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City of Redwood City <br />Notes to the Basic Financial Statements <br />For the fiscal year ended June 30, 2016 <br />NOTE 9 - EMPLOYEE BENEFITS (CONTINUED) <br />6.1.D. - Page 99 <br />Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as <br />understood by the employer and the plan participants) and include the types of benefits provided at the <br />time of each valuation and the historical pattern of sharing of benefit costs between the employer and <br />plan participants to that point. The actuarial methods and assumptions used include techniques that are <br />designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value <br />of assets, consistent with the long-term perspective of the calculations. <br />B. Cafeteria Benefit Plan <br />The City has a cafeteria benefit plan established pursuant to section 125 of the IRS code. Under this plan <br />eligible employees may direct a contribution, made by the City or elect to contribute pre-tax dollars, into <br />any combination of the following three benefit categories: <br />1. Medical Insurance Premium Account <br />2. Out of Pocket Medical Spending Account <br />3. Dependent Care Spending Account <br />Under no circumstances may an employee direct more than $5,000 annually into the Dependent Care <br />Spending Account and $2,550 annually into the Medical Spending Account. This cap applies to both City <br />contributions and employee pre-tax contributions. There are no legal limits on contributions to the Health <br />Premium Account. <br />All regular full-time and part-time employees employed on a regular and continuous basis, including <br />certain contractual employees, are eligible to participate in this plan. Temporary and casual employees <br />are not eligible. The plan year adopted by the City begins on January 1 and ends December 31. <br />To obtain reimbursement of expenses incurred within a plan year within the spending accounts (items 2 <br />or 3), employees must submit claims within 90 days of the end of the plan year or separation of service <br />from the City, whichever occurs first. Funds unclaimed after 90 days of the close of the plan year are then <br />remitted to the City. <br />C. Deferred Compensation Plans <br />City employees may defer a portion of their compensation under four separate, optional City -sponsored <br />deferred compensation plans created in accordance with Internal Revenue Code Section 457. Under these <br />plans, participants are not taxed on the deferred portion of their compensation until distributed to them; <br />distributions may be made only at termination, retirement, death, or in an emergency as defined by the <br />plans. <br />Effective January 1, 1998, the City signed new deferred compensation plan administration agreements <br />with the deferred compensation providers to provide for the administration and management of <br />employees' deferred compensation plan assets. These agreements incorporate changes in the law <br />governing deferred compensation plan assets which now require plan assets to be held for the exclusive <br />benefit of plan participants and their beneficiaries. Since the assets held under these new plans are not <br />the City's property and are not subject to claims by general creditors of the City, they have been excluded <br />from these financial statements. <br />72 <br />