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HomeMy WebLinkAboutHR1993-0156 - Original - Flex-Plan Services, Inc. - Administrative and Consulting Services for Flex Plan - 02/01/1993 A ADMINISTRATIVE SERVICES AGREEMENT .- This Agreement is made and entered into this /sf day of r"Irtmr-q 1993 , between The City of Kent, a Washington municipal corporation, (hereinafter "City") , and Flex-Plan Services, Inc. (hereinafter "Administrative Firm") . I. PURPOSE This Agreement specifies the services to be provided to City in the ongoing administration of City' s Benefit Plan under I.R.C. Section 125 and the specified responsibilities of the City. The City shall be the Plan Administrator and Flex-Plan Services, Inc. (Administrative Firm) shall be engaged as an independent contractor in the performance of administrative and consulting services for the Plan. II. DESCRIPTION OF WORK Administrative Firm shall provide the following services to City in performance of administrative and consulting services under this Agreement. Plan Design and Analysis * Plan Design and Preparation of Plan Document and Summary Plan Description * Estimated Contributions and Tax Savings for Employer and Employees * Assistance Opening Plan Account * Plan Design Changes and Updates Employee Communication and Processing * Employee Brochure and Worksheets * Customized Election Form * Plan Promotion and Marketing to Eligible Employees * Participant Confirmation Letter to Verify Elections * Data Processing to Computerize Participants Enrollment Meetings/Seminars * Completed prior to Plan Effective Date or Plan Anniversary * Usually 30 minutes/meeting * Explanation of rules, regulations, claims process, change forms * Explanation of Premium Conversion; Health Care FSA; and Dependent Care FSA * Questions and Answers Monthly Administration Processing and Servicing * Participant is defined as an employee who is contributing to the Health Care Flexible ers Spending Account (FSA) , Dependent Care FSA, or nal Insurance Expense Account * Participant Statement of Accounts * Claims Processing and Preparation of Reimbursement Checks * Employer Statement * Contribution Worksheet * Disbursement Register * Employee changes, additions, deletions * Participant questions/answers Discrimination Testing and Reports * Assistance in Determination of Key and Highly Compensated Employees * 25% Concentration Test * Tax consequences and recommendations 2 Tax and Plan Reporting Reauirements * Summary Plan Description filed with Department of Labor * Form 5500 prepared (Client files with IRS) * Rules, Regulations, and Tax Code Changes III . TERM This agreement will be effective from the date of execution hereof until it is terminated. Either party may terminate this Agreement without cause upon thirty (30) days notice to the other party. In the event of termination, the City shall pay for all services performed by the Administrative Firm to the effective date of termination. IV. PAYMENT The City will pay Administrative Firm for services rendered under this Agreement as follows: A. $500 Annual Plan Fee B. An additional annual fee of $5. 00 per Eligible Employee per enrollee in the Flexible Spending Account (FSA) C. Monthly Plan Management/Administration Fee of $4 per month per FSA participant with a minimum payment of $50 per month for the first 100 employees and $3 per month per FSA participant for the number of employees over 100 employees. D. Mailing fee of $ .70 per participant for Explanation of Benefit record. E. Meeting fee $75. 00/ea. V. STATUS OF CONSULTANT This Agreement calls for the performance of the services of the Administrative Firm as an independent contractor and the Administrative Firm will not be considered an 3 employee of the City for any purpose. The Administrative Fee and/or its subcontractor shall secure at its own expense and shall be responsible for any and all payment of income, tax, social security, state disability insurance compensation, unemployment compensation, worker' s compensation, and all other payroll deductions for the consultant and its officers, agents, and employees, and the cost of all business licenses, if any, in connection with the services to be performed hereinunder. V. DISCRIMINATION In the hiring of employees for the performance of work under this Agreement or any subcontract hereunder, the Administrative Firm, its subcontractors or any person acting on behalf of such Administrative Firm or subcontractor shall not, by reason of race, religion, color, sex or national origin discriminate against any person who is qualified and available to perform the work to which the employee relates. VI. WORKER' S COMPENSATION Administrative Firm agrees to maintain, at Administrative Firm' s expense, worker' s compensation insurance at the limits required by the State of Washington, to fully protect both Administrative Firm and the City from any and all claims for injury or death arising from the performance of this Agreement. VII. INDEMNIFICATION Administrative Firm shall save, keep and hold harmless the City, its officers, agents, employees and volunteers from any and all damages, costs or expenses in law or equity that may at any time arise or be set up because of damages to property or personal injury (including death) received 4 by reason of or in the course of performing work which may be occasioned by any willful or negligent act or omissions of the Administrative Firm, any of its employees, or any of its subcontractors. VIII. REPORTS AND DATA All reports and data remain the property of the Administrative Firm. Administrative Firm will provide the City all data, upon request, in the electronic or printed format used in its administration procedures. IX. ENTIRE AGREEMENT The written provisions and terms of this Agreement shall supersede all prior verbal statements of any officer or other representative of the City, and such statements shall not be effective or be construed as entering into or forming a part of, or altering in any manner whatsoever, this Agreement or the Agreement documents. The entire agreement between the parties with respect to the subject matter hereunder is contained in this Agreement, any addenda attached hereto, and all bid related documents, if any, which may or may not have been executed prior to the execution of this Agreement. All of the above documents are hereby made a part of this Agreement and form the Agreement document as fully as if the same were set forth at length herein. X. WAIVER AND MODIFICATION No waiver, alteration or modification of any of the provisions of this Agreement shall be binding unless in writing and signed by a duly authorized representative of the City or Consultant. 5 XI. ASSIGNMENT Any assignment of this Agreement by the Consultant without the written consent of the City shall be void. XII. WRITTEN NOTICE All communications regarding this Agreement should be sent to the parties at the addresses below, unless notified to the contrary. Any written notice hereunder shall become effective as of the date of mailing by registered or certified mail and shall be deemed sufficiently given if sent to the addressee at the address stated in this Agreement or such other address as may hereafter be specified in writing. XIII. GOVERNING LAW This Agreement shall be governed by the laws of the State of Washington. XIV. RESOLUTION OF DISPUTES Should any dispute, misunderstanding or conflict arise as to the terms and conditions contained in this Agreement, the matter shall first be referred to the City, and the City shall determine the term or provision' s true intent or meaning. The City shall also decide all questions which may arise between the parties relative to the actual service provided, or to the sufficiency of the performance hereunder. If any dispute arises between the City and Consultant under any of the provisions of this Agreement which cannot be resolved by the City' s determination within a reasonable time, jurisdiction of any resulting litigation shall be with the Superior Court of King County, Washington. 6 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written. FLEX-PLAN SERVICES, INC. THE CIT OF KENT By v�i L Z z _ 93 By Its ��" ` f Its /"1a1/J P.O. Box 70366 220 Fourth Avenue South Bellevue, Washington 98077 Kent, Washington 98032 Approved as to form: Ro er A. Lubovich City Attorney Attest: City Clerk adminsys.agr 7 CITY OF KENT FLEXIBLE BENEFITS PLAN Flex-Plan Services, Inc. P.O. Box 70366 Bellevue, Washington 98007 (206) 562-9259 TABLE OF CONTENTS INTRODUCTION AND PURPOSE...................................................................... . ARTICLE 1 - DEFINITIONS Administrator................ ""•"'."""•"•'..................................................... Affiliated Employer .................... •••••••••••••""""."' .................... 1 Benefit............................................................ ....................................................... 1 Flexible Benefit Plan Benefit Dollars........................... ................................................. 1 . ................................. Code ................ ........................................................... . Compensation.......................................................................................................... 1 Dependent.......................................................................................... .................... 2 EffectiveDate..................................................... .................................................... 2 ElectionPeriod ............................................................................. ........................... 2 EligibleEmployee...................................................................................................... Employee ........................................................................ ........................ Employer....................................................................... .. Highly Compensated Participant ............................ . Insurance Contract ...................................... Insurance Premium Payment Plan ....................................................... Insurer......... ............................ .................................................................. KeyEmployee...................................................................................... ................... 2 Participant............................................................................................ Plan........................................................................... Plan Year .......... .................................................................... 2 Premium Expenses or Premiums ...................... ............................................. 2 Premium Reimbursement Account................. ............................................................. 3 Salary Redirection Agreement .................................................................................... Spouse ........................................................................................... ARTICLE 11 - PARTICIPATION ELIGIBILITY ........................................................................................................ EFFECTIVE DATE OF PARTICIPATION ............................. ......................................................... 3 APPLICATION TO PARTICIPATE ............................. . TERMINATION OF PARTICIPATION ...................................................... . CHANGE OF EMPLOYMENT STATUS....................................................................... .. ................ 4 TERMINATION OF EMPLOYMENT .............................................................. DEATH .................................................................. .. ............................................................ 5 ARTICLE III - CONTRIBUTIONS TO THE PLAN ... . 5 SALARY REDIRECTION ........................................... ..... ....................... ............................... 5 APPLICATION OF CONTRIBUTIONS........................................................................................... Table of Contents - Page 1 ARTICLE IV - BENEFITS BENEFITOPTIONS .............................................................................................. HEALTH CARE REIMBURSEMENT PLAN BENEFIT ............................. . ....... 6 DEPENDENT CARE ASSISTANCE PLAN BENEFIT............................................................... PREMIUM REIMBURSEMENT ACCOUNTS 8 NONDISCRIMINATION REQUIREMENTS ................................................................ ARTICLE V - PARTICIPANT ELECTIONS INITIALELECTIONS.......................................................... SUBSEQUENT ANNUAL ELECTIONS ......................................... 9 . ....................... . FAILURETO ELECT ................................................................................. . CHANGEOF ELECTION.......................................................................... ARTICLE VI - HEALTH CARE REIMBURSEMENT PLAN ESTABLISHMENT OF PLAN ........................................ DEFINITIONS..................................................... ...................................................................10 Health Care Reimbursement Account .......................................... ..............................10 Health Care Reimbursement Plan ...............................................................................1 1 Highly Compensated Participant ................................................ . Medical Expenses.................................................................... HEALTH CARE REIMBURSEMENT ACCOUNTS...........................................................................11 INCREASES IN HEALTH CARE REIMBURSEMENT ACCOUNTS .......................... . ....11 11 DECREASES IN HEALTH CARE REIMBURSEMENT ACCOUNT ........................ . FORFEITURES......................................................................................................... ... ........... NONDISCRIMINATION REQUIREMENTS ........................................................................ 12 COORDINATION WITH FLEXIBLE BENEFITS PLAN ................................ .. 12 HEALTH CARE REIMBURSEMENT PLAN CLAIM .............................................................. ARTICLE VII - DEPENDENT CARE ASSISTANCE PROGRAM ESTABLISHMENT OF PROGRAM........................................................... DEFINITIONS........................ . .................................................................. Dependent Care Assistance Account...................................... ...................................12 Dependent Care Assistance Program.........................................................•••••.......•••••12 ...12 EarnedIncome............................................................. ..........................................12 Employment-Related Dependent Care Expenses ........................................................ Highly Compensated Participant .................................................... ...........................13 Qualifying Dependent.................................................................................. .. . DEPENDENT CARE ASSISTANCE ACCOUNTS..................................... INCREASES IN DEPENDENT CARE ACCOUNTS.................................................... .. . Table of Contents - Page 2 ..........14 DECREASES IN DEPENDENT CARE ACCOUNTS..................................... .14 ALLOWABLE DEPENDENT CARE REIMBURSEMENT................................ ANNUAL STATEMENT OF BENEFITS .......................................................... . .....15 . ........................................................ FORFEITURES......................................................... . .1 5 LIMITATION ON PAYMENTS ................... NONDISCRIMINATION REQUIREMENTS..................... ...........15 COORDINATION WITH FLEXIBLE BENEFITS.................................................................. DEPENDENT CARE ASSISTANCE PROGRAM CLAIMS....................................... . ARTICLE VIII - ERISA PROVISIONS CLAIMFOR BENEFITS ................................................................................... ............17 APPLICATION OF FORFEITURES ..............................................................................................17 NAMED FIDUCIARY.................................................................................................... 18 GENERAL FIDUCIARY RESPONSIBILITIES..................................... .. . 18 NONASSIGNABILITY OF RIGHTS ............... ................................................ ARTICLE IX - ADMINISTRATION PLAN ADMINISTRATION................................................ 19 .............................................................. EXAMINATION OF RECORDS .............................. 19 PAYMENT OF EXPENSES.................................................................................... INSURANCE CONTROL CLAUSE ..............................................................................................19 INDEMNIFICATION OF EMPLOYEE ADMINISTRATOR................ ARTICLE X - AMENDMENT OR TERMINATION OF PLAN AMENDMENT......................................................................... .. ........................ TERMINATION............................................................................................... ARTICLE XI - MISCELLANEOUS PLANINTERPRETATION................................... .. .. ................................................................20 GENDERAND NUMBER............................................................................................. NON-ALIENATION OF BENEFITS ............................................................................. EXCLUSIVEBENEFIT ............................................................ PARTICIPANT'S RIGHTS.................................... ACTION BY THE EMPLOYER.................................................................................. EMPLOYER'S PROTECTIVE CLAUSES................................................................ ......................20 .................... . FUNDING ............ ....................................................................... OTHER SALARY-RELATED PLANS......................... . 21 GOVERNING LAW.................................................................................................................. ..............21 NO GUARANTEE OF TAX CONSEQUENCES................................................................. INDEMNIFICATION OF EMPLOYER BY PARTICIPANTS..................................... SEVERABILITY........................................................................................................ CAPTIONS ....................................................................................................... CONTINUATION OF COVERAGE ..................................................................... . CERTIFICATE OF CORPORATE RESOLUTION........................ Table of Contents - Page 3 CITY OF KENT FLEXIBLE BENEFITS PLAN INTRODUCTION AND PURPOSE City of Kent, has adopted this plan effective January 1, 1993, to recognize the contribution made to it by its Employees. Its purpose is to reward them by providing benefits for those Employees who shall qualify hereunder and their dependents and beneficiaries. The concept of this Plan is to allow Employees to choose among different types of benefits based upon their own particular goals, desires and needs. The intention of the Employer is that the Plan, its attachments, and any amendments qualify as a Flexible Benefits Plan within the meaning of Section 125(d) of the Internal Revenue Code of 1986, as amended, and that the benefits which an Employee elects to receive under the Plan be includable or excludable from the Employee's income under Section 125(a) and other applicable sections of the Internal Revenue Code of 1986, as amended. ARTICLE I DEFINITIONS 1.1 Administrator means the Employer or such other person as may be appointed from time to time by the Employer to carry out the administration of the Plan. 1.2 Affiliated Employer means the Employer and any corporation which is a member of a controlled group of corporations (as defined in Code Section 414(b) which includes the Employer; and trade or business (whether or not incorporated) which is under common control (as defined in Code Section 414(c) with the Employer; any organization (whether or not incorporated) which is a member of an affiliated services group (as defined in Code Section 414(m) which includes the Employer; and any other entity required to be aggregated with the Employer pursuant to Treasury regulations under Code Section 414(o). 1.3 Benefit means each of the optional benefit choices available to a Participant as outlined in Section 4.1 hereof. 1.4 Flexible Benefits Plan Benefit Dollars means the amount available to Participants, pursuant to Article III, to purchase benefits. Each dollar contributed to this Plan shall be converted into one Flexible Benefits Plan Benefit Dollar. 1.5 Code means the Internal Revenue Service Code of 1986, as amended or replaced from time to time. 1.6 Compensation means cash remuneration received by the Participant from the Employer during a plan year prior to any reduction pursuant to a Salary Redirection Agreement authorized hereunder. 1.7 Dependent means any individual who qualifies as a dependent under Code Section 152. Page 1 1.8 Effective Date means January 1, 1993. 1.9 Election Period means the period immediately preceding each Plan Year established by the Administrator for the election of Benefits and Salary Redirections, such period to be applied on a uniform and non-discriminatory basis for all Employees and Participants. However, an Employee's initial Election Period shall be determined pursuant to Section 5.1 hereof. 1.10 Eligible Employee means any Employee who has satisfied the provisions of Section 2.1 hereof. 1.11 Employee means any person who is employed by the Employer, but excludes any person who is employed as an independent contractor. The term Employee shall include leased employees within the meaning of Code Section 414(n)(2). 1.12 Employer means City of Kent, and any Affiliated Employer (as defined in Section 1 .2), which shall adopt this plan, and any successor which shall maintain this Plan. 1.13 ERISA means the Employee Retirement Income Security Act of 1974, as amended from time to time. 1.14 Highly Compensated Participant means, for the purpose of determining discrimination under Code Section 125, an employee described in Code Section 414(q) and the Treasury regulations thereunder; provided, however, that for purposes of determining discrimination in the Health Care Reimbursement Plan, it means an Employee among the top paid 25% of Employees. 1.15 Insurance Contract means any contract issued by an Insurer underwriting a Benefit. 1.16 Insurance Premium Payment Plan means the plan of benefits contained in Section 4.1 of this Plan, which provides for the payment of Premium Expenses. 1.17 Insurer means any insurance company that underwrites a Benefit under this Plan. 1.18 Key Employee means an employee defined in Code Section 4160)(1) and the Treasury regulations thereunder. 1.19 Participant means any Eligible Employee who elects to become a Participant pursuant to Section 2.3 hereof, and has not for any reason become ineligible to participate further in the Plan. 1.20 Plan means City of Kent Flexible Benefits Plan. 1.21 Plan Year means the period beginning January 1 through December 31 . The Plan Year shall be the coverage period for the Benefits provided for under this Plan. In the event a Participant commences participation during a Plan Year, then the initial coverage period shall be that portion of the Plan Year commencing on such Participant's date of entry and ending on the last day of such Plan Year. 1.22 Premium Expenses or Premiums means the Participant's cost for the insured Benefits described in Section 4.1 hereof. 1.23 Premium Reimbursement Account means the account established for a Participant pursuant to this Plan to which part of his Flexible Benefits Plan Benefit Dollars may be allocated and from which Premiums of the Participant may be paid or reimbursed. If more than one type of insured Benefit is elected, sub-accounts shall be established for each type of insured Benefit. Page 2 1.24 Salary Redirection means the contributions made by the Employer on behalf of Participants pursuant to Section 3.2 hereof. These contributions shall be converted to Flexible Benefits Plan Benefit Dollars and allocated to the accounts of each Participant for the purposes of providing the Benefits under this Plan. 1.25 Salary Redirection Agreement means an agreement between the Participant and the Employer under which the Participant agrees to reduce his compensation or to forego all or part of the increases in such Compensation and to have such amounts contributed by the Employer to the Plan on the Participant's behalf. The Salary Redirection Agreement shall apply only to Compensation that has not been actually or constructively received by the Participant as of the date of the agreement (after taking this Plan and Code Section 125 into account) and, subsequently does not become currently available to the Participant. 1.26 Spouse means the legally married husband or wife of a Participant, unless separated by a court decree. 1.27 Third-Party Administrator - In the context of this document the term "Third-Party Administrator" shall refer to Flex-Plan Services, Inc. ARTICLE II PARTICIPATION 2.1 ELIGIBILITY Any Eligible Employee shall be eligible to participate hereunder as of the date he satisfies the eligibility conditions for the Employer's group medical plan, the provisions of which are specifically incorporated herein by reference. If Participant is rehired during the same period of coverage in which termination of employment occurs, and such former Participant had revoked existing Benefit elections and terminated the receipt of Benefits at the time of termination of employment, then such rehired former Participant shall be prohibited from making new Benefit elections for the remaining portion of the period of coverage. 2.2 EFFECTIVE DATE OF PARTICIPATION An Eligible Employee shall become a Participant as of the first day of the pay period coinciding with or next following the date on which he or she met the eligibility requirements of Section 2.1, above. 2.3 APPLICATION TO PARTICIPATE An Employee who is eligible to participate in this Plan shall, during the applicable Election Period, complete an application to participate and election of benefits form which the Administrator shall furnish to the Employee. The election made on such form shall be irrevocable until the end of the applicable Plan Year unless the Participant is entitled to change his Benefit election pursuant to Section 5.4 hereof. An eligible Employee shall also be required to execute a Salary Redirection Agreement during the Election Period for the Plan Year during which he wishes to participate in this Plan. Any such Salary Redirection Agreement shall be effective for the first pay period beginning on or after the Employee's effective date of participation pursuant to Section 2.2 hereof. Page 3 2.4 TERMINATION OF PARTICIPATION A Participant shall no longer participate in this Plan upon the occurrence of any of the following events: (a) his termination of employment, subject to the provisions of Section 2.5 hereof; (b) the end of the Plan Year during which he became a limited Participant because of an employment status pursuant to Section 2.6 hereof; (c) his death, subject to the provisions of Section 2.7; or (d) the termination of this Plan, subject to the provisions of Section 10.2. 2.5 CHANGE OF EMPLOYMENT STATUS If a Participant ceases to be an Eligible Employee because of a change in employment status or classification (other than through termination of employment), the Participant shall become a limited Participant in this Plan for the remainder of the Plan Year in which such change of employment status occurs. As a limited Participant, no further Salary Redirection may be made on behalf of the Participant, and, except as otherwise provided herein, all further Benefit elections shall cease, subject to the limited Participant's right to continue coverage under any Insurance Contracts. However, any balances in the limited Participant's Dependent Care Assistance Account may be used during such Plan Year to reimburse the limited Participant for any Employment Related Dependent Care Expenses incurred during the Plan Year. Any balances in the limited Participant's Health Care Reimbursement Account may be used to the date on which the Participant ceases to be an Eligible Employee to reimburse him for any allowable Medical Expenses incurred through that date. Subject to the provisions of Section 2.6, if the limited Participant later becomes an Eligible Employee, then the limited Participant may again become a full Participant in this Plan, provided he otherwise satisfies the participation requirements set forth in this Article II as if he were a new Employee and made an election in accordance with Section 5.1, provided that if he becomes an Eligible Employee in the same plan year in which he becomes a limited Participant, the election rules of Section 2.1 apply. 2.6 TERMINATION OF EMPLOYMENT If a Participant terminates employment with the Employer for any reason other than death, his participation in the Plan shall be governed in accordance with the following: (a) With regard to Benefits which are insured, the Participant's participation in the Plan shall cease, subject to the Participant's right to continue coverage under any Insurance Contract for which premiums have already been paid. (b) With regard to the Dependent Care Assitance Program, the Participant's participation in the Plan shall cease and no further Salary Redirection contributions shall be made. However, such Participant may submit claims for employment related Dependent Care Expense reimbursements for the remainder of the Plan Year in which such termination occurs, based on the level of his Dependent Care Assistance Account as of his date of termination. (c) With regard to the Health Care Reimbursement Plan, the Participant will no longer participate in the Plan on the day of termination of employment. After termination of participation, the employee may only receive reimbursement for qualifying expenses which were incurred prior to this date. All claims must be received within 60 days of termination of participation. Page 4 2.7 DEATH If a Participant dies, his participation in the Plan shall cease. However, except for the Health Care Reimbursement Plan, such Participant's beneficiaries, may submit claims for expenses or benefits for the portion of the Plan Year preceding his date of death. A deceased Participant's participation in the Health Care Reimbursement Plan terminates on the last day of the month in which the Participant dies, and the Participant's beneficiary may seek reimbursement for any allowable Medical Expenses incurred through the end of that month. A Participant may designate a specific beneficiary for this purpose. If no such beneficiary is specified, the Administrator may designate the Participant's Spouse, one of his Dependents, or a representative of his estate. ARTICLE III CONTRIBUTIONS TO THE PLAN 3.1 SALARY REDIRECTION Benefits under the Plan shall be financed by Salary Redirections sufficient to support Benefits that a Participant has elected hereunder and to pay the Participant's Premium Expenses. The administration program of the Employer shall be revised to allow each Participant to agree to redirect his pay during a Plan Year by an amount determined necessary to purchase the elected Benefit. The amount of such Salary Redirection shall be specified in the Salary Redirection Agreement and shall be applicable for a Plan Year. Notwithstanding the above, for new Participants, the the Salary Redirection 's entry Agreement shall only be applicable from the first day of the pay period date to the first day of the next succeeding Plan Year. Any Salary Redirection shall be determined prior to the beginning of a Plan Year (subject to initial elections pursuant to Section 5.1) and shall be irrevocable for such Plan Year. However, a Participant may revoke a Benefit election or a Salary Redirection Agreement after the Plan Year has commenced and make a new election and/or Salary Redirection Agreement with respect to the remainder of the Plan Year if both the revocation and the new election are made on account of and consistent with a change in family status as determined under the rules and regulations of the Department of the Treasury (e.g., marriage, divorce, death of a spouse or child, birth or adoption of a child and termination of employment of a spouse). Salary Redirection amounts shall be contributed on a pro-rata basis for each pay period during the Plan Year. All individual Salary Redirection Agreements are deemed to be part of this Plan and are incorporated by reference hereunder. Maximum salary redirection under the Health Care Reimbursement Account will be $2,400 per year. 3.2 APPLICATION OF CONTRIBUTIONS As soon as reasonably practical after each payroll period, the Employer shall apply the Salary Redirection to provide the Benefits elected by the affected Participants. Any contributions made or withheld for a Health Care Reimbursement Account or Dependent Care Assistance Account shall be credited to such account. Amounts designed for the Participant's Premium Expense Reimbursement Account shall likewise be credited to such account for the purpose of paying Premium Expenses. ARTICLE IV BENEFITS Page 5 4.1 BENEFIT OPTIONS Each Participant may elect to have the amount of his Salary Redirections applied to any one or more of the following optional Benefits: (1) Health Care Reimbursement Plan (2) Dependent Care Assistance Program (3) Insurance Premium Payment Plan: ( ) Medical Insurance ( ) Dental Insurance ( ) Group-Term Life Insurance ( ) Disability Insurance ( 1 Cancer Insurance ( ) Vision Insurance ( ) Accident Indemnity O Other 4.2 HEALTH CARE REIMBURSEMENT PLAN BENEFIT Each Participant may elect coverage under the Health Care Reimbursement Plan option, in which case Article VI hereof shall apply. 4.3 DEPENDENT CARE ASSISTANCE PLAN BENEFIT Each Participant may elect coverage under the Dependent Care Assistance Plan option, in which case Article VII hereof shall apply. 4.4 PREMIUM REIMBURSEMENT ACCOUNTS MEDICAL INSURANCE (a) Each Participant may elect to be covered under a health and hospitalization Insurance Contract for the Participant, his or her spouse, and his or her Dependents. (b) In the event that any Participant shall have existing health and hospitalization insurance protection or desires to obtain alternative health and hospitalization insurance protection, the Administrator, in its sole discretion, may, upon submission of satisfactory proof of payment by the Participant, reimburse the Participant for the cost of the alternative insurance protection. (c) The Employer may select suitable health and hospitalization Insurance Contracts for use in providing this health insurance benefit, which policies will provide uniform benefits for all Participants electing this Benefit. (d) The rights and conditions with respect to the benefits payable from such Insurance Contracts shall be determined therefrom and such Insurance Contract shall be incorporated herein by reference. DENTAL INSURANCE (a) Each Participant may elect to be covered under the Employer's dental Insurance Contract. In addition, the Participant may elect either individual or family coverage under such Insurance Contract. Page 6 (b) The Employer may select suitable dental Insurance Contracts for use in providing this dental insurance benefit, which policies will provide uniform benefits for all Participants electing this Benefit. (c) The rights and conditions with respect to the benefits payable from such dental Insurance Contract shall be determined therefrom, and such dental Insurance Contract shall be incorporated herein by reference. GROUP-TERM LIFE INSURANCE (a) Each Participant may elect to be covered under the Employer's group-term life Insurance Contract. (b) The Employer may select suitable group-term life Insurance Contracts for use in providing this group-term life insurance benefit, which policies will provide benefits for all Participants electing this Benefit on a uniform basis. (c) The rights and conditions with respect to the benefits payable from such group-term life Insurance Contract shall be determined therefrom, and such group-term life Insurance Contract shall be incorporated herein by reference. DISABILITY INSURANCE (a) Each Participant may elect to be covered under the Employer's disability Insurance Contract. (b) The Employer may select suitable disability Insurance Contracts for use in providing this disability Benefit. The disability Insurance Contracts may provide for long-term or short-term coverage. (c) In the event that any Participant shall have existing disability insurance protection or desires to obtain alternative disability insurance protection, the Administrator, in its discretion, may, upon submission of satisfactory proof of payment by the Participant, reimburse the Participant for the cost of the alternative insurance protection. (d) The rights and conditions with respect to the Benefits payable from such disability Insurance Contract shall be determined therefrom, and such disability Insurance Contract shall be incorporated herein by reference. CANCER INSURANCE (a) Each Participant may elect to be covered under the Employer's cancer Insurance Contract. In addition, the Participant may elect either individual or family coverage. (b) The rights and conditions with respect to the benefits payable from such cancer Insurance Contract shall be determined therefrom, and such cancer Insurance Contract shall be incorporated herein by reference. VISION INSURANCE (a) Each Participant may elect to be covered under the Employer's vision Insurance Contract. In addition, the Participant may elect either individual or family coverage. Page 7 (b) The rights and conditions with respect to the benefits payable from such vision Insurance Contract shall be determined therefrom, and such vision Insurance Contract shall be incorporated herein by reference. ACCIDENT INDEMNITY INSURANCE (a) Each Participant may elect to be covered under the Employer's accidental death and dismemberment Insurance Contract. (b) The rights and conditions with respect to the benefits payable from such accidental death and dismemberment Insurance Contract shall be determined therefrom, and such accidental death and dismemberment Insurance Contract shall be incorporated herein by reference. 4.5 NONDISCRIMINATION REQUIREMENTS (a) It is the intent of this Flexible Benefits Plan not to discriminate as to contributions or Benefits provided to Highly Compensated Participants as defined in Section 1 .14. (b) It is the intent of this Flexible Benefits Plan not to provide qualified benefits as defined under Code Section 125(f) to Key Employees in amounts that exceed 25% of the aggregate of such Benefits provided for all Eligible Employees under the plan. (c) If the Administrator deems it necessary to avoid discrimination or possible taxation to Highly Compensated Employees or Key Employees in violation of Code Section 125, it may, but shall not be required to, reject any election or reduce contributions or non- taxable benefits in order to assure compliance with this section. Any act taken by the Administrator under this section shall be carried out in a uniform and nondiscriminatory manner. If the Administrator decides to reject any election or reduce contributions or non-taxable benefits, it shall be done in the following manner. First, the non-taxable Benefits of the affected Participant (either an employee who is highly compensated or a Key Employee, whichever is applicable) who has elected the highest amount of non- taxable Benefits for the Plan Year shall have his non-taxable benefits reduced until the discrimination tests set forth in this Section are satisfied or until the amount of his non- taxable Benefits equals the non-taxable Benefits of the affected Participant who has elected the second highest amount of non-taxable Benefits. This process shall continue until the nondiscrimination tests set forth in this Section are satisfied. With respect to any affected Participant who has had Benefits reduced pursuant to this Section, the reduction shall be made proportionately among non-insured Benefits, and once all non- insured Benefits are expended, proportionately among insured Benefits. Contributions which are not utilized to provide Benefits to any Participant by virtue of any administrative act under this paragraph shall be forfeited. ARTICLE V PARTICIPANT ELECTIONS 5.1 INITIAL ELECTIONS An Employee who meets the eligibility requirements of Section 2.1 on the first day of, or during, a Plan Year may elect to participate in this Plan for all or the remainder of such Plan Year, provided he elects to do so before his effective date of participation pursuant to Section 2.2. However, if such Employee does not complete an application to participate and benefit election form Page 8 and deliver it to the Administrator before such date, his Election Period shall extend 30 calendar days after such date, or for such further period as the Administrator shall determine and apply on a uniform and nondiscriminatory basis. However, any election pursuant to this Section 5.1 shall not be effective until the first pay period following the later of such Participant's effective date of participation pursuant to Section 2.2 or the date of the receipt of the election form by the Administrator, and shall be limited to the Benefit expenses incurred for the balance of the Plan Year for which the election is made. 5.2 SUBSEQUENT ANNUAL ELECTIONS During the Election Period prior to each subsequent Plan Year, each Participant shall be given the opportunity to elect, on an election of benefits form to be provided by the Administrator, which Benefit options he wishes to select and purchase with his Salary Redirections. Any such election shall be effective for any Benefit expenses incurred during the Plan Year which follows the end of the Election Period. With regard to subsequent annual elections, the following options shall apply: (a) a Participant or Employee who failed to initially elect to participate may elect different or new Benefits under the Plan during the Election Period; (b) a Participant may terminate his participation in the Plan by notifying the Administrator in writing during the Election Period that he does not want to participate in the Plan for the next Plan Year; (c) an Employee who elects not to participate for the Plan Year following the Election Period will have to wait until the next Election Period before again electing to participate in the Plan. 5.3 FAILURE TO ELECT Any Participant failing to complete an election of benefits form pursuant to Section 5.2 by the end of the applicable Election Period shall be deemed to have elected to continue participation in the Premium Conversion Account but to have elected not to participate in the Health Care Reimbursement Plan, Dependent Care Assistance Plan nor the Premium Expense Account for the new Plan Year. 5.4 CHANGE OF ELECTION Any Participant may change a Benefit election after the Plan Year (to which such election relates) has commenced and make new elections with respect to the remainder of such Plan Year if the changes are necessitated by and are consistent with a change in family status which is acceptable under rules and regulations adopted by the Department of the Treasury. (1) Benefit election changes are consistent with family status changes only if the election changes are necessary or appropriate as a result of the family status change. Any new election under this Section 5.4 shall be effective at such time as the Administrator shall prescribe, but not earlier than the first pay period beginning after the election form is completed and returned to the Administrator. For the purposes of this paragraph, the following events shall be considered examples of a change in family status: (a) the marriage or divorce of the Participant; (b) the birth or adoption of a child by the Participant; (c) the death of the Participant's spouse or a Dependent; Page 9 (d) the termination or commencement of employment of the Participant's spouse; (e) the switching from part-time to full-time employment status (or from full- time to part-time status) by the Participant or the Participant's spouse; (f) the taking of an unpaid leave of absence by the Participant or the Participant's spouse; or (g) a significant change in health coverage attributable to the spouse's employment; or (h) Administrative error (2) If the Premium Expense under a health insurance Benefit provided by an independent, third-party provider under the Plan increases or decreases during a Plan Year, then the Plan shall automatically increase or decrease, as the case may be, the Salary Redirections of all affected Participants for such health insurance Benefit. Alternatively, if the Premium Expense increases significantly, the Administrator shall permit the affected Participants to either make corresponding changes in their Premium payments or revoke their elections and, in lieu thereof, receive on a prospective basis coverage under another health plan with similar coverage. In addition, if the coverage under a health insurance Benefit provided by an independent, third-party provider is significantly curtailed or ceases during a Plan Year, affected Participants may revoke their elections of such health insurance Benefit and, in lieu thereof, elect to receive on a prospective basis coverage under another health plan with similar coverage. (3) Termination of employment by a Participant shall constitute a revocation of all existing benefit elections. ARTICLE VI HEALTH CARE REIMBURSEMENT PLAN 6.1 ESTABLISHMENT OF PLAN This Health Care Reimbursement Plan is intended to qualify as a medical reimbursement plan under Code Section 105 and shall be interpreted in a manner consistent with such Code Section and the Treasury regulations thereunder. Participants who elect to participate in this Health Care Reimbursement Plan may submit claims for the reimbursement of Medical Expenses. All amounts Plan shall be paid from amounts allocated to the reimbursed under this Health Care Reimbursement Participant's Health Care Reimbursement Account. 6.2 DEFINITIONS For the purposes of this Article and the Flexible Benefits Plan, the terms below have the following meaning: (a) Health Care Reimbursement Account means the account established for a Participant pursuant to this plan to which part of his Flexible Benefits Plan Benefit Dollars may be allocated and from which all allowable Medical Expenses may be reimbursed. Page 10 (b) Health Care Reimbursement Plan means the plan of benefits contained in this Article, which provides for the reimbursement of eligible Medical Expenses incurred by a Participant or his Dependents. (c) Highly Compensated Participant means for the purposes of this Article and determining discrimination under Code Section 105(h), a Participant who is: (1) one of the highest paid officers; (2) a shareholder who owns (or is considered to own applying the rules of Code Section 31 8) more than 5% in value of the stock of the Employer; or (3) among the highest paid 25% of all Employees (other than exclusions permitted by Code Section 105(h)(3)(B) for those individuals who are not Participants). (d) Medical Expenses means any expense for medical care within the meaning of the term "medical care" or "medical expense" as defined in Code Section 213 and the rulings and Treasury regulations thereunder, and not otherwise used by the Participant as a deduction in determining his tax liability under the Code. (e) The definitions of Article I are hereby incorporated by reference to the extent necessary to interpret and apply the provisions of this Health Care Reimbursement Plan. 6.3 HEALTH CARE REIMBURSEMENT ACCOUNTS The Administrator shall establish a Health Care Reimbursement Account for each Participant who elects to apply Flexible Plan Benefit Dollars to Health Care Reimbursement Plan benefits. 6.4 INCREASES IN HEALTH CARE REIMBURSEMENT ACCOUNTS A Participant's Health Care Reimbursement Account shall be increased each pay period by the portion of Flexible Plan Benefit Dollars that he has elected to apply toward his Health Care Reimbursement Account pursuant to elections made under Article V thereof. 6.5 DECREASES IN HEALTH CARE REIMBURSEMENT ACCOUNTS A Participant's Health Care Reimbursement Account shall be reduced by the amount of any Medical Expense reimbursements paid to or on behalf of a Participant pursuant to Section 6.9 hereof. 6.6 FORFEITURES The amounts in a Participant's Health Care Reimbursement Account 60 days after the end of any Plan Year (and after the processing of all claims for such Plan Year pursuant to Section 6.9 hereof) shall be forfeited and remain the assets of the Employer. In such event, the Participant shall have no further claim to such amount for any reason. 6.7 NONDISCRIMINATION REQUIREMENTS ursement lan not to nate er (a) Codethe Sect on t of 105(h)sin falth vor ofeH ghlybCompensat r it is ed Partic pantsasl d defi edin the Section 6.2(c). tor Ca this re f the sementaPlandeems violationnecessary discrimination may, but shall under Health hall of Ca be Page 11 required to, reject any elections or reduce contributions or Benefits in order to assure compliance with this Section. Any act taken by the Administrator under this Section shall be carried out in a uniform and nondiscriminatory manner. Contributions which are not utilized to provide Benefits to any Participant by virtue of any administrative act under this paragraph shall be forfeited. 6.8 COORDINATION WITH FLEXIBLE BENEFITS PLAN All Participants under the Flexible Benefits Plan are eligible to receive Benefits under this Health Care Reimbursement Plan. The enrollment and termination of participation under the Flexible Benefits Plan shall constitute enrollment and termination of participation under this Health Care Reimbursement Plan. In addition, other matters concerning contributions, elections and the like shall be governed by the general provisions of the Flexible Benefits Plan. 6.9 HEALTH CARE REIMBURSEMENT PLAN CLAIMS (a) All Medical Expenses incurred by a Participant shall be reimbursed during the Plan Year, even though the submission of such a claim occurs within 60 days after his participation hereunder ceases; but if the Participant is an Eligible Employee through the end of the Plan Year, Medical Expenses incurred during the applicable Plan Year shall be reimbursed if the submission of the claim occurs within 60 days after the end of the Plan Year. (b) The Administrator shall direct the reimbursement to each eligible Participant for all allowable Medical Expenses, up to a maximum of the amount designated by the Participant for the Health Care Reimbursement Fund for the Plan Year. Reimbursements shall be made available to the Participant throughout the year without regard to the level of Flexible Plan Benefit Dollars which have been allocated to the fund at any given point in time. Furthermore, a Participant shall be entitled to reimbursements only for amounts in excess of any payments or other reimbursements under any health care plan which may be sponsored by the Employer, any governmental agency, or any other plan covering a Participant and/or his Spouse or Dependents. (c) Claims for the reimbursement of Medical Expenses incurred in any Plan Year by a Participant who is an Eligible Employee on the last day of the Plan Year shall be paid as soon after a claim has been filed as is administratively practicable; provided however, that if a Participant fails to submit a claim within the 60-day period immediately following the end of the Plan Year, those Medical Expense claims shall not be considered for reimbursement by the Administrator. (d) Reimbursement payments under this Plan shall be made directly to the Participant. However, in the Administrator's discretion, payments may be made directly to the service provider. The application for payment or reimbursement shall be made to the Administrator on an acceptable form within a reasonable time of incurring the debt or paying for the service. The application shall include the name of the eligible Employee, Spouse, or Dependent on whose behalf the Medical Expense was incurred, the date incurred, a brief description of the Medical Expense and a statement that the Medical Expense has not been reimbursed and is not reimbursable by a health insurance plan or otherwise, and, if reimbursed from the Participant's Health Care Reimbursement Account, will not be claimed as a tax deduction. The Administrator shall retain a file of all such applications. ARTICLE VII Page 12 DEPENDENT CARE ASSISTANCE PROGRAM 7.1 ESTABLISHMENT OF PROGRAM This Dependent Care Assistance Program is intended to qualify as a program under Code Section 129 and shall be interpreted in a manner consistent with such Code Section. Participants who elect to participate in this program may submit claims for the reimbursement of Employment-Related Dependent Care Expenses. All amounts reimbursed under this Dependent Care Assistance Program shall be paid from amounts allocated to the Participant's Dependent Care Assistance Account. 7.2 DEFINITIONS For the purpose of this Article and the Benefits Plan the terms below shall have the following meaning: (a) Dependent Care Assistance Account means the account established for a Participant pursuant to this Article to which part of his Flexible Benefits Plan Benefit Dollars may be allocated and from which Employer-Related Dependent Care Expenses of the Participant may be reimbursed. (b) Dependent Care Assistance Program means the program of benefits contained in this Article, which provides for the reimbursement of eligible expenses for the care of the Qualifying Dependents of Participants. (c) Earned Income means earned income as defined under Code Section 32(c)(2), but excluding such amounts paid or incurred by the Employer for dependent care assistance to the Participant. (d) Employment-Related Dependent Care Expenses means the amounts paid for expenses of a Participant for those services which, if paid by the Participant, would be considered employment-related expenses under Code Section 21(b)(2). Generally, they shall include expenses for household services or for the care of a Qualifying Dependent, to the extent that such expenses are incurred to enable the Participant to be gainfully employed for any period for which there are one or more Qualifying Dependents with respect to such Participant; provided, however, that: (1) if such amounts are paid for expenses incurred outside the Participant's household, they shall constitute Employment-Related Dependent Care Expenses only if incurred for a Qualifying Dependent as defined in Section 7.2(f)(1), (or deemed to be, as described in Section 7.2(f)(1) pursuant to Section 7.2(f)(3)), or for a Qualifying Dependent as defined in Section 7.2(f)(2) (or deemed to be, as described in Section 7.2(f)(2) pursuant to Section 7.2(f)(3)) who regularly spends at least 8 hours per day in the Participant's household; (2) if the expense is incurred outside the Participant's home at a facility that provides care for a fee, payment, or grant for more than 6 individuals who do not regularly reside at the facility, must comply with all applicable state and local laws and regulations, including licensing requirements, if any; and (3) Employment-Related Dependent Care Expenses of a Participant shall not include amounts paid or incurred to a child of such Participant who is under the age of Page 13 19 or to an individual who is a dependent of such Participant or such Participant's Spouse. (e) Highly Compensated Participant means, for the purposes of this Article and for determining discrimination under Code Section 129(c), a Participant who is a highly compensated employee within the meaning of Code Section 414(q). (f) Qualifying Dependent means, for Dependent Care Assistance Program purposes: (1) a Dependent of a Participant who is under the age of 13, with respect to whom the Participant is entitled to an exemption under Code Section 151(c); and (2) a Dependent or the Spouse of a Participant who is physically or mentally incapable of caring for himself or herself. (3) a child that is deemed to be a Qualifying Dependent described in paragraph (1) or (2) above, whichever is appropriate, pursuant to Code Section 21(e)(5). (g) The definitions of Article I are hereby incorporated by reference to the extent necessary to interpret and apply the provisions of this Dependent Care Assistance Program. 7.3 DEPENDENT CARE ASSISTANCE ACCOUNTS The Administrator shall establish a Dependent Care Assistance Account for those Participants who elect to apply Benefits Plan Benefit Dollars to Dependent Care Assistance Program benefits. 7.4 INCREASES IN DEPENDENT CARE ASSISTANCE ACCOUNTS A Participant's Dependent Care Assistance Account shall be increased each toward hisay Dependent b Cahe te portion of Benefits Plan Benefit Dollars that he has elected to apply Assistance Account pursuant to elections made under Article V hereof. 7.5 DECREASES IN DEPENDENT CARE ASSISTANCE ACCOUNTS A Participant's Dependent Care Assistance Account shall be reduced by the amount of any Employment-Related Dependent Care Expense reimbursements paid or incurred on behalf of a Participant pursuant to Section 7.12 hereof. 7.6 ALLOWABLE DEPENDENT CARE ASSISTANCE REIMBURSEMENT Subject to limitations contained in Section 7.9 of this Program, and to the extent of the amount contained in the Participant's Dependent Care Assistance Account, a Participant who incurs Employment-Related Dependent Care Expenses shall be entitled to receive from the Employer full reimbursement for the entire amount of such expenses incurred during the Plan Year, provided that no reimbursement shall exceed the amount of the Participant's Dependent Care Assistance Account at the time of the reimbursement. The amount of any Dependent Care expenses not reimbursed shall be carried over to subsequent months in the same Plan Year and be reimbursed when the balance in the Account permits reimbursement. Page 14 7.7 ANNUAL STATEMENT OF BENEFITS On or before January 31 st of each calendar year, the Employer shall furnish to each Employee r Section 7.6 uring the prior who was of allrticipant and such benefits pad todorbenefits on behalfnofesuch Participant ddurinng the prior calendarryearr. a statement o 7.8 FORFEITURES The amount in a Participant's Dependent Care Assistance Account as of the end of any Plan to Year (and remain rthe assets fof all the claims Emp Employer. In Plan suchYear event, the pursuant Section Partic pnt shall have hereof) noshall further forfeited and claim to such amount for any reason. 7.9 LIMITATION ON PAYMENTS Notwithstanding any provision contained in this Article to the contrary, amounts paid from a Participant's Dependent Care Assistance Account in or on account of any taxable year of the Participant shall not exceed the lesser of the Earned Income limitation described in Code Section 129(b) or $5,000 ($2,500 if a separate tax return is filed by a Participant who is married as determined under the rules of paragraphs (3) and (4) of Code Section 21(e)). 7.10 NONDISCRIMINATION REQUIREMENTS (a) It is the intent of this Dependent Care Assistance Program that contributions or benefits not discriminate in favor of Highly Compensated Participants as defined in Section 7.2(e) or their Dependents. (b) It is the intent of this Dependent Care Assistance Program that not more than 25% of the amounts paid by the Employer for dependent care assistance during the Plan Year will be provided for the class of individuals who are shareholders or owners (or their Spouses or Dependents), each of whom (on any day of the Plan Year) owns more than 5% of the stock or of the capital or profits interest in the Employer. (c) If the Administrator deems it necessary to avoid discrimination or possible taxation to Highly Compensated Employees defined under Section 7.2(e) or to principal shareholders or owners under Code Section 129(c)(4), it may, but shall not be required to, reject any elections or reduce contributions or non-taxable benefits in order to assure compliance with this Section. Any act taken by the Administrator under this Section shall be carried out in a uniform and nondiscriminatory manner. Contributions which are not utilized to provide Benefits to any Participant by virtue of any administrative act under this paragraph shall be forfeited. 7.11 COORDINATION WITH FLEXIBLE BENEFITS PLAN All Participants under the Flexible Benefits Plan are eligible to receive Benefits under this Dependent Care Assistance Program. The enrollment and termination of participation under the Benefits Plan shall constitute enrollment and termination of participation under this Dependent Care Assistance Program. In addition, other matters concerning contributions, elections and the like shall be governed by the general provisions of the Flexible Benefits Plan. 7.12 DEPENDENT CARE ASSISTANCE PROGRAM CLAIMS The Employer shall pay all such Dependent Care Assistance claims to the Participant upon the presentation to the Third-Party Administrator of documentation of such expenses in a form satisfactory Page 15 to the Administrator. In its discretion in administering the Plan, the Third-Party Administrator may utilize forms and require documentation of costs as may be necessary to verify the claims submitted. At a minimum the form shall include a statement from an independent third party as proof that the expense has been incurred and the amount of such expense, and the Participant must verify in writing that the Dependent Care Expenses have not been reimbursed under any other dependent care assistance plan. Each Participant who desires to receive reimbursement under this Program for Employment-Related Dependent Care Expenses incurred by the Participant shall submit to the Third- Party Administrator a statement which may contain some or all of the following information: (a) the Dependent or Dependents for whom the services were performed; (b) the nature of the services performed for the Participant, the cost of which he wishes reimbursement; (c) the relationship, if any, of the person performing the services to the Participant; (d) if the services are being performed by a child of the Participant, the age of the child; (e) a statement as to where the services were performed; (f) if any of the services were performed outside the home, a statement as to whether the Dependent for whom such services were performed spends at least 8 hours a day in the Participant's household; (g) if the services were being performed in a day care center, a statement that (1) the day care center complies with all applicable laws and regulations of the state of residence, (2) the day care center provides care for more than 6 individuals (other than individuals residing at the center), and (3) the amount of fee paid to the center (h) if the Participant is married, a statement of (1) the Spouse's salary or wages if he or she is employed, or (2) if the Participant's Spouse is not employed, a statement that (i) he or she is incapacitated, or (ii) he or she is a full-time student attending an educational institution and the months during the year which he or she attended such institution (i) if a Participant fails to submit a claim within the 60-day period immediately following the end of the Plan Year, those claims shall not be considered for reimbursement by the Administrator. ARTICLE VIII ERISA PROVISIONS Page 16 8.1 CLAIM FOR BENEFITS (a) Any claim for Benefits underwritten by an Insurance Contract shall be made to the Insurer. If the insurer denies any claim, the Participant or beneficiary shall follow the Insurer's claims review procedure. Any other claim for Benefits shall be made to the Third-Party Administrator. If the Third-Party Administrator denies a claim, the Third- Party Administrator may provide notice to the Participant or beneficiary, in writing, within 90 days after the claim is filed unless special circumstances require an extension of another 90 days for processing the claim in which case the Third-Party Administrator will notify the Participant in writing during the initial 90-day period of the extension and the reasons for the extension. If the Third-Party Administrator does not notify the Participant of the denial of the claim within the period specified above, then the claim shall be deemed denied. The notice of a denial of a claim shall be written in a manner calculated to be understood by the claimant and shall set forth (1) specific references to the pertinent Plan provisions on which the denial is based, (2) a description of any additional material or information necessary for the claimant to perfect the claim and an explanation as to why such information is necessary, and (3) an explanation of the Plan's procedure. (b) Within 60 days after receipt of the above material, the claimant shall have a reasonable opportunity to appeal the claim denial to the Administrator for a full and fair review. The claimant or his duly authorized representative may (1) request a review upon written notice to the Administrator, (2) review pertinent documents, and (3) submit issues and comments in writing. (c) A decision on the review by the Administrator will be made not later than 60 days after receipt of a request for review, unless special circumstances require an extension of time for processing (such as the need to hold a hearing), in which event a decision should be rendered as soon as possible, but in no event later than 120 days after such receipt. The decision of the Administrator shall be written and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, with specific references to the pertinent Plan provisions on which the decision is based. 8.2 APPLICATION OF FORFEITURES Any forfeited amounts shall remain the assets of the Employer. 8.3 NAMED FIDUCIARY The Administrator shall be the named fiduciary pursuant to ERISA Section 402 and shall be responsible for the management and control of the operation and administration of the Plan. Page 17 8.4 GENERAL FIDUCIARY RESPONSIBILITIES The Administrator and any other fiduciary under ERISA shall discharge their duties with respect to this Plan solely in the interest of the Participants and their beneficiaries and (a) for the exclusive purpose of providing Benefits to Participants and their beneficiaries and defraying reasonable expenses of administering the Plan; (b) with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and (c) in accordance with the documents and instruments governing the Plan insofar as such documents and instruments are consistent with ERISA. 8.5 NONASSIGNABILITY OF RIGHTS The right of any Participant to receive any reimbursement under the Plan shall not be alienable by the Participant by assignment or any other method, and shall not be subject to the rights of creditors, and any attempt to cause such right to be so subjected shall not be recognized, except to such extent as may be required by law. ARTICLE IX ADMINISTRATION 9.1 PLAN ADMINISTRATION The operation of the Plan shall be under the supervision of the Administrator. It shall be a principal duty of the Administrator to see that the Plan is carried out in accordance with its terms, and for the exclusive benefit of Employees entitled to participate in the Plan. The Plan Administrator shall have the power and authority in its sole, absolute and uncontrolled discretion to control and manage the operation and administration of the plan and shall have all powers necessary to accomplish these purposes. The responsibility and authority of the plan administrator shall include but not be limited to the following: (a) Determining all questions relating to the eligibility of employees to participate; (b) Determining the benefits payable to any participant, spouse or beneficiary; (c) Establishing and reducing to writing and distributing to any participant or beneficiary a claims procedure including the processing and determination of all appeals thereunder; and (d) Interpreting the provisions of the plan, including the publication of rules for the regulation of the plan as in its sole, absolute and uncontrolled discretion are deemed necessary or advisable and which are not inconsistent with the express terms of the plan or ERISA. (e) To reject elections or to limit contributions or Benefits for certain highly compensated Participants if it deems such to be desirable in order to avoid discrimination under the Plan in violation of applicable revisions of the Code. Page 18 (f) To approve reimbursement requests and to authorize the payment of benefits. (g) To appoint such agents, counsel, accountants, consultants, and actuaries as may be required to assist in administering the Plan. 9.2 EXAMINATION OF RECORDS ch The Administrator will make available tolnea normal r businessticipant hours. uch records as pertain to the hours Participant for examination at reasonable times during 9.3 PAYMENT OF EXPENSES Any reasonable administrative expenses shall be paid by the Employer. 9.4 INSURANCE CONTROL CLAUSE surance act In the event of a conflict between thes n in conjunction o ! Plan and with the Plan,the terms of an the terms oof rthe of a particular Insurer whose product is thee being used such Insurance Insurance Contract shall control as to r s shall control ants receiving n defining coverage the persons eligible for Contract. For this purpose, the Insurance Contact insurance, the dates of their eligibility, the condbderawhich insurra ce t rminates.' any, the benefits Participants are entitled to and the circumstances u 9.5 INDEMNIFICATION OF EMPLOYEE ADMINISTRATOR loyer erving as The Employer agrees to indemnify an ttee hd harmless any Administ ator (includof the ing any sEmployee the Administrator or as a member of a com designated as of such or former Employee who previously served xaensesml(including ng attorneys fees strator or as a rand amounts mpa de n against all liabilities, damages, costs a P settlement of any claims approved by the Employer) arising out of the performance of obligations imposed by this Plan and not arising from that administrator's or committee member's willful neglect or misconduct or gross negligence. ARTICLE X AMENDMENT OR TERMINATION OF PLAN 10.1 AMENDMENT of e provisions of he The Employer, at any time or from time Participant.ay am Noe amendment nd any or llshall hhave the effects of Plan without the consent of any Employee o reducing any benefit election of any Participantiorflocal lawsfect at , statutes or time of regulations. amendment, unless such eg at ons amendment is made to comply with Federal, state 10.2 TERMINATION e. In the The Employer reserves the right to terminate his Plan, ben made.le or in Beneftssunder�any minsurance event the Plan is terminated, no further cont Contract shall be in accordance with the terms of the Contract. rsement unt No further additions shall be made obut any all pa'ymentssfroml suchCare AcRounbuor Accounts shall and/or Dependent Care Assistance Account, Page 19 continue to be made according to the elections in effect until the end of the Plan Year in which the Plan termination occurs land for a reasonable period of time thereafter, if required), or until the balances of all accounts have been reduced to zero, whichever occurs first. Any amounts remaining in any such account as of the end of the Plan Year in which Plan termination occurs shall be forfeited and deposited in the benefit plan surplus of the Employer after the expiration of the filing period. ARTICLE XI MISCELLANEOUS 11.1 PLAN INTERPRETATION All provisions of this Plan shall be interpreted and applied in a uniform, nondiscriminatory manner. This Plan shall be read in its entirety and not severed except as provided in Section 11 .12. 11.2 GENDER AND NUMBER Whenever any words are used herein in the masculine, feminine or neuter gender, they shall be construed as though they were also used in another gender in all cases where they would so apply, and whenever any words are used herein in the singular or plural form, they shall be construed as though they were also used in the other form in all cases where they would so apply. 11.3 NON-ALIENATION OF BENEFITS No benefit, right or interest of any person hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, seizure, attachment or legal, equitable or other process or be liable for, or subject to, the debts, liabilities or other obligations of such person, except as otherwise required by law. 11.4 EXCLUSIVE BENEFIT This Plan shall be maintained for the exclusive benefit of the Participants. 11.5 PARTICIPANT'S RIGHTS This Plan shall not be deemed to constitute a contract between the Employer and any Participant or to be a consideration or an inducement for the employment of any Participant or Employee. Nothing contained in this Plan shall be deemed to give any Participant or Employee the right to be retained in the service of the Employer or to interfere with the right of the Employer to discharge any Participant or Employee at any time regardless of the effect which such discharge shall have upon him as a Participant of this Plan. 11.6 ACTION BY THE EMPLOYER Whenever the Employer under the terms of the Plan is permitted or required to do or perform any act or matter or thing, it shall be done and performed by a person duly authorized by its legally constituted authority. 11.7 FUNDING Unless otherwise required by law, contributions to the Plan need not be placed in trust or dedicated to a specific Benefit, but shall instead be considered general assets of the Employer until the Page 20 Premium Expense required under the Plan has been paid. Furthermore, and unless otherwise required by law, nothing herein shall be construed to require the Employer or the Administrator to maintain any fund or segregate any amount for the benefit of any Participant, and no Participant or other person shall have any claim against, right to, or security or other interest in, any fund, account or asset of the Employer from which any payment under the Plan may be made. 11.8 OTHER SALARY-RELATED PLANS It is intended that any other salary-related employee benefit plans that are maintained or sponsored by the Employer shall not be affected by this Plan. Any contributions or benefits under such other plans with respect to a Participant shall, to the extent permitted by law and not otherwise provided for in such whichother his oplan, rherr salary orowages may be rreduced compensation pursuant to the provisions pl rof including Sectionn any amounts by 3.2. 11.9 GOVERNING LAW This Plan is governed by the Code and the Treasury regulations issued thereunder (as they might be amended from time to time). In no event shall the Employer guarantee the favorable tax by law, the provisions of treatment sought by enforced and admen ste ed aoccord ngpttodthe lawseoflth State of Washington. Plan shall be construed, 11.10 NO GUARANTEE OF TAX CONSEQUENCES Neither the Administrator nor the Employer makes any commitment or guarantee that any amounts paid to or for the benefit of a Participant under the Plan will be excludable from the Participant's gross income for federal or state income tax purposes, or that any other federal or state tax treatment will apply to or be available to any Participant. It shall be the obligation of each Participant to determine whether each payment under the Plan is excludable from the Participant's gross income for federal and state income tax purposes, and to notify the Employer if the Participant has reason to believe that any such payment is not so excludable. Notwithstanding the foregoing, the rights of Participants under this Plan shall be legally enforceable. 11.11 INDEMNIFICATION OF EMPLOYER BY PARTICIPANTS If any Participant receives one or more payments or reimbursements under the Plan that are not for a permitted Benefit, such Participant shall indemnify and reimburse the Employer for any liability it may incur for failure to withhold federal or state income tax or Social Security tax from such payments or reimbursements. However, such indemnification and reimbursement shall not exceed the amount of additional federal and state income tax (plus any penalties) that the Participant would have owed if the payments or reimbursements had been made to the Participant as regular cash compensation, plus the Participant's share of any Social Security tax that would have been paid on such compensation, less any such additional income and Social Security tax actually paid by the Participant. 11.12 SEVERABILITY If any provision of the Plan is held invalid or unenforceable, its invalidity or unenforceability shall not affect any other provisions of the Plan, and the Plan shall be construed and enforced as if such provision had not been included herein. Page 21 11.13 CAPTIONS The captions contained herein are inserted only as a matter of convenience and for reference and in no way define, limit, enlarge or describe the scope or intent of the Plan, nor in any way shall affect the Plan or the construction of any provision thereof. 11.14 CONTINUATION OF COVERAGE Notwithstanding anything in the Plan to the contrary, in the event any benefit under this Plan subject to the continuation coverage requirements of Code Section 4980 B becomes unavailable, each Participant will be entitled to continuation coverage as prescribed in Code Section 4980 B. IN WITNESS WHEREOF, this Plan document is hereby executed this day of 199 . CITY OF KENT By: Title: Page 22 CERTIFICATE OF RESOLUTION The undersigned Secretary of City of Kent, hereby certifies that the following resolutions were duly adopted by the Board of Directors on and that such resolutions have not been modified or rescinded as of the date hereof: RESOLVED, that the form of Flexible Benefits Plan including a Dependent Care Assistance Program, Health Care Reimbursement Plan and Premium Expnese Account effective January 1, 1993, presented to this meeting is hereby approved and adopted and that the proper officers of the Corporation are hereby authorized and directed to execute and deliver to the Administrator of the Plan one or more counterparts of the Plan. RESOLVED, that the Administrator shall be instructed to take such actions that are deemed necessary and proper in order to implement the Plan, and to set up adequate accounting and administrative procedures to provide benefits under the Plan. RESOLVED, that the Secretary of the Board shall act as soon as possible to notify the employees of the adoption of the Benefits Plan by delivery to each participant a copy of the summary description of the Plan in the form of the Summary Plan Description presented to this meeting, which form is hereby approved. The undersigned further certifies that attached hereto as Exhibits A and B, respectively, are true copies of the City of Kent, Flexible Benefits Plan and the Summary Plan Description approved and adopted in the foregoing resolution. DATED this day of 19_ City of Kent By: Secretary Page 23 CITY OF KENT FLEXIBLE BENEFITS PLAN SUMMARY PLAN DESCRIPTION Flex-Plan Services, Inc. P.O. Box 70366 Bellevue, Washington 98007 (206) 562-9259 TABLE OF CONTENTS SUMMARY PLAN DESCRIPTION ARTICLE I - ELIGIBILITY 1 . When Can I Become a Participant in the Plan? ................................... . 2. What Are the Eligibility Requirements for Our Plan? ................................................. 3. When Is My Entry Date? ............................................................ ................................... 2 4. Are There Any Employees Who Are Not Eligible? ............................ 5. What Must I Do to Enroll in the Plan? ................................................................. ............. 2 ARTICLE II - OPERATION 1 . How Does This Plan Operate? .................................................................. ARTICLE III - CONTRIBUTIONS 1 . How Much of My Pay May I Contribute to the Plan?............•••.••••• "" 2 2. How Is My Compensation Measured under Our Plan? ........................................................ 3. What Happens to Contributions That Are Made to the Plan? .................................. 4. When Must I Decide Which Accounts I Want to Use? ..................•...•.• 3 5. When Must I Decide What Insurance Coverage I Want? ..................................................... 6. When Is the "Election Period" for Our Plan? ..................................................................... 3 7. May I Change My Elections during the Plan Year? ................................. ............................ 3 8. May I Make New Elections in Future Plan Years?............................ .................................. 4 Table of Contents - Page 1 ARTICLE IV - BENEFITS 1 , What Benefits Are Available for My Accounts? ............................................ ARTICLE V - BENEFIT PAYMENTS 1 , When Will I Receive Payments from My Accounts? ........................................................... 2. What Happens if I Don't Spend All Plan Contributions? 3. What Happens if I Terminate Employment during the Year? .............. .................................. 4, Will My Social Security Benefits be Affected? ................. ARTICLE VI - HIGHLY COMPENSATED EMPLOYEES 1 . Do Limitations Apply to "Highly Compensated Employees"? . ARTICLE VII - PLAN ACCOUNTING 1 . Periodic Statements ................................................................................................. ARTICLE VIII - GENERAL INFORMATION ABOUT OUR PLAN 1 . General Plan Information................................................ . 2. Employer Information ....................................................... . 3. Plan Administrator Information ...................................................................... 4. Service of Legal Process......................................... ..................... ................. 5. Plan Number ..................................................... ..........................................I..........10 Table of Contents - Page 2 ARTICLE IX - ADDITIONAL PLAN INFORMATION 1 . Your Rights under ERI ......•••••••••••••••••••••••••.•"•' " ' 2. Claims Process ................................................................................ Table of Contents - Page 3 CITY OF KENT FLEXIBLE BENEFITS PLAN SUMMARY PLAN DESCRIPTION INTRODUCTION We are pleased to announce that we have established a Flexible Benefits Plan for you and other eligible employees. Under this program, you will be able to choose among certain benefits that we make available. The benefits that you may choose are outlined in this Summary Plan Description. We will also tell you about other important information concerning the Plan, such as the rules you must satisfy before you can join and the laws that protect your rights. One of the most important features of our Plan is that the benefits being offered are generally ones that you are already paying for, but normally with money that has first been subject to income and social security taxes. Under our Plan, these same expenses will be paid for with a portion of your pay before Federal income or social security taxes are withheld. This means that you will pay less tax and have more money to spend and save. Read this Summary Plan Description carefully so that you understand the provisions of our plan and the benefits you will receive. We want you to be fully informed before you enroll in the Plan and while you are a participant. You should direct any questions you have to the Administrator. There is a plan document on file which you may review if you desire. In the event there is a conflict between this Summary Plan Description tcont contractand and plan e either the plan docu plan ment owill r this Summary control. there Summary Plan Description, the between an insurance contract will control. ARTICLE I ELIGIBILITY 1. When Can I Become a Participant in the Plan? Before you become a member or a "participant" in the Plan, there are certain rules which you must satisfy. First you must meet the "eligibility requirements". After that, the next step is to actually join the Plan on the "entry date" that we have established for all employees. You will also be required to complete certain application forms before you can enroll in the Plan. 2. What Are the Eligibility Requirements for Our Plan? You will be eligible to join the Plan if you were employed on our Plan's original effective date, which was January 1, 1993, and were eligible for the Employer's group medical insurance. If not, you will be eligible to join the Plan when you qualify for our group medical insurance. Page 1 3, When Is My Entry Date? Once you have met the eligibility requirements, your entry date will be the first day of the pay period coinciding with or following the date you met the eligibility requirements. 4. Are There Any Employees Who Are Not Eligible? Yes, there are certain employees who are not eligible to join the Plan. They are: a) Employees who are part time. A part-time employee is someone who works, or is expected to work, less than 20 hours a week. b) Certain non-resident aliens whose income is not considered income earned within the United States under Federal tax laws. 5. What Must I Do to Enroll in the Plan? Before you can join the Plan, you must complete an application to participate in the Plan. The application includes your personal choices for each of the benefits which are being offered under the Plan. You must also authorize us to set some of your earnings aside in order to pay for the benefits you have elected. ARTICLE II OPERATION 1. How Does This Plan Operate? Before the start of each Plan Year, you will be able to elect to have some of your upcoming pay paid to the Plan. These amounts will be placed in special accounts called Reimbursement Accounts which must be set up for you in order to pay for the benefits you have chosen. The portion of your pay that is paid to the Plan and placed in Reimbursement Accounts is not subject to Federal income or withholding tax or to social security taxes. In other words, Reimbursement Accounts allow you to use tax-free dollars to pay for certain kinds of benefits and expenses which you normally pay for with out- of-pocket, taxable dollars. However, if you receive a reimbursement for an expense under the Plan, you cannot claim a Federal income tax credit or deduction on your return. ARTICLE III CONTRIBUTIONS 1. How Much of My Pay May I Contribute to the Plan? Each year, you may elect to contribute enough of your compensation to pay for the benefits that you elect under the Plan. These amounts will be deducted from your pay each period on a pro- rata basis over the course of the year. Your maximum annual Health Care Reimbursement Contribution for a Plan Year is $2,400. Page 2 2. How is My Compensation Measured under Our Plan? Compensation under our Plan means the total cash amount that is paid to you each year. 3. What Happens to Contributions That Are Made to the Plan? Before each Plan Year begins, you will select which Reimbursement Accounts the contributions should be placed in and how much of the contributions should go into each Reimbursement Account. It is very important that you make these choices carefully based on what you expect to spend on each covered benefit or expense during the Plan Year. Then, during each pay period, the contributions will be placed in each Reimbursement Account in the specific amounts you designated. Later, they will be used to pay for the expenses as they arise during the Plan Year. 4. When Must I Decide Which Accounts I Want to Use? You are required by Federal law to decide before the Plan Year begins, during the "election period". You must decide two things. First, which Reimbursement Accounts your contributions should go to, and, secondly, how much should go into each Reimbursement Account. 5. When Must I Decide What Insurance Coverage I Want? You are required by Federal law to decide before the Plan Year begins, during the "election period". 6. When Is the "Election Period" for Our Plan? When you first meet the "eligibility requirements", your election period will start on that date and run to your "entry date", and continue for 30 days past your "entry date". (You should review Section I on Eligibility to better understand the terms "eligibility requirements" and "entry date".) Then, for each following Plan Year, the election period is established by the Administrator and applied uniformly to all participants. It will normally be a period of time prior to the beginning of each Plan Year. The Administrator will inform you each year about the election period. 7. May I Change My Elections during the Plan Year? Generally, no. You cannot change the elections you have made after the beginning of the Plan Year. However, there are certain limited situations when you can change your elections. You are permitted to change if there is a change in your family status. Currently, Federal law considers you to have such a change in family status if: a) You get married or divorced. b) Your spouse and/or children) dies. c) You have a child or adopt one. d) Your spouse terminated his or her employment. ei Your or your spouse's employment status changes from full-time to part-time or from part-time to full-time. f) You or your spouse take an unpaid leave of absence. Page 3 g) Your spouse has a significant change in health coverage directly attributable to your spouse's employment. h) Administrative error. There may be other events which are considered to be a change in family status. Also, any election change must be consistent with the reason that such change was permitted. If you have a change in family status, you should contact the Administrator, who will provide you with the required forms for changing your benefit elections. In addition, for health insurance premiums being contributed to the Plan, we will adjust the salary redirection election you have made for the remainder of the Plan Year if there is a change in the premium expense. If the increase in premium expense is significant, we will let you either change the salary redirection election or revoke your election entirely. However, you will only be able to revoke your election in this situation if we provide another health plan with similar coverage and you agree to participate in the other health plan. If no other health plan exists, no revocation will be permitted. 8. May I Make New Elections in Future Plan Years? Yes, you may. For each new Plan Year, you may change the elections that you previously made. You may also choose not to participate in the Plan for the upcoming Plan Year. However, if you do not change the elections already in place from the previous Plan Year, we will assume that you ense unt ut to have elected n elect to eReimbuprsement Account nor inparticiation in the premium pthe Dependent bCare Assistance Plaont no the participate the Healthth Ca enew Plan Ca Year. ARTICLE IV BENEFITS 1. What Benefits Are Available for My Accounts? Under our Plan, you can choose to receive your entire compensation or use a portion to set up a separate Reimbursement Account to pay for the following benefits or expenses during the year on a pre-tax basis. A) Health Care Reimbursement Account: The Health Care Reimbursement Account enables you to pay for expenses which are not covered by our insured medical plan and save taxes at the same time. The account allows reimbursement with your pre-tax dollars for out-of-pocket dollars for out-of-pocket medical, dental and vision expenses incurred by you and your dependents. Some of the expenses which qualify for the Health Care Reimbursement Account include: 1) Medical insurance deductibles and co-payments 2) Routine physicals 3) Drugs and prescriptions 4) Medical-related transportation 5) Psychiatric and psychological care g) Dental care Page 4 7) Nursing care 8) Vision care A more complete list of covered expenses is available from the Administrator. Cosmetic surgery does not qualify for the Health Care Reimbursement Account unless it is required due to an accident or congenital deformity. B) Dependent Care Assistance Account: The Dependent Care Assistance Account enables you to pay for out-of-pocket, work-related dependent day-care cost with pre-tax dollars. If you are married, you can use the account if you and your spouse both work or, in some situations, if your spouse goes to school full time. Single employees can also use the account. An eligible dependent is any member of your household for whom you can claim expenses on Federal Income Tax Form 2441 "Credit for Child and Dependent Care Expenses". Children must be under age 13. Other dependents must be physically or mentally unable to care for themselves. Dependent Care arrangements which qualify include: 1) A Dependent (Day) Care Center, provided care is provided for more than six individuals. The facility must comply with applicable state and local laws. 2) An Educational Institution for preschool children. For older children, only expenses for non-school care are eligible. 3) An "Individual" who provides care inside or outside your home. The "Individual" may not be a child of yours under age 19 or anyone who you claim as a dependent for Federal tax purposes. You should make sure that the dependent care expenses you are currently paying for qualify under our Plan. The law places limits on the amount of money that you can contribute to the Dependent Care Assistance Account. Also, Federal tax laws permit a tax credit for certain dependent care expenses you may be paying for even if you are not a participant in this Plan. You may save more money if you take advantage of this tax credit rather than using the Dependent Care Assistance Account under our Plan. The IRS currently allows you to take a credit on your tax return for eligible dependent care expenses. However, the amount of your tax credit is reduced by the amount you exclude from income under a dependent care plan. The credit varies depending on the amount of your earned income. You will need to determine which option is best for you. The dependent care tax credit is limited in three ways: 1 . Annual expenses eligible for the credit are $2,400 for one dependent and $4,800 for two or more dependents; 2. Eligible expenses cannot exceed the earnings of the lowest income spouse; and 3. The actual income tax credit is a graduated percentage of eligible expenses. That graduated percentage is based on the individual's total income. The rate starts at 20% of eligible expenses when annual income is $28,000 or greater, and the percentage increases to as high as 30% as annual income declines to $10,000 or less. For example, an individual with $28,000 total income and one dependent is entitled to a $480 dependent care tax credit (20% of $2,400). Page 5 The limits under the Employer's Dependent Care Plan are greater. Annual expenses up to $5,000 can be excluded ($2,500 for married individuals filing separately). Also, while the eligible expenses cannot exceed the earnings of the lowest income spouse, the benefit is not decreased as income increases. This means the Employer's Dependent Care Plan will generally provide greater tax savings than the tax credit when: 1 . Annual dependent care costs exceed the $2,400 or $4,800 limits on eligible expenses; or 2. The top individual income tax rate of the employee and spouse exceeds the credit rate for eligible expenss n omeeof (generally than $26 050 for higher e head of a household d and more than $32 450 for married taxable couples in 1990). Additionally, the reimbursements under the Plan are always free from Social Security tax withholding, whereas a comparable amount of salary would have the Social Security tax withheld. The dollar limit on dependent care expenses eligible for the dependent care tax credit is reduced by any amounts contributed to a Dependent Care Account. For example: The maximum amount a person having $4,800 in day care expenses, two eligible children and contributing $3,000 to a Dependent care Account could use to calculate the tax credit is: Available for tax credit calculation $4,800 Less Dependent Care Account -$3,000 Maximum available for tax credit calculation $1,800. Whether a Dependent Care Account or the dependent care tax credit saves more tax depends on the individual's particular situation. Employees are encouraged to discuss this issue with their tax advisors. You do not have to pay federal taxes or social security taxes on the money you contribute to your Dependent Care Account. Because you are spending before-tax dollars rather than after-tax take- home pay, every dollar will stretch farther. C) Premium Conversion Account: A Premium Conversion Account allows you to use tax-free dollars to pay for certain premium expenses under various insurance programs that we offer you. These premium expenses include: ( ) Medical Insurance ( ) Dental Insurance ( ) Group-Term Life Insurance ( ) Disability Insurance ( ) Cancer Insurance ( ) Vision Insurance ( ) Accident Indemnity ( ) Other ( ) Other Under our Plan, we will establish sub-accounts for you for each different type of insurance coverage that is available. Also, certain limits on the amount of coverage may apply. Page 6 The Administrator may terminate or modify Plan benefits at any time, subject to the provisions of any insurance contracts providing benefits described above. We will not be liable to you if any insurance company fails to provide any of the benefits described above. Also, your insurance will end when you leave employment, are no longer eligible under the terms of any insurance policies, or when insurance coverage terminates. Any benefits to be provided by insurance will ll be provided ro insurance, andafter (1) ou have provided rovi effect for Administrator the necessary information to apply you. ARTICLE V BENEFIT PAYMENTS 1. When Will I Receive Payments from My Accounts? During the course of the Plan Year, you may submit requests for reimbursement of expenses you have incurred. Expenses are considered "incurred" when the service is performed, not when you pay for it. The Administrator will provide you with acceptable forms for submitting these requests for reimbursement. If the request qualifies as a benefit or expense that the Plan has agreed to pay for, you will receive a reimbursement payment soon thereafter. Remember, these reimbursements which are made from the Plan are not subject to Federal income tax or withholding, nor are they subject to social security taxes. Requests for payment of insured benefits should be made directly to the insurer. The provisions of the insurance policies will control what benefits will be paid and when. You will only be reimbursed from the Dependent Care Assistance Account to the extent that there are sufficient funds in your Account to cover your request. 2. What Happens if 1 Don't Spend All Plan Contributions? Any monies left in your Reimbursement accounts at the end of the Plan Year will be forfeited. Obviously, qualifying expenses that you incur late in the Plan Year for which you seek reimbursement after the end of such Plan Year will be paid first before any amounts are forfeited. However, you must make your requests for reimbursement no later than 60 days after the end of the Plan Year. Because it is possible that you might forfeit amounts in your Reimbursement Accounts if you do not fully use the contributions that have been made, it is important that you decide how much to place in each account carefully and conservatively. Remember, you must decide which Reimbursement Accounts you want to contribute to and how much to place in each account before the Plan Year begins. You want to be as certain as you can that the amount you decide to place in each account will be used up entirely. 3. What Happens if I Terminate Employment during the Year? If you leave our employ during the Plan Year, your right to benefits will be determined in the following manner: --You will remain covered by insurance, but only for the period for which premiums have been paid prior to your termination of employment. --You will still be able to request reimbursement for qualifying dependent care expenses for the remainder of the Plan Year from the balance remaining in your dependent care account at the time of Page 7 termination of employment. However, no further salary redirection and Employer contributions will be made on your behalf after you terminate. --Your participation in the Health Care Reimbursement Plan will end on the day on which you ve terminated. After terminationincurred prioratolcth st'date. All claims on, you will y 'must be subm tted for t reimburse for g ment expenses which were within 60 days of termination of your participation. ts may be entitled nuation of Under Federal nd Health Care Reimbursement Acdcountdconver ge. The Admi sotrator(will inform health care coverage a you of these rights if you terminate employment. Generally, your participation in the Medical Reimbursement Account stops on the day on which you terminate employment, as described above. However, you may elect COBRA continuation coverage, so that you will continue participating in the Medical Reimbursement Account. You may elect to make monthly "after-tax" contributions to your Medical Reimbursement Account for up to 18 months after you terminate employment. Your monthly contribution will be equal to 102% of the amount you previously paid each month to your Medical Reimbursement Account prior to your termination of employment. You have sixty days after the date your participation in the Medical Reimbursement Plan would otherwise cease to elect COBRA continuation coverage. If you elect COBRA continuation coverage, you have 45 days after that election date to pay the monthly "after- tax" contributions required to bring your Medical Reimbursement Account coverage up to date. At the time you terminate employment, the Plan Administrator will provide you the required COBRA continuation coverage explanation and election forms. If you elect COBRA continuation coverage, you may submit claims for medical and dental services for a plan year if those services are provided no later than the earlier of (a) the last day of the month in which your COBRA continuation coverage ends or (b) the last day of that plan year. You must submit claims for those services within 60 days following the earlier of (a) the last day of the month in which your COBRA continuation coverage ends or (b) the last day of that plan year. If there is a balance in your Medical Reimbursement Account 60 days after the earlier of (a) the last riday f the month in which your COBRA continuation coverage ends, or (b) the last day of the applicable lan year, that balance will be forfeited. Generally, if you terminate employment during a plan year, you may want to consider electing COBRA continuation coverage at least through the end of the plan year in which you terminate employment. 4, Will My Social Security Benefits be Affected? Your social security benefits may be reduced because when you receive tax-free benefits under our Plan, it reduces the amount of contributions that you make and that we match to the Federal social security system. ARTICLE VI HIGHLY COMPENSATED EMPLOYEES Page 8 1. Do Limitations Apply to "Highly Compensated Employees"? Under the Internal Revenue Code, "highly compensated employees" generally are Participants who are officers, shareholders or highly paid. You will be notified by the Administrator each Plan Year whether you are a "highly compensated employee". If you are within this category, the amount of contributions and benefits may be limited so that the Plan does not unfairly favor highly compensated employees, their spouses or dependents. Federal tax laws state that a plan will be considered to unfairly favor the highly compensated employees if they, as a group, receive more than 25% of all of the nontaxable benefits provided for under our Plan. Plan experience will dictate whether contribution limitations on highly compensated employees will apply. You will be notified of these limitations if you are affected. ARTICLE VII PLAN ACCOUNTING 1. Periodic Statements The Administrator will provide you with a statement of your accounts periodically during the Plan Year that shows your account balance. It is important to read these statements carefully so you understand the amounts remaining in each Reimbursement Account. Remember, you want to spend all the money in each Reimbursement Account by the end of the Plan Year. ARTICLE VIII GENERAL INFORMATION ABOUT OUR PLAN This Section contains certain general information which you may need to know about the Plan. 1. General Plan Information CITY OF KENT Flexible Benefits Plan is the name of the Plan. The provisions of the Plan become effective on January 1, 1993, which is called the Effective Date of the Plan. Your Plan's records are maintained on a 12-month period of time. This is known as the Plan Year. The Plan Year begins on January 1 and ends December 31 . 2. Employer Information Your Employer's name, address, and identification number are: City of Kent 220 - 4th Avenue South Kent, WA 98032-5985 Tax I.D. # 91-6001254 Page 9 3. Plan Administrator Information The name, address, and business telephone number of your Plan's Administrator are: City of Kent 220 - 4th Avenue South Kent, WA 98032-5895 (206)859-3328 The Administrator keeps the records for the Plan and is responsible for the administration of the Plan. 4. Service of Legal Process The name and address of the Plan's agent for service of legal process is: Ms. Becky Fowler City of Kent 220 - 4th Avenue South Kent, WA 98032-5895 5. PLAN NUMBER: 501. ARTICLE IX ADDITIONAL PLAN INFORMATION 1. Your Rights Under ERISA As a participant in the Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan participants shall be entitled to: (1) examine, without charge, at the Administrator's office, all Plan documents, and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports and Plan description; and (2) obtain copies of all Plan documents and other Plan information upon request to the Administrator. The Administrator may make a reasonable charge for the copies. In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of an employee benefit plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the best interest of you and other Plan participants. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a benefit or exercising your rights under ERISA. If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have your claim reviewed and reconsidered. Page 10 Under ERISA there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within 30 days, you may file suit in a Federal court. In such a case, the court may request the Administrator to provide the materials and pay you up to $100 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Administrator. If you have a claim for benefits which is denied or ignored, in whole or in part, you may file suit in a state or Federal court. If it should happen that Plan fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a Federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees; for example, if it finds your claim is frivolous. 2. Claims Process You should submit reimbursement claims during the Plan Year, but in no event later than 60 days after the end of a Plan Year. Any claims submitted after that time may not be considered in the Administrator's discretion. Claims for benefits that are insured will be reviewed in accordance with procedures contained in the policies. All other general claims or requests should be directed to the Administrator of our Plan. If a non-insured claim under the Plan is denied in whole or in part, you or your beneficiary will receive written notification. The notification will include the reasons for the denial, with reference to the specific provisions of the Plan on which the denial was based, a description of any additional information needed to process your claim and an explanation of the claims review procedure. We must respond within 90 days. This period may be extended an additional 90 days under certain circumstances if we inform you in writing prior to the end of the first 90 day period. If we do not respond within this required period, your claim is treated as denied. Within 60 days after denial, you or your beneficiary may submit a written request for reconsideration of the application to the Administrator. Any such request should be accompanied by documents or records in support of your appeal. You or your beneficiary may review pertinent documents and submit issues and comments in writing. The Administrator will review the claim and provide, within 60 days, a written response to the appeal. (This period may be extended an additional 60 days under certain circumstances). In this response, the Administrator will explain the reason for the decision, with specific reference to the provisions of the Plan on which the decision is based. The Administrator has the exclusive right to interpret the appropriate plan provisions. Decisions of the Administrator are conclusive and binding. ARTICLE X SUMMARY The money you earn is important to you and your family. You need it to pay your bills, enjoy recreational activities and save for the future. Our Flexible Benefits Plan will help you keep more of the money you earn by lowering the amount of taxes you pay. The Plan is the result of our continuing efforts to find ways to help you get the most for your earnings. If you have questions, please contact the Administrator. Page 11