SR-602-000
RP:DTA:VR
February 24, 1987
Santa Monica, California
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FE8 2 4 1987
t!}J/ 1./ J"):, (' ~ e
TO:
Mayor and city council
city Staff
FROM:
SUBJECT:
Recommendations Related to the Implementation
of the Child Care Benefit Plan for City
Employees
INTRODUCTION
This report requests that Council approve recommendations related
to the implementation of the Child Care Benefit Plan for City
employees which include: approving the eligibility criteria for
the child care subsidy program which have been developed with
input from employee bargaining units; approving the expenditure
of up to $25,000 to subsidize the child care costs of eligible
employees; and authorizing the city Manager to enter into a
contract with Western States Administrators to administer the
subsidy and salary reduction portions of the benefit plan,
hereafter referred to as the Dependent Care Assistant Plan
(DCAP) .
BACKGROUND
In October, 1986 Council approved the establishment of an
employee child care benefit plan to be developed in three phases.
Phase I included contracting with a local child care referral
agency, Connections for Children, for child care referrals on an
emergency basis. This service began on December 15/ 1986.
The
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FED 2 4. 19&1
more complex aspects of Phase I involved setting up a Dependent
Care Assistant Plan (DCAP) which would include two programs. The
first would provide up to a $100 per month subsidy of child care
expenses for lower income employees. The second would be a
salary reduction program enabling all employees to set aside a
portion of their pre-tax earnings to pay child care costs. In
presenting the overall benefit plan, staff indicated that the
eligibility criteria, the appropriation of the funds for the
subsidy program, and the administration of the entire DCAP would
be brought back to Council for approval.
CHILD CARE SUBSIDY PROGRAM
The child care consulting firm of Burud and Associates drafted a
set of eligibility criteria for the subsidy program for review by
employee bargaining units. Three separate meetings were held
with bargaining unit representatives to obtain input regarding
the criteria, and the following key elements were established as
a consensus of the participating employees:
1. All job classifications would be eligible for the subsidy.
2. All permanent employees of the City would be eligible.
3. Full-time employees (working 40 hours per week) will be
eligible to be subsidized at $lOO per month. Part-time employees
(working 20-39 hours per week) will be eligible for a $50 a month
subsidy. Employees working under 20 hours per week would not be
eligible.
4. Employees with gross household incomes under $30,000 will be
eligible initially for the subsidy. If, after the onset of the
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program the available funds permit additional participants, the
family income eligibility level will be increased to $35,000 and
then to $40,000.
5. All licensed child care and care which is exempt from
licensing will be eligible for subsidy. This would include all
or any combination of the following types of care: licensed
centers, licensed family day care homes and day care homes exempt
from licensing, summer camps and school-age programs which are
licensed or exempt from licensing, relatives over 19 years of age
(excluding care by the employee's spouse, dependent, or child
under the age of 19), in-home caregivers and sick care programs.
6. Both part and full-time care will be eligible for the subsidy
so long as the subsidy does not exceed the amount paid by the
family for care per year.
7. Care for chldren from birth through 15 years old will be
eligible.
8. Employees would become eligible on the first day of the first
month after completing thirty days of employment with the City,
as is the case with medical and dental insurance benefits.
SALARY REDUCTION PROGRAM
The Internal Revenue Code allows for the establishment of a
Dependent Care Assistance Program (DCAP) which includes an option
in which an employee may set-aside a portion of his or her salary
out of pre-tax earnings to pay for eligible child care costs as
part of a salary reduction program. Beyond a small set-up
charge, a DCAP involves no cost to the city. The requirements
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for the salary reduction portion of the DCAP are provided for in
sections 125 and 129 of the Internal Revenue Code.
The requirements for establishing a DCAP include:
1. The employer must adopt a written plan.
2. To meet Internal Revenue Code requirements, the maximum
amount by which the employee's salary may be reduced is the
lesser of (a) the employee's earned income for the plan year or
(b) the employee's spouse's earned income for the plan year. To
qualify for benefits if the employee is married, the employee's
spouse must be employed, a full-time student, or physically or
mentally incapable of caring for him or herself. (Under the
Internal Revenue Code, if the spouse is a full-time student or is
physically or mentally incapable of caring for him or herself,
the spouse will be deemed to have earned income of not less than
$200 per month if the employee has one dependent, or $400 per
month if the employee has two or more dependents.)
3. All licensed care and care which is exempt from licensing is
eligible for reimbursement. This would include all or any
combination of the following types of care: licensed centers,
licensed family day care homes and day care homes exempt from
licensing, summer camps and school-age programs which are
licensed or exempt from licensing, relatives over 19 years of age
(excluding the care by the employee's spouse, dependent, or child
under the age of 19), in-home care givers and sick care programs.
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In order to make the eligibility criteria for the salary
reduction program consistent with the eligibility criteria for
the subsidy program, staff recommends that the following
additional eligibility criteria be adopted:
1. All job classifications be eligible for the salary reduction.
2. All probationary and permanent employees of the City be
eligible.
3. Employees become eligible on the first day of the first month
after completing thirty days of employment with the city, as is
the case with medical and dental insurance benefits.
4. Both part and full-time care be eligible for reimbursement
under the salary reduction plan.
5. Care for children from birth through 15 years of age be
eligible.
ADMINISTRATION OF THE DEPENDENT CARE ASSISTANCE PLAN
After meeting with representatives from the Finance Department,
the Personnel Department, Burud and Associates, and Western
States Administrators, it was decided to administer this program
through a contract with an outside organization, similar to the
manner in which the City's Deferred Compensation program is
administered. Western States Administrators currently
administers DCAPs throughout the western united States for an
initial set-up fee and a $3.50 monthly charge to each
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participating employee to cover the costs of administering the
program.
During the single annual enrollment period allowed under IRS
regulations, employees will be provided information on their
options under both the subsidy portion and the salary reduction
portion of the DeAP program. Workshops and printed materials
will be available as will one-on-one discussions with
representatives of the administrating organization.
Enrollment will be accomplished through a sign-up form. For the
salary reduction program, the employee will specify a fixed
amount which will be deducted from each paycheck and sent to the
outside administrator. (Per IRS regulations, the amount deducted
must be the same each month.) Participants may not change their
level of participation during the plan year unless there is a
change in their family status. Such a change would include
marriage, divorce, death of a spouse or child, birth or adoption
of child, termination of employment of a spouse.
The employee will request reimbursement by SUbmitting receipts or
a statement that child care expenses have been incurred to
Western States Administrators who will then send the
reimbursement check directly to the employee's home. With
expenses reported employees will be verifying that the
information is true and correct. The responsibility will lie
with the employee to report information truthfully or be in
violation of IRS regulations. As required by the IRS, employees
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will be provided an annual statement of their transactions
relative to the DCAP.
Enrollment in the subsidy program will require a verification of
family income and verification of child care expenses incurred
before the subsidy is paid to the participating employee.
It will be clearly explained to participating employees that any
monies which the employee requested be set aside as part of the
salary reduction program, but which the employee did not use as a
reimbursement for child care expenses during that calendar year,
will be lost by the employee and returned to the City's General
fund.
This plan year expires in December, 1987, and a new enrollment
period will be initiated in late December for the following
calendar year.
BUDGET/FINANCIAL IMPACT
Recurring costs of the child care subsidy program will be borne
by the General and Enterprise funds based on the number of
budgeted permanent employees in each department. The subsidy
portion of the DCAP is estimated to cost the City no more than
$100,000 annually. Currently there is $25,000 available in
account # 01-700-274-000-785 to cover the maximum cost of the
subsidy program for the last quarter of 1986-87.
The administrative costs of the DCAP program will be covered
through a $3.50 monthly charge to participating employees. The
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$500 cost to set-up the administration of the program is also
available in account #01-700-274-000-785.
The overall financial impact of the child care benefit program
has the potential for providing savings to the city in reduced
absenteeism, reduced turnover, and increased productivity as well
as in enhanced opportunities for recruitment of qualified staff
members. In addition, the City will realize a modest savings in
monies paid to the state for disability benefits which are based
on total payroll figures, because the overall City payroll will
be reduced by the amount set aside by participating employees.
RECOMMENDATIONS
Staff recommends that Council:
1. Approve the eligibility criteria set forth above for the
subsidy and salary reduction portions of the Dependent Care
Assistance Plan.
2. Approve the expenditure of $25,500 from account
#01-700-274-000-785 for the subsidy program from April - June,
1987 and for the cost of setting up the entire DCAP program.
3. Authorize the city Manager to enter into a contract with
Western states Administrators to set-up and administer the DCAP
for the remainder of the calendar year.
4. Adopt the attached resolution which is required to legally
establish a Dependent Care Assistance Program.
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Prepared by: Vivian Rothstein
Assistant to the Director
Recreation and Parks
Linda A. Mills-Coyne
Deputy City Attorney
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