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6.3. ERMUSR 04-05-2007Elk River Municipal Utilities 13069 Orono Parkway Elk River, MN 55330 April 3, 2007 To: Elk River Municipal Utilities Commission Jerry Takle Jerry Gumphrey Jim Tralle From: Bryan Adams Subject: Health Care Savings Plan phone: 763.441.2020 Fax: 763.441.8099 A number of years ago (4 or 5), our employees were researching a Health Care Savings Plan (HCSP) administered by the Minnesota State Retirement System. At that time, it was a new program with little history. All employees needed to participate. Unanimous consensus was not achieved so the research stopped. There is again a large interest by our employees to utilize the state administrated HCSP program. In short, the HCSP program allows employees to set aside tax free wages in a savings plan to be used to pay health insurance and out of pocket medical bills after retirement. Money taken out of this plan is also tax free. The attached brochure explains this program in detail. This plan now has four to five years of history and has a larger participant group. There is no cost to the employer except for the additional accounting to keep track of the payroll deduction. Anytime our employees want to be responsible and address their future medical needs, we should encourage them. The employee insurance task group reviewed this HCSP plan. The issue still remains, that all employees must participate in this plan. The survey below was voted on by all employees and it passed 29 yes's and 5 no's, not unanimous, but 85%. The task group met to discuss possible implementation of a Health Care Savings Plan to benefit the employees of ERMU. The task group determined that we should take a vote and, if we receive a 75% majority (27 out of 35) of yes votes, we should present a recommendation to the ERMU commission. The contribution rates were discussed and include the following three items: Sick pay balance when leave employment to a maximum of 50% of 100 days 50% of sick pay accumulation over 960 hours per year (instead of a cash payout of 40%) 1 % Gross Wages Are you interested in participating in a Health Care Savings Plan at the above contribution rates? Yes ~~ No Comments Section 16 o four employee hand book currently states: "...Employees accrue sick leave at a rate of one day per month of employment to a maximum of 120 days. An employee, upon resignation, termination or retirement, will be paid for unused sick leave to a maximum of 40% of 100 days (40 days) at his or her then prevailing wage. At the end of any calendar year, an employee who has over 120 days accrued will be paid for 40% of any amount over 120 days to bring the balance back to 120 days. The resigning, terminating or retiring employee may elect, in lieu of being paid cash for the previously defined unused sick leave, to have SO% of the unused sick leave to a maximum of SO% of 100 days (SO days) placed in a fund which will be used for payment of medical insurance by the Utility. This medical insurance may be one of the employee 's choosing, or the group policy in effect for the Utilities at that time. It can be used for either single or family coverage. If the employee dies before the fund is expended, the remainder shall be paid to the employee 's designated beneficiary. " Staff is recommending the above language be deleted and the following language be inserted in a new section. Elk River Municipal Utility employees are eligible to participate in the Minnesota Post Employment Health Care Savings Plan (HCSP) established under Minnesota Statutes, section 352.98 (Minn. Supp. 2001) and as outlined in the Minnesota State Retirement System 's Trust and Plan Documents. All funds collected by the employer on the behalf of the employee will be deposited into the employee's post employment health care savings plan account. Participation is outlined below: 1) Employees have agreed to contribute 1 % of gross wages to the Post Employment Health Care Savings Plan. These funds will be deposited after each pay period. 2) Employees who have accrued over 960 hours of sick time will have SO% of those hours converted to cash and deposited in their post employment health care savings account. The conversion will take place once a year at the end of December. 3) Employees, upon resignation, termination, or retirement, will have 50% of unused sick leave, up to a maximum of 100 days, converted into cash and deposited into their post employment health care savings account. .-~,,. 1, ,~ ~. • Acne treatment • Antiperspirant • Any charges incurred outside of plan year even if paid for during plan year • Any illegal treatment • Bleaching of teeth • Blemish concealer • Breast pumps • Chapsticks • Cosmetics • Cosmetic surgery, electrolysis, and hair transplants that are not medically necessary • Cost of illegal drugs, even if physician directed • Cost of remedial classes for non-handicapped child • Cotton balls • Dancing or ballet, even if recommended by doctor • Dental floss • Denture care products • Deodorant • Dietary supplements • Exercise equipment • Face creams • Finance charges • Funeral expenses • Hair growth/removal products • Health insurance premiums deducted on a pre-tax basis • Life insurance • Marriage counseling • Maternity clothes • Meals • Mouth wash • Nutritional supplements (~ • Powder, baby or talcum ¢~ • Shampoo • Skin lotion • Stop smoking programs for general well-being • Suntan lotion • Swabs • Swimming lessons Who chooses how contributions will be made to the Health Care Savings Plan? Employees covered by a bargaining unit: Amounts to be put into the account must be negotiated or agreed to by both the bargaining unit and employer and written into the collective bargaining agreement or Memorandum of iJnderstanding (MOU). Employees not covered by a bargaining unit: Amounts to be put into the account must be agreed to by the employer and included in a written personnel policy. What type of contributions can be made to the plan to receive the favorable tax treatment? Employer Contributions: An employer could elect to put a specific dollar anlount into employees' accounts, or set aside a percentage of employees' salaries into the accounts. Mandatory Employee Contributions: A mandated monthly contribution could be required to be set aside in a plan. Severance Pay: Many public employers pay unused vacation or sick leave at the time of termination. The policy may mandate that all or a portion of this payout be put into the plan.: 13 HCSP 1-800-657-5757 •~1S5L296-2761 www.msrs.state.mn.us • fax 651-297-52.38 2 fl,... ~~ '~ • Home modification to accommodate handicapped person (as per IRS pub. 502) Q Incontinence supplies • Insect bite/sting medicine • Insurance premiums for medical, dental or long-term care • Laboratory fees • Laxatives • Lip-reading lessons • Lodging for medical care ($50 per night per person up to $100 per night) © Massage therapy if accompanied by doctor's prescription indicating length of time needed and number of treatments needed -updated annually • Medical supplies • Medications which require a prescription to be purchased • Menstrual pain relievers • Mental institution care (mentally ill person unsafe when left alone) I Mentally handicapped, special home for ~I Motion sickness medicine ~! Muscle/joint pain relievers (except holistic or dietary supplements) ', Q Nasal sinus sprays • Nicotine patches, gum, lozenges • Nurses' expenses and board • Nursing care • Nursing home (if for medical reasons) Q Obstetrical expenses • Operations and related treatment (except cosmetic) • Oral wounds (cold sores) • Organ donation, organ transplants • Orthopedic shoes, excess of costs over normal shoes • Oxygen equipment Q Pain relievers • Pedialyte (dehydration) • Pregnancy test kits • Prenatal vitamins (prescribed) If the participant has no spouse or dependents, the designated beneficiary on their account will receive a lump sum life insurance benefit. The amount of the life insurance benefit is based on the HCSP account balance upon the participant's death. Less than $500 $0 $500 - $2,499 $2;500 $2,500 - $4,999 $5,000 $5,000 -'.$7,499 $7,500 $7,500 - $9,999 $10,000 $10,000 - $14,999 $15,000 $15,000 - $19,999 $20,000 $20,000 - $24,999 $25;000 $25,000 - $29,999 $30,000 $30,000 -$34,999 $35;000 $35,000 - $39,999 $40,000 $40:;000 - $44,999 $45,000 $45,000 - $49,999 $50,000 $50,000 or:more $50;000, The proposed tier schedule shown above is subject to change. How does my employer benefit? The Health Care Savings Plan allows your employer an opportunity to offer a benefit that you can use to cover the rising cost of health care. Employers are not required to pay FICA (7.65%) taxes on amounts contributed to this` plan. There areno employer:participation fees. N ;r•, ~~, i .~~ , ;L~ `~'~ ~ 11 HCSP 1-800-657-5757 • ~~1~296-2761 www.msrs.state.mn.us • fax 651-297-5238 ~ ~~ You may use your HCSP account to cover ACCOUNT NAME P~RisklRe xrd ~ ANNUAL FEE' the cost of health and dental insurance (paid aftertaxes),1ong term-care insurance, and Money Market .01% monthly Medicare B premiums, In the table below; we list the mosfcommon reimbursable Fixed Interest ~ .09% expenses. For a completelist of reimbursable . expenses, see IRS publicafion 502. Note: The Bond Market .09% current IRS publication 502 supercedes all , MSRS documentation regarding reimbursable O health care related expenses. 'Income Share .01% / / Q Acupuncture and acupressure Common Stock Index .02% rl Alcoholism or drug dependency treatment I and treatment centers Growth Share .23% ' Allergy medicine • Ambulance International .30% • Analgesics j Antacids 'Fees are subject to change. Pmentiauy Higher RisWReward • Antibiotics, first aid • Anti-diarrhea medicine Will I receive statements? • Antihistamines • Anti-inflammatory Yes. You will receive an account statement • Artificial limbs and teeth every six months. It will be mailed directly to • Aspirin your residence. Q Bandaids/bandages 1 Birth control devices (with prescription) What is the cost? • Birth control pills • Braille books and magazines We deduct the HCSP administrative fee from `, (to the extent prices exceed prices your account. The annual fee is 0.65 percent. This `\ for regular books and magazines) fee is prorated and deducted monthly from your • Burn treatments account balance. For example, if you have an Q Car (with special medical equipment) account value of $10,000, we would deduct $5.42 • Childbirth preparation classes for mother, per month from your account. The maximum excluding portion for mother's coach ~ annual fee is $140 or $11.67 per month. All fees • Cold and flu medicine are subject to change. • Cold/hot packs • Contact lenses ' • Contact lens solutions/cleaners • Contraceptives • Corn/callus removers • Cough drops • Crutches s HCSP 1-800-657-5757 ~ 7~1~296-2761 www.msrs.state.mn.us • fax 651-297-5238 6