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MEMORANDUM
TO:
FROM:
DATE:
Mayor
City Council
Bruce M. DeJong, Finance Director
November 5, 2003
SUBJECT: Approval of Increase in Unreimbursed Medical Expense Salary
Deferral for Flexible Spending Accounts
When we established the Flexible Spending program, which allows employees do
defer part of their salary to pay for medical expenses that aren't covered by
insurance, a limit on the deferral was established at $2,400. That amount has not
changed since the program began in 1991. Staff is recommending that the limit be
raised to $3,500.
The Internal Revenue Service does not set a limit on the amount of salary that can
be deferred for unreimbursed medical expenses. That is left to the discretion of
the employer. However, this program is treated like insurance. The City
guarantees that the full amount of deferral will be available as of January I each
year, but the employee contributions are paid on a twice a month payroll basis. If
an employee uses the full amount of deferral and terminates employment before
the end of the year, then the employer is responsible for any amount that was paid,
but not deducted from their salary. We have only had one instance during the 12
years of the program where the City incurred a significant expense in these
circumstances. The benefit to both the city and the employee is that this money is
not taxable. The City and employee both save the FICA 7.65% tax and the
employee also saves the income tax at their marginal rate.
Justin Miller surveyed other Minnesota jurisdictions to determine if we should
increase that amount. The average amount for 2004 came to $3,491.
Recommendation
Staff recommends that the flex plan salary deferral for unreimbursed medical be
raise to $3,500 for 2004 and beyond. This vote requires a simple majority of
those present.
City Max. Contribution
Alexandria $ 3,000 $ 3,000
Apple Valley $ 5,000 $ 5,000
Becker $ 2,500 $ 2,500
Bloomin~lton $ 3,000 $ 3,000
Blue Earth $ 5,000 $ 5,000
Brainerd $ 4,000 $ 4,000
Brooklyn Center $ 2,000 $ 2,000
Buffalo $ 5,000 $ 5,000
Champlin $ 2,400 $ 2,400
Cottage Grove $ 5,000 $ 5,000
Crystal $ 2,500 $ 2,500
Ea~lan $ 3,000 $ 3,000
Eden Prairie $ 3,000 $ 3,000
Elk River $ 2,000 $ 2,000
Fairmont $ 4,000 $ 4,000
Freeborn County $ 3,000 $ 3,000
Fridley $ 2,000 Proposed to increase to $ 3,500
Ham Lake $ 2,000 $ 2,000
Jackson County $ 3,000 $ 3,000
Lakeville $ 5,000 $ 5,000
Maplewood $ 3,000 $ 3,000
North Mankato $ 4,000 $ 4,000
Plymouth $ 3,000 $ 3,000
Ramsey $ 5,000 $ 5,000
Richfield $ 3,500 $ 3,500
'Robbinsdale $ 2,040 $ 2,040
Rosevilie $ 3,120 Proposed to increase to $ 5,000
'Scott County $ 5,000 $ 5,000
St. Peter $ 2,000 $ 2,000
'Stillwater $ 3,000 $ 3,000
Tonka Bay $ 1,800 $ 1,800
Waconia $ 4,000 $ 4,000
,Waseca $ 5,000 $ 5,000
Willmar $ 3,000 $ 3,000
Woodbury $ 4,940 $ 4,940
Average $ 3,394 NewAverage $ 3,491