) Business management and general administration activities of the Plan, including, but not limited to: Management activities relating to the implementation of and compliance with HIPAA's administrative simplification requirements; b. Customer service, including data analyses for policyholders; (8) Resolution of internal grievances; and (9) Due diligence in connection with the sale or transfer of assets to a potential successor in interest, if the potential successor in interest is a covered entity under HIPAA or following completion of the sale or transfer, will become a covered entity. 13.2 Employer's Obligations under the Privacy Rule. Under the Privacy Rule, the Plan may not disclose PHI to the Employer unless the Employer agrees to certain conditions. The Employer agrees to the following conditions, thereby allowing the Plan to disclose PHI to the Employer. The Employer will: (a) Not use or further disclose PHI other than as permitted or required by the Plan document or as required by law; (b) Ensure that any agents, including a subcontractor, to whom the Plan provides PHI received from the Plan agree to the same restrictions and conditions that apply to the Employer with respect to such PHI; (c) Not use or disclose PHI for employment related actions and decision unless authorized by an individual; (d) Not use or disclose PHI in connection with any other benefit or employee benefit plan of the Employer unless authorized by an individual; (e) Report to the Plan any PHI use or disclosure, that is inconsistent with the uses or disclosures provided for, of which it becomes aware; ©2007 Hitesman & Associates, P.A. 33 Elk River Municipal Utilities 122707 Flexible Benefits Plan (f) Make available to an individual for inspection and copying PHI about the individual as allowed by and in accordance with HIPAA; (g) Make PHI available for amendment and incorporate any amendments to PHI in accordance with HIPAA; (h) Make available the information required to provide an accounting of disclosures; (i) Make internal practices, books and records relating to the use and disclosure of PHI received from the Plan available to the HHS Secretary for the purposes of determining the Plan's compliance with HIPAA; and, (j) If feasible, return or destroy all PHI received for the Plan that the Employer still maintains in any form, and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made (or if return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction infeasible). 13.3 Employer's Obligations under the Security Rule. If the Employer creates, receives, maintains, or transmits ePHI (other than enrollment and disenrollment information and Summary Health Information, which are not subject to these restrictions), the Employer will: (a) Implement administrative, physical, and technical safeguards that reasonably and appropriately protect the confidentiality, integrity, and availability of ePHI; (b) Ensure that any agents, including subcontractors, who create, receive, maintain, or transmit ePHI on behalf of the Plan implement reasonable and appropriate security measures to protect the ePHI; (c) Report to the Plan any Security Incident of which it becomes aware; and (d) Implement reasonable and appropriate security measures to ensure that only those persons identified in Section 13.4 have access to ePHI and that such access is limited to the purposes identified in Section 13.5. 13.4 Adequate separation between the Plan and the Employer must be maintained. In accordance with HIPAA, only the following employees or classes of employees may be given access to PHI: (a) The benefit manager; and, (b) Staff designated by the benefits manager. For this purpose, "benefits manager" is a designation made by the Employer. 13.5 Limitation of PHI Access and Disclosure. The persons described in Section 13.4 above may only have access to and use and disclose PHI for Plan administration functions that the Employer performs for the Plan. 13.6 Noncompliance Issues. If a person described in Section 13.4 above does not comply with this Plan document, the Employer shall provide a mechanism for resolving issues of noncompliance including, but not limited to, disciplinary sanctions. ©2007 Hitesman & Associates, P.A. 34 Elk River Municipal Utilities 122707 Flexible Benefits Plan ARTICLE XIV. CONTINUATION COVERAGE 14.1 Compliance with Continuation. Continued coverage for Group Dental Benefits, Medical Expense Reimbursement Plan, Limited Scope Medical Expense Reimbursement Plan, and the Individual Premium Plan (hereinafter collectively referred to as the "Health Plans' shall be provided as required under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") as amended or applicable state law. The remainder of this Article applies only if and to the extent required under COBRA or state continuation laws. 14.2 Policies and Procedures. To the extent not provided herein, the Plan Administrator shall, within the parameters of the law, establish uniform policies by which to provide such continuation coverage. To the extent the policies and procedures provided herein conflict with the underlying plan documents for the Health Plans, such underlying plan documents shall control. 14.3 COBRA Notification Procedures. The Health Plans require the notifications described below with respect to continuation coverage under COBRA: (a) Notice of qualifying event. Under the law, a Covered Individual (or a representative acting on behalf of the Covered Individual) has the responsibility to inform the Health Plans of a divorce, legal separation, or a child losing Dependent status under the Health Plans (the "qualifying event's within sixty (60) days of the latest of: (i) the date of the qualifying event; (ii) the date coverage would be lost because of the qualifying event; or (iii) the date on which the Covered Individual was informed of the responsibility to provide notice and the procedures for doing so. The notification must be provided in writing and be mailed to the Health Plans. Oral notification, including notification by telephone is not acceptable. Electronic (including emailed or faxed) or hand-delivered notifications are not acceptable. The notification must be postmarked no later than the last day of the sixty (60) day notice period described above. The notification must: (1) State the name of the Health Plans; (2) State the name and address of the employee or former employee who is or was covered under the Health Plans; (3) State the name(s) and address(es) of all Covered Individuals who lost coverage due to the qualifying event; (4) Include a detailed description of the event; (S) Identify the effective date of the event; and (6) Be accompanied by any documentation providing proof of the event (i.e., the divorce decree). If no notification is received within the required time period, no continuation coverage will be provided. If the notification is incomplete, it will be deemed timely if the Health Plans are able to determine the plan to which it applies, the identity of the employee and the Covered Individuals, the qualifying event, and the date on which the qualifying event occurred, provided that the missing information is provided within thirty (30) days. If the missing information is not provided within that time, the notification will be ineffective and no continuation coverage will be provided. (b) Notice of second qualifying event. A Covered Individual (or a representative acting on behalf of the Covered Individual) must notify the Health Plans of the death of the employee, divorce or separation from the employee, or a Dependent child's ceasing to be eligible for coverage as a Dependent under the Health Plans, if that event occurs within the eighteen (18) month continuation period (or an extension of that period for disability or for pre-termination Medicare entitlement). The notification must be provided within sixty (60) days after such a second qualifying event occurs in order to be entitled to an extension of the continuation period. The notification must be provided in writing and be ©2007 Hitesman & Associates, P.A. 35 Elk River Municipal Utilities 122707 Flexible Benefits Plan mailed to the Health Plans. Oral notification, including notice by telephone is not acceptable. Electronic (including emailed or faxed) or hand-delivered notifications are not acceptable. The notification must be postmarked no later than the last day of the sixty (60) day notice period described above. The notification must: (1) State the name of the Health Plans; (2) State the name and address of the employee or former employee who is or was covered under the Health Plans; (3) State the name(s) and address(es) of all Covered Individuals who lost coverage due to the initial qualifying event and who are receiving COBRA coverage at the time of the notice; (4) Identify the nature and date of the initial qualifying event that entitled the Covered Individuals to COBRA coverage; (5) Include a detailed description of the event; (6) Identify the effective date of the event; and (7) Be accompanied by any documentation providing proof of the event (i.e., the divorce decree). If no notification is received within the required time period, no extension of the continuation period will be provided. If the notification is incomplete, it will be deemed timely if the Health Plans are able to determine the plan to which it applies, the identity of the employee and the Covered Individuals, the qualifying event, and the date on which the qualifying event occurred, provided that the missing information is provided within thirty (30) days. If the missing information is not provided within that time, the notification will be ineffective and no extension of the continuation period will be provided. (c) Notice of disability. A Covered Individual (or a representative acting on behalf of the Covered Individual) must notify the Health Plans when a Covered Individual has been determined to be disabled under the Social Security Act within sixty (60) days of the latest of: (i) the date of the disability determination; (ii) the date of the qualifying event; (iii) the date coverage would be lost because of the qualifying event; or (iv) the date on which the Covered Individual was informed of the responsibility to provide notice and the procedures for doing so. Notwithstanding the foregoing, notification must be provided before the end of the first eighteen (18) months of continuation coverage. The notification must be provided in writing and be mailed to the Health Plans. Oral notification, including notice by telephone is not acceptable. Electronic (including emailed or faxed) or hand-delivered notices are not acceptable. The notification must be postmarked no later than the last day of the sixty (60) day notice period described above. The notification must: (1) State the name of the Health Plans; (2) State the name and address of the employee or former employee who is or was covered under the Health Plans; (3) State the name(s) and address(es) of all Covered Individuals who lost coverage due to the initial qualifying event and who are receiving COBRA coverage at the time of the notice; (4) Identify the nature and date of the initial qualifying event that entitled the qualified beneficiaries to COBRA coverage; (5) State the name of the disabled Covered Individual; (6) Identify the date upon which the disabled Covered Individual became disabled; (7) Identify the date upon which the Social Security Administration made its determination of disability; and (8) Include a copy of the determination of the Social Security Administration. ©2007 Hitesman & Associates, P.A. 36 Elk River Municipal Utilities 122707 Flexible Benefits Plan If no notification is received within the required time period, no extension of the continuation period will be provided. If the notification is incomplete, it will be deemed timely if the Health Plans are able to determine the plan to which it applies, the identity of the employee and the Covered Individuals, the qualifying event, and the date on which the qualifying event occurred, provided that the missing information is provided within thirty (30) days. If the missing information is not provided within that time, the notification will be ineffective and no extension of the continuation period will be provided. If such person has been determined under the Social Security Act to no longer be disabled, the person must notify the Health Plans of that determination within thirty (30) days of the later of: (i) the date of such determination; or (ii) the date on which the Covered Individual was informed of the responsibility to provide notice and the procedures for doing so. The notification must be in writing and be mailed to the Health Plans. Regardless of when the notification is provided, continuation coverage will terminate retroactively on the first day of the month that begins thirty (30) days after the date of the determination, or the end of the initial coverage period, if later. If the notification is not provided within the required time, the Health Plans reserve the right to seek reimbursement of any benefits provided by the Health Plans between the date coverage terminates and the date the notification is provided. (d) Notice of Coverage Under Another Group Health Plan or Medicare. A Covered Individual must notify the Health Plans immediately if any Covered Individuals receiving continuation coverage actually become covered by another group health plan or Medicare. Regardless of when such notification is provided, coverage will terminate retroactively to the date of the coverage under the other group health plan or Medicare. If, for whatever reason, a Covered Individual on continuation coverage receives any benefits under the Health Plans after coverage is to cease under the foregoing rule, the Health Plans reserve the right to seek reimbursement from such Covered Individual. Dated: ELK RIVER MUNICIPAL UTILITIES By: Its: By: Its: ©2007 Hitesman & Associates, P.A. 37 Elk River Municipal Utilities 122707 Flexible Benefits Plan EXHIBIT A Insurance Carrier /Third Party Provider Information (as oflanuary 1, 2008) ELK RIVER MUNICIPAL UTILITIES FLEXIBLE BENEFITS PLAN CLAIMS ADMINISTRATOR Name: Elk River Municipal Utilities Address: 13069 Orono Parkway Elk River, MN 55330 Phone Number: 763-441-2020 Medical Benef"its* Carrier Name: Address: Phone Number: Policy or Group Number: Policy Year: BlueCross BlueShield of Minnesota P.O. Box 64338 St. Paul, MN 55164 651-662-5517 GA175 January through December * Group Medical Benefits are obtained through Resource Training & Solutions and the City, County and Other Governmental Agencies ("CCOGA'~ Health Insurance Pool. Group Dental Benefits Carrier Name: Assurant Employee Benefits Address: P.O. Box 842573 Kansas City, MO 64184-2573 Phone Number: 800 -733 - 779 Policy or Group Number: 5~ 9 9Z7 Policy Year: January 1 -December 31 ©2007 Hitesman & Associates, P.A. 38 Elk River Municipal Utilities 122707 Flexible Benefits Plan