R2024-369 Resolution to Include Compensation Paid Under an Internal Revenue Code Section 125 Plan as IMRF Earnings

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Date: December 16, 2024 To: Tim Gleason, City Manager From: Ruby James, City Treasurer Jon Kindseth, Deputy City Manager Re: Resolution to Include Compensation Paid Under an Internal Revenue Code Section 125 Plan as IMRF Earnings By adopting the IMRF Resolution to include employee health expenses as IMRF retirement earnings, the city would no longer reduce an employee's reportable earnings by those pre-tax expenses and contributions. Every year the amount that employees contribute to their health, dental, and vision plans grows, as does the amount that they should put aside into an FSA or HSA. This can have a net impact of reducing an employee's reportable wages to IMRF. An employee's reportable wages are ultimately what is used to calculate and determine an employee's pension. The impact of the current practice is that an employee is disincentivized in contributing and setting aside their wages for these healthcare expenses. With the adoption of this recommended Resolution, employee's healthcare related expenses will not be deducted from their reportable wages or earnings. With this change, employees and the City pay a little more into our IMRF accounts to account for this. We believe that this change will encourage more proactive health savings and contributions from our employees,which makes for a better, stronger workforce. This issue and proposed change will not impact Police or Fire personnel as they are not in IMRF as well as their pensions are calculated differently. This change will increase the City's portion of IMRF contributions by approximately $60,000 annually. Employees will also see a small decrease in their take-home pay, which would be the result of an increase in retirement contributions, from them as well. The city will communicate and explain this change to our employees.