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HomeMy WebLinkAboutIR 7419 OL INFORMAL REPORT TO CITY COUNCIL MEMBERS No. 7419 U0,601,1*1ra ,10* To the Mayor and Members of the City Council October 3, 1989 Subjed: Flex Premium JPIAn for Employees BACKGROUND The Insurance and Benefits Advisory Committee, appointed by City Manager Douglas Harman, has been studying the feasibility of providing employees with tax benefits made available under Section 125 of the Internal Revenue Code. Section 125 includes a "premium conversion" provision wherein group medical insurance payroll deductions for dependent coverage which are being deducted on an after-tax basis will be deducted on a before-tax basis. This provision provides three significant monetary benefits for affected employees: (1) overall value of their benefits package improves; (2) their taxable income is reduced; and (3) their spendable income (take-home pay) increases . There are other provisions under Section 125 which provide for the establishment of separate flexible benefits accounts (1) to cover out-of-pocket medical , visual , and dental care expenses , and (2) to cover dependent care expenses. These programs are still being studied by the Committee and a recommendation on implementation of these flexible benefits accounts will be brought back to the City Council at a future time. 00aL The Employee Insurance and Benefits Advisory Committee recommends implementation of the "premium conversion" plan be effective the first pay period in January . Although the plan does not require employees to make a selection to participate, the Committee recommends employees be given the option. It is anticipated most , if not all , employees who have dependent coverage will participate in the program since they will benefit through an increase in their take-home pay. EXAMPLE The table below shows the estimated savings for employees who cover their spouse and children for medical insurance coverage and who has taxable income of $25,000 per year: Current Plan New Plan Without Section With Section 125 Benefit 125 Benefit Employee's Annual Taxable Income $25,000 $25,000 Less Before-Tax Medical Ins. Premium --- $ 1,238 Employee's Taxable Income $25,000 $23,762 Less Estimated Federal Income Tax $ 3,750 $ 3, 564 Employee's Net Earnings $21 ,250 $20 ,198 Less Employee After Tax Medical Insurance Premium $ 1, 238 --- Employee's Spendable Income $20 ,012 $20,198 EMPLOYEE'S ANNUAL SAVINGS $ 186 ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS I 419F INFORMAL REPORT TO CITY COUNCIL MEMBERS No. T 9 m, To the Mayor and Members of the City Council October 3, 1989 Subject: Flex Premium Plan for Employees BSTIMATED SAVINGS The chart below shows a range of estimated savings to employees who cover their dependents under the City's medical insurance plan through the Section 125 "premium conversion" provisions : Assumed Employee Annual Taxable Up to Between Above Income (Assumes Joint Return) $29,750 $291750-$71 , 900 $71,900 Employees Who Cover Spouse only $ 163 $ 305 $ 359 Children Only $ 133 $ 248 $ 293 Spouse & Children $ 186 $ 346 $ 408 An M&C will be presented to the City Council on October 10 for consid- eration. Personnel Director Charlie Shapard will be available at the 0061 Council Workshop to respond to questions concerning the premium con- version program. &�-/6UUGLAS HARMAN ISSUED BY THE CITY MANAGER FORT WORTH, TEXAS