Agenda Item   

AGENDA STAFF REPORT

 

                                                                                                                        ASR Control  21-001016

 

MEETING DATE:

12/07/21

legal entity taking action:

Board of Supervisors

board of supervisors district(s):

All Districts

SUBMITTING Agency/Department:

County Executive Office   (Approved)

Department contact person(s):

Kim Derrick (714) 834-2564 

 

 

Robin Gurien (714) 834-7114

 

 

Subject:  Amend the County of Orange Section 125 Plan Document

 

      ceo CONCUR

County Counsel Review

Clerk of the Board

Concur

Approved Resolution to Form

Consent Calendar

 

 

3 Votes Board Majority

 

 

 

    Budgeted: N/A

Current Year Cost: N/A

Annual Cost: N/A

 

 

 

    Staffing Impact:

No

# of Positions:

Sole Source: N/A

    Current Fiscal Year Revenue: N/A

  Funding Source: N/A

County Audit in last 3 years: No

 

 

    Prior Board Action: 8/25/2015 #32, 12/9/2014 #20, 12/8/2009 #28, 11/18/2003 #35

 

RECOMMENDED ACTION(S):

 

Approve the Seventh Amended and Restated County of Orange Section 125 Plan Document in order to adopt Flexible Spending Account provisions afforded by the Coronavirus Aid, Relief, and Economic Security Act of 2020 and the American Rescue Plan Act of 2021, and to revise allowable options available to employees eligible for the Optional Benefit Plan.

 

 

 

 

SUMMARY:

 

Approval of the Seventh Amended and Restated County of Orange Section 125 Plan Document in order to adopt Flexible Spending Account provisions afforded by the Coronavirus Aid, Relief, and Economic Security Act of 2020 and the American Rescue Plan Act of 2021, will revise allowable options available to employees eligible for the Optional Benefit Plan.

 

 

 

BACKGROUND INFORMATION:

 

The County currently offers employees the ability to contribute to a Flexible Spending Account known as a Health Care Reimbursement Account (HCRA), which allows employees to set aside pre-tax dollars out of each paycheck to reimburse eligible health care expenses. Eligible expenses for tax free reimbursement include health and dental plan deductibles and co-payments, unreimbursed vision expenses, orthodontia and other Internal Revenue Service (IRS) eligible expenses that the employee pays out of their own pocket. The tax savings available through the HCRA are made possible by Section 125 and Section 105(h) of the Internal Revenue Code. These sections of the tax law also impose some restrictions on these types of accounts.

 

The County also offers employees the ability to contribute to a Flexible Spending Account known as a Dependent Care Reimbursement Account (DCRA), which allows employees to set aside pre-tax dollars out of each paycheck to reimburse for eligible childcare expenses. Eligible expenses for tax free reimbursement include preschool, daycare, after-school programs, nanny or babysitter services and other IRS eligible expenses that the employee pays out of their own pocket. The tax savings available through the DCRA are made possible by Section 125 and Section 105(h) of the Internal Revenue Code. These sections of the tax law also impose some restrictions on these types of accounts.

 

On December 21, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which provided financial relief to participants in Section 125 programs who were at risk of forfeiting funds due to the national emergency, during which time child-care facilities were closed and health care services were scaled back. Since eligible employees made their Section 125 elections prior to the pandemic and/or without accounting for COVID-19 surges, they were at risk of losing funds beyond the allowable rollover amounts.

 

The CARES Act of 2020 allowed eligible employees to make a one-time prospective change to their 2020 Flexible Spending Accounts without a qualifying event. The American Rescue Plan Act (ARPA) Act of 2021, which passed on March 10, 2021, extended that provision for eligible employees in 2021. In addition, the ARPA Act allows for eligible employees to rollover all unused funds from 2020 and 2021 into the next plan year, changes the maximum rollover funds from a standard dollar amount to 20 percent of the IRS-determined annual maximum contribution. The CARES Act also specified items to be eligible for reimbursement by HCRAs to include over-the-counter medications and feminine hygiene products. IRS Notice 2021-15 and IRS Notice 2021-23 were issued to provide guidance regarding the CARES Act of 2020 and the ARPA Act of 2021 in regard to these changes.

 

The Section 125 Plan Document has also been amended to reflect the agreement with employee representation organizations, as documented in the applicable Memorandums of Understanding, to eliminate the use of eligible employee’s Optional Benefit Plan funds for payment of Voluntary Accidental Death and Dismemberment premiums.

 

The Section 125 Plan Document before your Board of Supervisors (Board) for approval has been amended to adopt the above stated provisions and remove language that is no longer applicable.

 

PRIOR BOARD ACTION:

 

On August 25, 2015, the Board approved the Sixth Amended and Restated County of Orange Section 125 Plan Document in order to adopt the Flexible Spending Account rollover provision so that employees could utilize the rollover provision beginning with 2015 plan year elections.

 

On December 9, 2014, the Board approved the Fifth Amended and Restated County of Orange Section 125 Plan Document allowing Superior Court employees to participate in the employee-funded HCRA effective January 1, 2015.

 

On December 8, 2009, the Board approved the Second Amended and Restated County of Orange Section 125 Plan Document to reflect the eligibility of the American Federation of State, County and Municipal Employees to the employee-funded HCRA.

 

On November 18, 2003, the Board Approved the County of Orange Section 125 Plan Document to reflect changes to the Internal Revenue Code Section 125 as it pertains to the HCRA.

 

 

 

FINANCIAL IMPACT:

 

N/A

 

 

 

STAFFING IMPACT:

 

N/A

 

ATTACHMENT(S):

 

Attachment A –Seventh Amended and Restated County of Orange Section 125 Plan Document
Attachment B – Redlined Seventh Amended and Restated County of Orange Section 125 Plan Document
Attachment C – Section 125 of the Internal Revenue Code
Attachment D – Section 105 (h) of the Internal Revenue Code
Attachment E – IRS Notice 2021-15
Attachment F – IRS Notice 2021-23