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76141 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 r �® RESOLUTION NO. 7,614 2 68 A RESOLUTION AUTHORIZING THE CITY MANAGER TO ACCEPT BIDS AND AWARD A CONTRACT TO AMERICAN LAFRANCE TO REFURBISH AN AERIAL FIRE TRUCK. NOW, THEREFORE, BE IT RESOLVED BY THE BOARD OF DIRECTORS OF THE CITY OF LITTLE ROCK, ARKANSAS: Section 1. The City Manager is hereby authorized to accept bids and award a contract to American LaFrance as set forth in the attached fact sheets for a contract to refurbish an aerial fire truck, for a total price not to exceed the budget, payable from the funds specified in the fact sheet. ADOPTED: June 3, 1986 ATTEST: /tL CITY PLERK JANE ZECH ArdSA&= MARK STODOLA, CITY ATTORNEY APPROVED: MAYOR THOMAS A. PRINCE �-/9 6-/ M M M M M M s — BWM OF DIRECTORS COMMUNICA N — M E M O R A N D U M May 22, 1986 TO: , Mayor and Board of Directors M W M FROM: Charles Nickerson, Acting City Manager CIV, SUBJECT: Refurbishment of Aerial Fire Truck BOARD ACTION RECOMMENDED: Authorization for the City Manager to award a contract to the American La France Company to refurbish an aerial fire truck. BACKGROUND INFORMATION: This item was advertised in accordance with the City procurement procedures, and requests for bids were sent to four firms with expertise in this type of specialized refurbishing. Because of concerns regarding product liability on the ladder (a high -risk item), all firms except American La France declined to bid. It is recommended that the Board accept this bid and authorize the City Manager to award a contract to the American La France Company. BD /CN:jh5 CITY OF LITTLE ROCK, ARKANSAS • E r M M M me CITY OF LITTLE ROCK PURCHASING AWARD OF BIDS OR SERVICES FACT SHEET DESCRIPTION: Refurbish Aerial Fire Truck DISCUSSION: It is recommended that the bid submitted by American LaFrance be accepted. A transfer of approximately $5,895. will have to be effected. DATE May 20, 1986 RECOMMENDATION: XX ACCEPT WAIVE COMPETITIVE BIDDING VENDOR: American LaFrance Fort Worth, Texas BID PROCESS: XX LOW BID OTHER THAN LOW BID PROFESSIONAL SERVICES: 27© LOW BID NEGOTIATED OTHER (EXPLAIN) FUNDING: FUND: General OPERATING [3 SPECIAL PROJECT Q AMOUNT BUDGETED: W.000. APPROP. OR TRANS. REQUIRED: S,89S. ACCOUNT NUMBER: 186 - 4200 -7.06 AMOUNT OF PURCHASE: $ Not to exceed budget BID NO: 6191 DATED: May 20, 1986 Certified By: JERRY PAUL, CPPO PURCHASING AGENT A�W W� a O F Y U O N K O rr W o] J r LL r O J r U LLQ O � r > N ra U I 00 N N N H �p N w Q ca Z H z a w H a m 156 I IN 111111111 m on moons so on -M MOMMEMEMEMEMEMEM mom I Inll�l�Illnpl� I INII I Ilnu�llllflll I IIII ��I I I I III CITY OF LITTLE ROCK PURCHASING AWARD OF BIDS OR SERVICES FACT SHEET DESCRIPTION: Work Trousers and Jackets for the Little Rock Fire Department DISCUSSION: It is recommended that the award be given to the low bidder meeting specifications, Schneiders. Item #1: Bell Co. failed to bid the type material specified. Item #2: Pal bid a polyester blend which was not as specified. The tie bid between Schneiders and Phillips on Item #2 was settled by lot. M•1E M M M M DATE March 4, 1986 RECOMMENDATION: XX ACCEPT WAIVE COMPETITIVE BIDDING VENDOR: Schneiders No. Little Rock, Arkansas BID PROCESS: XX LOW BID OTHER THAN LOW BID PROFESSIONAL SERVICES: LOW BID NEGOTIATED OTHER (EXPLAIN) 157 FUNDING: FUND: General OPERATING [M SPECIAL PROJECT AMOUNT BUDGETED: $41.908. Account Balance APPROP. OR TRANS. REQUIRED: None ACCOUNT NUMBER:186- 4200/4500 -2.01 AMOUNT OF PURCHASE: $ Not to exceed budget BIO NO: 6130 DATED: February 14, 1986 Certified By: Jerry Paul , CPPO Purchasing Agent J o c. •� a m a h PO rc >: a w w F a W Z 7 W W Y O N H W co J H W F— O H J F- U LL. Q O � r Y N F— Q U c� O M p rl N �o w w H W A C! 2 z a w r� a , w o c c IN 11111111111111111111111 i D Diu IIII I INI I�� I Ilhl�l�l�lll� CITY OF LITTLE ROCK PURCHASING AWARD OF BIDS OR SERVICES FACT SHEET DESCRIPTION: Remodeling Fire Station #7 DISCUSSION: It is recommended that the low bid submitted by Mourning Construction be accepted. re M r 1=1 I= 159 DATE March 4, 1986 RECOMMENDATION: XX ACCEPT WAIVE COMPETITIVE BIDDING VENDOR: Mourning Construction Little Rock, Arkansas BID PROCESS: XX LOW BID OTHER THAN LOW BID PROFESSIONAL SERVICES: LOW BID NEGOTIATED OTHER (EXPLAIN) FUNDING: FUND: Revenue Sharing OPERATING 0 SPECIAL PROJECT AMOUNT BUDGETED: t300,000. Account Balance APPROP. OR TRANS. REQUIRED: None ACCOUNT NUMBER: 499- 8415 -8.01 AMOUNT OF PURCHASE: S Not to exceed budget BID NO. 6137 DATED: February 18, 1986 Certified By: Jerry Paul , CPPO Purchasing Agent rr r r r mom . m as EFa .. C .7 :W w ,. w • O F Y O N cc O H W O] J F- O M J {- W Q O Y N I•- n] M Q U l� N aS d W A CA � z a w ►+ w w 0 c se Min 1111111 c CITY OF LITTLE ROCK PURCHASING AWARD OF BIDS OR SERVICES FACT SHEET DESCRIPTION: CDBG Street $ Storm Drainage Improvements (Pankey Area) DISCUSSION: It is recommended that the low bid submitted by D. L. Bradley be accepted. The engineers estimate was $SS,4S4. DATE March 5, 1986 RECOMMENDATION: XX ACCEPT WAIVE COMPETITIVE BIDDING VENDOR: ID. L. Bradley Benton, Arkansas BID PROCESS: XX LOW BID OTHER THAN LOW BID PROFESSIONAL SERVICES: 161 LOW BID NEGOTIATED OTHER (EXPLAIN) FUNDING: FUND: CDBG OPERATING Q SPECIAL PROJECT FM AMOUNT BUDGETED:$95S,498. Account Balance APPROP. OR TRANS. REQUIRED: None ACCOUNT NUMBER: 11100 AMOUNT OF PURCHASE: $ Not to exceed budget BID NO: 6123 DATED: 3/4/86 Certified By: Jerry Paul , CPPO Purchasing Agent ti a r m >: a as w H A 6 W .7+ Z O W to M C O F Y U O N � O W CO J F 0 F- O M J F U C3 Q O � F T N Q u U 0 a M \ N cF e-7 \ �p M H W A U' ' Z H A W H W w O � miuii�un I�IN gllNll II M mom CITY OF LITTLE ROCK PURCHASING 163 AWARD OF BIDS OR SERVICES March 3, 1986 FACT SHEET DATE DESCRIPTION: Refurbish Two Fire Pumpers DISCUSSION: Recommend award to low bidders. The Fire Dept. will transfer funds from other accounts to make up the $2,950. difference. RECOMMENDATION: XX ACCEPT WAIVE COMPETITIVE BIDDING VENDOR: Various, See Abstract of Bids BID PROCESS: XX LOW BID OTHER THAN LOW BID PROFESSIONAL SERVICES: LOW BID NEGOTIATED OTHER (EXPLAIN) FUNDING: FUND: General OPERATING M SPECIAL PROJECT AMOUNT BUDGETED: 120,000. APPROP. OR TRANS. REQUIRED: $2,950. ACCOUNT NUMBER: _186_4200 -7.06 AMOUNT OF PURCHASE: $ 122,950. BID NO: 6131 DATED: February 20, 1986 Certified By: Jerry Paul , CPPO Purchasing Agent MIN MIN MIN IME mom ■E MIN ME mom MIN ME ME MIN 0 xz° a 3 h r m �+ A w W F A W Z � W W a 6 O H Y U O N K D H W CO J F 6L F— O J U 1� ¢ O � r Vn i m U .� on mom mom OEM c0 rl O M N �p NW W W Q V H ¢ ' A W H W � Q .� on mom mom OEM � � ■� A♦ � r ■111 � � f�� � � � r CITY OF LITTLE ROCK PURCHASING 165 AWARD OF BIDS OR SERVICES FACT SHEET DESCRIPTION: Vehicles for various City Departments DISCUSSION: It is recommended that the low bid meeting specifications be accepted for each item. GATE march 6, 1986 RECOMMENDATION: XX ACCEPT WAIVE COMPETITIVE BIDDING VENDOR: As Shown on Tabulation BID PROCESS: XX LOW BID OTHER THAN LOW BID PROFESSIONAL SERVICES: LOW BID NEGOTIATED OTHER (EXPLAIN) FUNDING: FUND: Various OPERATING [N SPECIAL PROJECT AMOUNT BUDGETED: Various Amounts APPROP. OR TRANS. REQUIRED: None ACCOUNT NUMBER: Various Accounts AMOUNT OF PURCHASE: S Not to exceed budeet BID NO: 6114 DATED: 2/27/86 Certified By: Jerry Paul , CPPO Purchasing Agent Mop m m M. mom m i m m 166 c 0 cz G F, i. cd N P. m go m w w H zW Z W O H F I' O vl H w m J r [� ro ., J r U la Q O cc r > Vf F- Ln 1.9 Q U d'I � e-i N e-I \ �O N W • F w' d W A z z H z A W m O IIII19F1II 4 a d H O H c [ c r City of Little R Office of Personnel M M 522 W. Markham Little Rock, Arkansas 72201 371 -4577 MEMORANDUM March 12, 1986 TO: Charles NickeMCA Acting City Manager FROM: Tim M. Kohl, Cf Personnel SUBJECT: Dental Bids /Secon 125 Salary Reduction Program Dental-Bids In negotiations for the 1986 agreements, it was agreed with the International. Association of Fire Fighters union that the City would take bids on dental insurance and offer the union the option of taking a 4.5% salary increase and dental insurance or retaining the 5.0 9s salary increase. This option was also kept open for the City's non -union non- uniform City employees. Bids have been taken to provide dental coverage to both these groups of employees. A summary report on the bids from our consultant, Steve Madigan of Marsh & McLennan is . attached. In it, Mr. Madigan recommends that we accept the Delta Dental bid and contract with them for the dental coverage should the employee groups decide they want the dental coverage. The cost for the dental coverage through Delta Dental is $99,000. If both groups take the dental coverage, there will be no additional costs to the City in the 1986 budget as the costs will be borne fully by the employees' salary reduction from 5 to 4.5 percent and their share of the dependents premiums. Section- 125_Pi-emiunt- Only_Plan_(POP) I am also recommending that the City concurrently implement a Section 125 Premium Only Plan (POP). Presently our employees pay part of the cost of their medical coverage premiums. They do so after paying federal, state, and FICA income ta::es. A POI' will allow them to pay their preceiunts 167 � M = =W = = M � 166 page 2 March 12, 1986 before taxes. By shifting these premium payments from an after -tax to a pre -tax expenditure this will give employees an increase in their take -home pay (see the attached James Company brochure for an example of this). A POP works by reducing the taxable wage base by the amount of the employees' contributions for medical benefits, etc. The wage base for the City's contributions to the employees pension plans is unaffected. However, an amendment to the plans should be made specifying this before POP is implemented. All public and private employers can implement a POP under Section 125 of the Internal Revenue Service Code which Congress made federal law in 1978. However, to be eligible public employers must negotiate benefits with employee groups and not establish salaries by ordinance. A report on this program from Mr. Madigan is attached along with a brochure describing it in more detail. In addition to the tax savings to employees, the City will save $10,275 annually in reduced FICA taxes. There will also be additional savings in reduced unemployment taxes and workers' compensation premium and taxes costs. The first year savings alone will more than offset the $9,350 one time charge to set this benefit program up. r REM[jTI N0�,57rC�nue�Dental M M M M M M Insurance ibit) 169 Marsh & McLennan, Incorporated 105 West Capitol P.O. flux 1310 Little Rock, Arkansas 72203 Phone 501- 372 -2222 DATE: March 10, 1986 TO: Tim Kohl, Director of Personnel City of Little Rock FROM: Steve Madigan, Consultant to the City Little Rock SUBJ: Dental Bids Bids were taken for dental coverage to be provided all employees' which are either non -union or firemen. we requested each canpany to quote the firemen separately and the non -union group separately and then also give a quotation for the cambined group which would make tko 641 employees of which 461 currently have some form of dependentvcoverage. Me OiCA e_ The lowest rate provided was based upon the two groups purchasing coverage jointly. Public notice was given and various companies and agents obtained bid specifications and took the program to the marketplace. Only five quotations were actually received by the City. The companies providing quotations were the Prudential Insurance Company, the current medical carrier, Delta Dental of Arkansas, Bankers Life of Nebraska, Sun Life of Canada and Arkansas Blue Cross and Blue Shield. The gross premiums provided by the compan- ies were as follows. Prudential $145,000 Delta Dental $ 99,000 Bankers Life $158,000 Sun Life $148,000 Blue Cross and Blue Shield of Arkansas $196,000 Our analysis of the bids indicated Delta Dental to be the best pos- sible contract. This decision was not based solely on the fact that they had the lowest premium, but also on their local service capabil- ities and their action to duplicate bid specifications identically. Based upon this $99,000 quotation, the City's share of the pramiun would be $80,500 and the employees would pay the remainder in the form of payroll deductions equal to $18,500. A -I . r- PAarsh & N1cLennan,Incorporated 170 105 Nest Capitol P.O. Box 1310 Little Rock, Arkansas 72203 Phone 501- 372 -2222 Page Two March 10, 1986 This cost breakdown is based upon the assunption that the City would continue to pay 1000 of all employee prEniuns for dental coverage as is the case with medical and then the Employees would lay a like per - centage for their dependent dental equal to the current contribution percentage for medical coverage. Delta Dental can implement this coverage effective 4 -1 -86 if desired. They will provide local claims service in addition to providing a preferred payment arrangenent wherein the dentists will file direct to the ccmpany without requiring the Employee to fill out a claim four or the City to verify coverage. This service is provided to Employees if they obtain their services from one of the preferred dentists on the Delta Dental progran. Delta Dental currently has aver 85°% of all dentists in the Pulaski County. area under this pre- ferred payment program. It is my recommendation that we implenent coverage with Delta Dental. These above mentioned cost figures assune that 100°% of all eligible Employees participate in the dependent coverage identical to their current medical participation. In fact, we realize that there will be many employees who will not elect dependent dental even though they currently have dependent medical. Therefore, these figures are maximums. M Marsh & McLennan, Incorporated 171 105 West Capitol P.O. Box 1310 Little Rock, Arkansas 72203 Phone 501 -372 -2222 DATE: March 10, 1986 T0: Tim Kohl, Director of Personnel City of Little Rock r FROM: Steve Madigan, Consultant o the City ofittle Rock SUBJ: Section 125, Salary Reduction Programs We have been examining a new benefit program to be offered to employees who currently have a payroll deduction made from their paycheck for medical coverage. A Section 125, salary reduction program, will allow the employee to convert their current after - tax contribution for their share of the premium to a pre -tax expenditure. This will effectively give each employee an increase in their take -home gay. Currently, there is a total of $332,000 being deducted from Employ- ees throughout the City Health Program. Non-uniformed Employees contribute $143,000 for their dependent medical coverage, the police contribute $65,000 for their depen- dent medical coverage and the firemen contribute $123,000 for their dependent medical coverage. The advantage to the City of such a plan is that any dollars which are funneled through the 125 program will not be subjected to Social Security taxation. Therefore, the City will enjoy a reduced Social Security expense equal to 7.15°% of each dollar which is subject to Social Security taxation. The non - uniformed employees are the only ones which currently are covered under the Social Security program. The City would enjoy a reduced payroll tax of $10,275 each and every year for reduced Social Security taxes. The City would also enjoy reduced unenploy- ment and workmans compensation taxes which have not been taken into account in this study. All Employees regardless of their participation in Social Security would enjoy reduced federal income taxes. If an Employee is in a 25% marginal tax bracket, then they will enjoy an effective pay raise immediately. The police and fire group which are not covered by Social Security alone would enjoy an $83,000 combined savings in federal inane taxes by using this program. enna i Marsh R Mclennan, Incorporated 172 2 105 Nest Capitol P.O. Box 1310 Little Rock, Arkansas 72203 Phone 501- 372 -2222 Page Two March 10, 1986 The cost to provide this benefit program through James Benefits, Inc. is $9,350. This is a one time charge which includes providing a for- mal legal docunent, sucmary of plan description, election procedure forms and will include any updates fran the Bnployers Council of Flexible Compensation which maintains active posture in Washington ,for benefits of this type. Attached you will find a surmtary outlining the sections of the code which apply to this particular benefit program. This plan is not an insurance policy, but rather an employee bene- fit which will effectively save the City reduced Social Security and each employee will enjoy reduced federal income taxes. when you participate in this plan, your coverage under the medical plan does not change. Each plan is a separate benefit. You retain all benefit features but simply are able to reduce your personal cost. There are reduce] Social Security benefits involved due to the fact that the employee will have a reduced average monthly wage as far as Social Security is concerned. However, the increased take -home pay that the employee will enjoy today, will more than offset the reduced Social Security tax upon retirement. we will be providing examples to Employees to illustrate this vividly when announcing and explaining the benefit plan. . r r' M 5 map= r 173 What follows is a brief history of flexible benefits that explains thier legality and required content. This commentary will also point out which sections of the Internal Revenue Code (I.R.C.) allwo certain benefits to be incorporated in.a POP. Congress added Revenue Act of regulations to regulations on explains that receipt. Sectie 1978. govern May 7, Section 1 125 to the I.R.C. by passing the After years of delay, instead of issuing Section 125, the IRS issued proposed 1984. The brochure entitled FLEXCOMP 125 was needed to remove constructive I.R.C. 125(d) and the proposed regulations define what a qualified, legal flexible bneefits plan must contain. A summary of these requirements follows: 1. Written Paln.. A written legal document,, summary plan description, or both must exist before any contribution is made. Documents must describe and explain: a. all benefits b.. eligibility rules C. election procedures d. basis for making contributions e. maximum contribution f. the plan year 2. Participants. Participants must be employees or former employees such,as retiress (H.R. Rep. 95- 1445;.proposed regulations) Section 125 Premium only Plans (POP) FRED. S. JAMES & CO. - Consultants. Administrators & Actuaries A . /o =1 MME I MMI Mr r AM r MME MMrt r mdm MMU Mw 1=1 MMMM " What is a POP ?- ._....__._. Premium Only Plan (POP) is the simplest form of a Section 125 plan and allows choice between taking a taxable benefit and a nontaxable benefit. Participants who pay the premiums through salary reduction receive the nontaxable benefit. Others pay the premium with after- tax dollars or elect to take home more pay by paying no premiums. Employees who are currently required to pay part of the cost for premiums or for contributions are doing so after paying federal, state, local, and FICA income taxes. A POP simply allows them to pay those premiums or contributions before taxes. An employee can elect to reduce his taxable salary and pay certain contributions with pre -tax dollars. The salary reduction amounts are treated as employer contributions for all income tax purposes. POP is legal and fully allowed under current federal law. In 1978 Congress added Section 125 to the irrevocable except when: 75 Internal Revenue Code to allow 0 employee terminates all covert employees some choice as to how ages for the remainder of plan compensation is paid. On May 7, year 1984, the IRS issued proposed regu- Federal lations governing Section 125. Both ❑ legislation requires termination Congress and the IRS have pub- or substantial amendment to lished guidelines for employers and FlexComp announced restrictions for flexible ❑'the company terminates the plan benefits. and /or coverages How Does a POP Work? Taxable and nontaxable coverages. A POP allows choice between pay- ing the premiums after taxes (tax- able benefit), through salary reduc- tion (nontaxable benefit), or by electing to pay no premiums, thereby taking home more compensation (taxable benefit). Employees elect coverages and mode of payment. Before the plan year begins, employees must elect to salary reduce for the selected cov- erages. Participation. Once the plan year begins, a participant's election is ❑ employee's family status changes, including the following: — marriage, divorce, or legal separation — death of the participant — number of dependents changes — participant or dependent changes employment Communication. The flexible benefits plan must be commu- nicated in writing to all participants. Equality. Actual use and availability of benefits must be nondiscriminatory, Example of POP The POP. Advantage Having employees pay premiums and contributions in the POP has the same impact for both employee and employer: TAX EFFECTIVENESS The following contrast between employee A whose after -tax money pays for his coverages and employee B who participates in a POP demonstrates the advantages of this simple flexible benefits plan. Employee A' Employee B' > Gross pay $20,000 Gross pay $20,000 Taxes Coverages 1,000 Federal 3,142 State /local" - 1,000 Taxable pay 19,000 FICA 1,410 Taxes ------ - - - - -- Federal 2,893 Pay 14,442 State / local 950 Coverages ------ - - - 1,000 FICA - -- -- - - - - -- — 1,339 ' NET PAY 13,442 NET PAY 13,818 l The net results: ❑ pay less in taxes ❑ take home more pay j ❑ 37.6% return I ' Assumes a single employee filing the standard deductions, using a 1985 tax table. i Included are stale taxes 4 percent, local loxes of 1 percent. and FICA loxes of 7.05 percent. • • united states average. i M M M M Employer Savings Consider in the next example the marked advantage for the employer when the company inaugurates FlexComp: Example: 1. 1,000 employees (average salary of $20,000) 2. Each contributes annually $1,000 for coverages 3. Total amount of salary reduc- tion 1 million dollars 4. Typical savings to employer.- FICA = $70,500 (7.05 %) FUTA = minimal WC = 5,000 ( .50 %) 5. Total savings = $75,500 (pretax profit) Cost Containment & POP Ideally for most companies would be a decrease in plan utilization and a program that is immune from the ravages of inflation. Although short of ideal, POP does hold encour- aging promise for such decrease and for limiting the inflationary spiral. In medical or dental plans, payment of premiums is nontaxable regard- less of who pays for coverages. With POP, tighter control of bene- fits costs is apt to follow when, for example, an employer requires the employees to pay the full cost of the plans and to enable this by increas- ing salaries sufficiently during the first year of the plan. The employer thus removes himself from the infla- tionary spiral of health care costs; the employee is responsible for pay- ing the premiums. The most effective cost containment tool is thus implemented: employees who know and pay for the actual costs of their benefits are unquestionably more prudent consumers of medical care. Moreover, the employee can choose to take home more pay or to use it to purchase nontaxable coverages. Available Coverages Health. The following health cover- ages are considered nontaxable to employees enrolled in the POP: ❑ medical ❑ dental ❑ vision ❑ prescription drug plans ❑ HMO, IPA, etc. ❑ cancer policies, etc. "Nontaxable coverages" means they qualify under Internal Revenue Code (IRC) Section 105, 106, and 213. Disability. Short- and long -term dis- ability coverages are considered nontaxable in the POP, but, ac- cording to the Employers' Council on Flexible Compensation, if a covered employee becomes disabled, the benefits paid are considered taxable income.* For any employee in an income tax bracket below 15 percent, the tax may be offset by the 15 percent credit allowed under IRC 22. Accidental death and dismem- berment. Dismemberment cover- ages can be in a POP, and the benefits are nontaxable to em- ployees. Some confusion has surfaced over whether accidental death coverages are taxable even if provided by the employer or paid with employee after -tax contribu- tions. James Benefits believes that IRC 106 expressly excludes accidental death benefits from taxation. IRC 1.79- 1(0(3) also implies that these coverages are not taxable to the employee. In either case, it is com- mon to include Accidental Death coverages in the POP (IRC 79, 106). Survivor income coverage. This coverage is nontaxable in the POP (IRC 79, 106). Group term life coverage. The first $50,000 in coverage can be pur- chased in the POP and the benefit is tax free to the beneficiary. Amounts in excess of $50,000 will incur imputed income based on the table premium amount in IRC 1.79- 3(d)(2). Amounts, however, in excess of $50,000 will not incur FICA taxation. If the payroll and administration system of the company can track imputed income levels and has flexi- bility as to the taxability of pre- miums and contributions, it is recommended (and is cost effective) to include group term life insurance in excess of $50,000 in the POP (IRC 79). * The Council states: "If it can be assumed that most disabled employees were in a higher tax - bracket when they were working than after they become disabled, salary reduction will in most cases be preferable to employee (after -tax con- tributions). For example, consider an employee who is in a 50 % tax bracket while he is working, but who expects to be in a 20 % tax bracket if he becomes disabled. By changing from employee contributions to salary reduction, this employee can double the amount of disability income he would receive by using his in savings to pur- chase additional disability insurance. Although using salary reduction makes the disability income taxable, the increase in disability income will more than offset the amount of the taxes." What About Social Security Benefits? Salary reduction means no FICA tax for IRC 125 coverages. Ac- cordingly, the employee's Social Security benefit at age 65 is slightly lower, depending on the taxable salary and the number of years of working under the FICA wage base as a result of salary reduction. The employee must decide whether to receive more payroll and greater tax effectiveness now or to receive a I to 4 percent increase in Social Security benefit at age 65. The employee who contributes $1,000 to FlexComp can increase M F___71 '�i�Y/a`cv'fr°.rv!- suet` �' Fi�livrise' SDa! U' AA+ O? ?: i�t�Ff. �fti" fil! d24'? �. G4iY"` SrII:$ 2l 7Citi?i? YXiO' i? 9t�3i' JaN�'. deS: �S: F. 7Ctirti'. tfrCrF�+ i�7�SSii$ x�' i8+`' �wi". ?r�:d'a!wl�;�'+�t�?H?G�ii1 -. his take -home pay by $375 each year for 20 years or wait 20 years and hope for a larger Social Security benefit. Currently, even a 60 -year- old employee salaried at $10,000 would be better off with FlexComp for his remaining five years, because the reduction in Social Security benefits would be only .8 of 1 per - cent. All companies have an interest in the evolution of FICA taxation on benefits. A Social Security bill aimed at taxing salary reduction under IRC Section 401(k) plans finally passed both the House and the Senate in March, 1983. The FICA taxation on 401(k) has been in effect since 1984. Although at- tempts to pass FICA taxation for flexible benefits will meet strong opposition, it is possible that IRC 125 will, in the next few years, include FICA taxation. A recent informational release from the Social Security Administration clearly stated that "the amount of wages for Social Security and Federal Insurance Contribution Act (FICA) then becomes the reduced amount." Nonetheless, James advises most groups to avoid designing FlexComp with the intent of avoiding FICA taxation. What About Other Benefit Plans? POPS do not necessarily equate to reduced retirement benefits. Salary . . reduction in 125 POP decreases the . . taxable wage base upon which workers' compensation, federal un- employment compensation, and other governmental benefits are calculated. The wage base, however, for employer contributions to defined benefit or defined contri- bution plans is unaffected by salary reduction as long as the POP incor- porates a consistently observed Policy of nondiscrimination, applied equally to all employees. Companies must simply.expand this matter thoroughly with a com- 1 �7% the definition of compensation petent legal source. as it appears in existing legal documents pertaining to the company or group benefits. Other salary- related benefits such as life insurance, disability income (if premiums are paid after taxes), vacation pay, etc., can be based on gross pay before salary reduction. Most companies base salary in- creases, bonuses, and other forms of compensation on gross pay before salary reduction. Questions and Answers About POP What companies are eligible? All entities in the private and public sectors can implement POP. A Sep- tember 14, 1984 Informational Release from the Social Security Administration announced that FlexComp covering persons em- ployed in the public sector will not necessarily be effective in reducing wages subject to FICA taxation. Public entities and their employees, however, will still enjoy savings owing to less non -FICA govern- mental taxation. If the public sector entity has determined that employees may individually adopt a Section 125 plan and has secured the appro- priate legislation to allow salary reduction, then Social Security does recognize salary reduction for FICA taxation. Public entities should determine whether such legislation already exists and to what extent they are subject to the cited Infor- mational Release. What about state insurance laws? POP should be consistent with state insurance laws because the IRS considers salary reduction an em- ployer's contribution, and most states follow federal income tax law. FlexComp does result in less state and local taxation. Should doubts arise, be sure to research How will POP affect my payroll system? POP affects the payroll system just as any deduction affects the payroll. The registers showing the amounts deducted for qualified flexible benefit items should be changed to reflect a before -tax deduction for premiums or contributions. Payroll systems in the Eighties have been allowing 401(k), tax sheltered annuity, or other pre -tax contributions. POP requires similar kinds of deductions. Also, many payroll systems are package pro- grams purchased from vendors who have developed the enhancement to enable POP. What about the cost to change the payroll system? The costs to effect the payroll changes to enable POP are minimal as compared to the combined sav- ings to both employer and employee. Is a formal, binding agreement between employer and employee . required? Companies should require binding agreements to ensure the legality of POP. Even though the salary reduction is considered an employer contribution, employees must elect coverages. This choosing entails an agreement between employee and employer. Does a POP require ongoing administration? Once a firm has changed the pay- roll system, no ongoing administra- tion is needed. The same amount of premiums and contributions is paid, and the current benefits and claims systems remain otherwise unchanged. Implementing a POP should result in no added adminis- trative complexity or "burden" to the company. M men �I Why Use James Benefits? James Benefits offers a compre- hensive range of services needed at each stage of plan design, imple- mentation, and monitoring. Our distinct expertise as consultants, administrators, and actuaries lends ample credence to the claim "We deliver more!" As represented by the services listed below, James can assist a client of whatever size in developing a Section 125 plan that is responsive to the specific needs of the firm in question. Average start-up time for the POP is 30 days. James Benefits can provide: • plan design • summary plan description • preparation of legal documents • customized announcement materials • customized enrollment form • supplemental agreement for affiliated companies ❑ estimate of company savings* ❑ governmental filings ❑ payroll system expertise * James makes no guarantee as to the con- tinuance of any governmental tax savings. See the section entitled what About Social Security Benefits? 178 A more comprehensive approach for a POP takes 60 -90 days. In a phrase, James Benefits can do it all, from feasibility studies and total communication packages to insur- ance bids and brokerage. James Benefits will provide to interested clients a formal proposal listing all of the above services including an implementation schedule. James has the people, the systems, and the resources to make Section 125 POP a reality for you. Premium Only•Plans We Deliver More 1uq 14, -oouv