TO: HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
FROM: Javier Carcamo, Finance Director
SUBJECT:
title
Medical Expense Reimbursement Plan and Amendment to the Retirement Health Savings (RHS) Plan and the Deferred Compensation 401(a) Plan
end
RECOMMENDATION
recommendation
Adopt Resolution No. 24-4777 entitled: A Resolution of the City Council of the City of Murrieta, California, Adopting a Medical Expense Reimbursement Plan of the Washington State Council of Fire Fighters Employee Benefit Trust, Approving an Amendment of the Retirement Health Savings (RHS) Plan with Mission Square and Approving an Amendment of the 401a Deferred Compensation Plan with Nationwide; and
Authorize the City Manager to execute all related documents.
body
PRIOR ACTION/VOTE
On April 21, 2009, the City Council adopted Resolution No. 09-2248, fixing the employer’s contribution under the Public Employees’ Medical and Hospital Care Act (Vote 4-0-1).
On July 7, 2009, the City Council adopted Resolution No. 09-2316, adopting a retiree healthcare trust known as the City of Murrieta’s Retiree Healthcare Trust (Vote 4-0-1).
On September 6, 2022, the City Council adopted Resolution No. 22-4614, authorizing consolidation of the City’s 401(a) and 457(b) record keeping platforms (Vote: 5-0).
On June 20, 2023, the City Council adopted Resolution No. 23-4691, Approving a Tentative Agreement for a Successor Memorandum of Understanding between the City of
Murrieta and the Murrieta Firefighters Association (Vote 4-0-1).
CITY COUNCIL GOAL
Maintain a high performing organization that values fiscal sustainability, transparency, accountability and organizational efficiency.
BACKGROUND
Retiree Health Savings
As in most cities, the City of Murrieta (City) provides employees with healthcare benefits subsequent to their retirement from the city, as outlined in their respective labor agreements, in an effort to remain competitive and recruit and retain the most qualified and talented employees to serve its residents. In July 2009, the City Council approved a retiree healthcare trust, also known as the Retirement Health Savings (RHS) plan, with Mission Square (formerly ICMA-RC) to fund and manage this Post-Employment Benefit for all employees.
The City periodically negotiates with the respective employee organizations through collective bargaining to establish compensation, benefits, and other terms and conditions of employment. During the most recent labor negotiations with the Murrieta Firefighters Association (MFA), the MFA President advised the City’s negotiating team that the MFA members voted in favor of joining the International Association of Fire Fighters (IAFF) "Medical Expense Reimbursement Plan" (MERP) and to discontinue participation in the current RHS plan with Mission Square. The MFA proposal will not impact current MFA retirees receiving post-employment health benefits from the RHS plan.
401(a) Deferred Compensation Plan
Under Sections 457(b) and 401(a) of the Internal Revenue Code (IRC), government entities may sponsor a deferred compensation plan for employees. Since 2000, the City has provided an employer-sponsored deferred compensation plan under Section 401(a) of the IRC with Nationwide. For those MFA members participating in the City’s 457(b) Deferred Compensation Plan, the City contributes to the 401(a) plan an amount matching the employee’s 457(b) contribution not to exceed $2,400.
The MFA President advised the City’s negotiating team that the MFA members request that the City cease making this contribution to the 401(a) Deferred Compensation Plan and instead make a $200 monthly contribution for each MFA member towards the IAFF Medical Expense Reimbursement Plan account. MFA's request to cease the City’s 401(a) matching contribution benefit will require an amendment to the current 401(a) Deferred Compensation plan.
Medical Expense Reimbursement Plan
The IAFF MERP was established in 1999 as a 501(c)(9) tax-exempt union-sponsored plan to allow firefighters to plan for retirement medical expenses in a highly tax-advantaged manner. The IAFF MERP is a multiemployer Voluntary Employee Beneficiary Association (VEBA) Retiree Medical Trust designed to provide a tax-free lifetime benefit to offset the inevitable medical and other long-term healthcare expenses all firefighters will face. MFA’s requests to transition to the IAFF MERP Retiree Medical Trust will require an amendment to the current RHS plan.
MFA firefighter employees participate in the Plan through employee and employer contributions under the Memorandum of Understanding (MOU) between the City and MFA covering July 1, 2023, through June 30, 2026 (MFA MOU 2023-26). MFA requests firefighter employees who may be promoted out of MFA and into another City represented or non-represented labor group to continue participation in the IAFF MERP through mandatory employee and employer contributions after their promotion.
The employer and employee contributions are summarized below. The full details of retiree health benefit contributions are established in accordance with MFA MOU 2023-26, section 2.26 Retiree Medical Trust.
Tier 1 Employees hired prior to January 1, 2010:
• Upon retirement with the City, redirect RHS employer contribution of $833.43 minus the Public Employees' Medical & Hospital Care Act (PEMCHA) to the employee’s IAFF MERP trust account monthly;
• Employer contribution of $200 per month; and
• Employee contribution of $200 per month.
Tier 2 Employees hired after January 1, 2010, with ten (10) years of city service at the time of retirement:
• Upon retirement with the City, redirect RHS employer contribution of $360.00 minus the Public Employees' Medical & Hospital Care Act (PEMCHA) to the employee’s IAFF MERP trust account monthly;
• Employer contribution of $200 per month; and
• Employee contribution of $200 per month.
Tier 3 Employees hired after January 1, 2010, and who have fewer than ten (10) years complete years of City service at the time of retirement:
• No IAFF MERP trust benefits
Recommended Actions
If the City Council approves the IAFF MERP Retiree Medical Trust, the current RHS plan with Mission Square and the 401(a) Deferred Compensation Plan with Nationwide must be amended to exclude MFA members from participating in these plans, as proposed by the MFA negotiating team during labor negotiations. The amended adoption agreement for the RHS plan and the 401(a) Deferred Compensation Plan are attached to the resolution. The joinder and trust Agreements to establish the IAFF MERP are also attached to the resolution.
FISCAL IMPACT
The recommended actions have no fiscal impact. The administration, management, and investment fees for the IAFF Medical Expense Reimbursement Plan are paid by the employees who opt to participate in this program. The City and the Murrieta Firefighters Association (MFA) agreed that effective the first full pay period after City Council approval, the City shall cease making contributions to the 401(a) Retirement Plan and shall make an equivalent mandatory contribution of $200.00 per month on a pre-tax basis.
ATTACHMENTS
1. Resolution No. 24-4777
2. Agreements (Joinder Agreement, Mission Square Retirement Health Savings Adoption Agreement, Nationwide Deferred Compensation Plan 401a Adoption Agreement)