PURPOSE

The purpose of this staff report is to request City Council approval of a revised plan document for the City of Burbank Voluntary Employees� Beneficiary Association (VEBA).

BACKGROUND

On November 25, 1997, the City Council approved the establishment of the VEBA, an employer-sponsored welfare benefit plan authorized under �501(c)(9) of the Internal Revenue Code.  This type of Internal Revenue Service (IRS)-approved trust allows employees, on a collective basis, to accumulate funds in a pre-tax account for the purpose of paying for retiree medical benefits. 

On June 17, 2003, the City Council approved three professional service agreements for a new third party administrator, plan consultant, and legal attorney for the VEBA plan.  After these agreements took effect on July 1, 2003, these consultants began a thorough review of the VEBA�s current plan document with the intent to revise it and bring it into compliance with newly issued IRS rulings.  In addition, on July 1, 2003 the City Council adopted Resolution No. 26,517 that approved the Trust Agreement for the Welfare Benefit Plan between the City and Washington Trust Bank.

ANALYSIS

In August 2002, the IRS issued Revenue Ruling 2002-41 and Notice 2002-45, making significant changes to rules governing VEBA plans.  These IRS rulings stated that taxable distributions from the plan including severance, education, and death benefits were no longer eligible benefits under the VEBA. 

The revised plan document incorporates these new IRS rulings by removing these taxable distributions as eligible plan benefits.  The plan document only provides for the following distributions from the plan:

�         Post-retirement reimbursements for qualified health expenses; or

�         Reimbursements for catastrophic medical expenses incurred prior to separation from service when the expense equals $5,000 or more.

The revised plan document also states that although a taxable death benefit is no longer allowable under the plan, in the event that a plan participant dies, his or her dependents would be eligible to use the plan for reimbursement of their qualified medical expenses.  Further, if there are no surviving dependents, the participant�s heirs would be eligible to use the plan for reimbursement of their qualified medical expenses.

In addition, previously, a Joint Administrative Committee, comprised of both City staff and union representatives, met on a monthly basis to oversee and direct the operations of the VEBA plan.  With the appointment of the new third party administrator, the trustee, and the legal consultants, the Joint Administrative Committee feels that it is unnecessary to maintain this Committee.  So it is recommended that the City Manager or her designee shall serve as plan Administrator of the Plan. 

If approved by the City Council, the effective date of these plan document changes would be July 1, 2003.

FISCAL IMPACT

There is no fiscal impact.

RECOMMENDATION

Staff recommends that City Council adopt a proposed resolution approving the revised plan document for the City of Burbank Voluntary Employees� Beneficiary Association effective July 1, 2003.  In addition, staff recommends that the plan Administrator of the City of Burbank Welfare Benefit Plan shall, effective July 1, 2003, no longer be the Joint Administrative Committee (which operated pursuant to the previous Plan document).  Instead, effective July 1, 2003, it is recommended that the City Manager or her designee shall serve as the Plan Administrator of the Plan.

go to the top