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2013-3803 Ordinance ORDINANCE NO. 2013-3803 AN ORDINANCE OF THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA, AMENDING THE CODE OF THE CITY OF MIAMI BEACH BY AMENDING CHAPTER 62, ENTITLED "HUMAN RELATIONS," BY AMENDING ARTICLE III, ENTITLED "DOMESTIC PARTNERSHIPS," BY AMENDING SEC 62-128 TO ADD SEC. 62-128(d) TO PROVIDE TAX EQUITY TO CITY EMPLOYEES WITH DOMESTIC PARTNERS ENROLLED IN THE CITY'S HEALTH AND DENTAL PLANS WHO CURRENTLY BEAR A DISPROPORTIONATE TAX BURDEN OVER THAT OF THEIR MARRIED COUNTERPARTS. WHEREAS, the City of Miami Beach ("the City") provides health and dental insurance coverage for its employees and contributes a portion of the insurance coverage cost for an employee's family health insurance coverage plan; and WHEREAS, when the employee is in a marriage recognized by the federal government (i.e. when the employee is married to a person of a different sex), federal tax law does not require employers, including the City, to report their contribution to family health insurance coverage plans as taxable wages paid to the employee; and WHEREAS, discrimination in employment on the basis of sexual orientation and gender identity is illegal in the City, and the City will fight its odious results in its own employment practices; and WHEREAS, in an effort to provide equal pay for equal work, the City provides health benefits to the domestic partners of the City's employees, whether those domestic partners be of the same or different-sex as the employee,on an equal basis; and WHEREAS, when the employee is in a domestic partnership, federal tax law requires employers, including the City, to report their contribution to the employee's family health insurance coverage plan as taxable wages paid to the employee; and WHEREAS, an unfair tax burden is thereby imposed upon some City employees who must pay more federal taxes than their colleagues for the same health insurance coverage; and WHEREAS, many corporations around the country and four municipalities or municipal agencies in Florida have enacted tax equity programs to reimburse City employees who pay this heavier tax burden for employees with domestic partners who elect to receive family medical and dental coverage over that of their married counterparts; and WHEREAS, at its June 12, 2012 meeting, the Miami Beach GLBT Business Enhancement Committee ("BEC") members held a discussion regarding the heavier tax burden for City employees with domestic partners who elect to receive family medical and dental coverage through the City over that of their married counterparts. A motion was passed to refer the discussion to the Finance and Citywide Projects Committee; and WHEREAS, on March 13, 2012, Mayor Matti Herrera Bower and on November 30, 2012, Commissioner Michael Gongora made a referral to the Finance and Citywide Projects Committee for a discussion regarding the recommendation made by BEC to address the issue of tax inequality for city employees with registered domestic partners versus legally married spouses; and WHEREAS, on April 25, 2013, the Finance and Citywide Projects Committee considered and discussed the matter of amending the City's Human Rights Ordinance to reimburse City employees who pay a heavier tax burden for City employees with domestic partners who elect to receive family medical and dental coverage through the City over that of their married counterparts, and recommended that the attached Ordinance be forwarded to the Mayor and City Commission for its consideration. NOW, THEREFORE, BE IT DULY ORDAINED BY THE MAYOR AND CITY COMMISSION OF THE CITY OF MIAMI BEACH, FLORIDA AS FOLLOWS: SECTION 1. That Section 62-128 of Chapter 62 of the City Code is hereby amended as follows: Chapter 62 HUMAN RELATIONS Article III. Domestic Partnerships Sec. 62-128. - Employment benefits. (a) Employees shall be granted bereavement leave with pay for the death of a domestic partner or family member of a domestic partner as set forth in the union contracts governing city employees, Ordinance Nos. 1335 and 1613, and the city's administrative policies. As to employees governed by union contracts, this benefit is contingent upon approval of the benefit by the unions to the extent such approval is necessary. (b) Employees shall be granted sick leave, family medical leave, or leave without pay to care for a domestic partner as set forth in Ordinance Nos. 1335 and 1613 and the city's family medical leave policy. (c) Employees' domestic partners shall be allowed to be members of the city health plan as set forth in the union contracts governing city employees, ordinances and the city's administrative policies. As to employees governed by union contracts, this benefit is contingent upon approval of the benefit by the unions to the extent such approval is necessary. (d) For so long_a period as the federal tax code imposes a heavier tax burden upon City employees with domestic partners who elect to receive family medical and dental coverage over that of their married counterparts, the City Manager is authorized and i directed to reimburse those employees with domestic partners who pay this heavier tax burden by adding to these employees' biweekly pay the additional amount withheld from the employees' pay and the amount of the additional tax assessed by the federal government upon this reimbursement. It is the intent of the City Commission that reimbursement under this subsection shall not be considered to be pensionable income. As to Police Department employees governed by a collective bargaining agreement between the City and the Miami Beach Fraternal Order of Police William Nichols Lodge No. 8 and as to Fire Department employees governed by a collective bargaining agreement between the City and the Firefighters of Miami Beach International Association of Firefighters Local 1510, acceptance of this reimbursement is contingent upon approval by each union of an agreement setting forth the non-pensionable nature of the reimbursed amount. SECTION 2. CODIFICATION. It is the intention of the City Commission, and it is hereby ordained that the provisions of this ordinance shall become and be made part of the Code of the City of Miami Beach as amended; that the sections of this ordinance may be renumbered or re-lettered to accomplish such intention; and that the word "ordinance" may be changed to "section" or other appropriate word. SECTION 3. REPEALER. All ordinances or parts of ordinances and all sections and parts of sections in conflict herewith are hereby repealed. SECTION 4. SEVERABILITY. If any section, subsection, clause or provision of this Ordinance is held invalid, the remainder shall not be affected by such invalidity. SECTION 5. EFFECTIVE DATE. This ordinance shall become effective immediately upon passage. PASSED AND ADOPTED this 5th day of June , 2013. ATTEST: errera ower Rafael Granado, City Clerk �- .INCORP ORATED' APPROVED AS TO � FORM &LANGUAGE �CH 26 &Fn XECUTION orney AS #Date COMMISSION ITEM SUMMARY Condensed Title: An Ordinance Amending The Code Of The City Of Miami Beach By Amending Chapter 62, Entitled"Human Relations," By Amending Article III, Entitled"Domestic Partnerships,"By Amending Sec 62-128 To Add Sec.62-128(d)To Provide Tax Equity To City Employees With Domestic Partners Enrolled In The City's Health And Dental Plans Who Currently Bear A Disproportionate Tax Burden Over That Of Their Married Counterparts. Key Intended Outcome Supported: Attract and maintain a workforce of excellence. Promote and celebrate our City's diversity. Supporting Data (Surveys, Environmental Scan, etc.): 3.8% of employees agree or strongly agree that they would recommend the City as a place to work. 93% of mployees agree or strongly agree that they are proud to be a City employee. Item Summa /Recommendation: SECOND READING PUBLIC HEARING The City offers health benefits to all general employees and their legal dependents through a self funded insurance plan and also contributes to both,the IAFF and the FOP Health Trust Plans.The FOP Health Trust does not provide coverage for registered domestic partners. Under current IRS guidelines,employees who provide medical and dental coverage for their registered domestic partner are not eligible to take advantage of before-tax payroll contributions for their premium share of their domestic partners coverage and are responsible to report, as additional earnings, the 1 value of the premium cost paid for this coverage by their employer. To correct this tax inequality, the City could increase the employee's pay an amount equal to the tax liability incurred by the employee for the domestic partner's medical and dental coverage. This increase would be considered earnings by the employee and reported on their annual W2 statement. According to the City's pension attorney, Jim Linn, of Lewis, Longman and Walker, the proposed ordinance is intended so that the reimbursement shall not be considered as pensionable compensation and therefore,would not create an increase to the City's pension liability.The pension ordinance for General employees already excludes any such reimbursement as being pensionable. However, the implementation of the proposed reimbursement for members covered by the IAFF and the FOP would be subject to negotiating with both Unions and if agreed upon, the pension ordinance for Fire and Police would require amending the definition of pensionable compensation to specifically exclude the reimbursement. The IAFF has agreed to exclude the proposed reimbursement from pensionable compensation and the City will seek to execute a formal agreement with the Union. Adviso Board Recommendation: On April 25,2013,the Finance and Citywide Projects Committee(FCWPC)recommended the reimbursement of the federal income tax liability for those employees with registered domestic partners who have elected coverage under the City's medical and dental plans;and the notification to all employees of the City's reimbursement,effective for the Fiscal Year 2013/14. In addition, the FCWPC directed the Administration to work with the FOP Health Trust to encourage the inclusion of registered domestic partners. Financial Information: Vce Amount Account .1 $18,000 Various Departments—Dependent on where staff is budgeted 2 $80,000 Funding for FY 2013/14 will be included in the proposed budget. Total $97,950 Financial Impact Summary: Based on a current analysis of the total annual fiscal impact for refunding this additional tax liability at current enrollment levels and premium costs is$53,850.36. If approved,the reimbursement would become effective immediately,thus representing a potential impact for FY 2012/13 of approximately$18,000. It is estimated that the enrollment for domestic partner healthcare coverage could increase by 40 percent with the change, resulting in an annual cost to the City of approximately$80,000. City Clerk's Office Legislative Tracking: Si n-Offs• Department Director Assistant City Manager City Manager Sylvia Crespo-Tabak Kathie G. Brooks Jimmy L. Mor es Human Res o rces Director, Assistant City Manager City Manager MIAMBE � A GENDA ITEM DATE ® MIAMI BEACH City of Miami Beach, 1700 Convention Center Drive,Miami Beach, Florida 33139,www.miamibeachfl.gov COMMISSION MEMORANDUM Second Reading TO: Mayor Matti Herrera Bower and M bers of a City Commission FROM: Jimmy L. Morales, City Manager DATE: June 5, 2013 SUBJECT: AN ORDINANCE AMENDING TH CODE OF THE CITY OF MIAMI BEACH BY AMENDING CHAPTER 62, ENT LED "HUMAN RELATIONS," BY AMENDING ARTICLE III, ENTITLED "DOMESTIC PARTNERSHIPS," BY AMENDING SEC 62- 128 TO ADD SEC. 62-128(D) TO PROVIDE TAX EQUITY TO CITY EMPLOYEES WITH DOMESTIC PARTNERS ENROLLED IN THE CITY'S HEALTH AND DENTAL PLANS WHO CURRENTLY BEAR A DISPROPORTIONATE TAX BURDEN OVER THAT OF THEIR MARRIED COUNTERPARTS. BACKGROUND At its June 12, 2012 meeting, the Miami Beach Gay, Lesbian, Bisexual and Transgender Business Enhancement Committee ("BEC") held a discussion regarding the heavier tax burden for City of Miami Beach employees with registered domestic partners that elect to enroll their domestic partner in the City's medical and dental health plans, over that of their married counterparts. A motion was passed by the BEC recommending the City to reimburse the additional income tax liability to these employees who bare a heavier tax burden for enrolling their registered domestic partner in the City's sponsored health plans. This additional federal income tax liability is not incurred by employees that have the right to marry who participate in a medical plan sponsored by the City. Mayor Matti Herrera Bower referred the matter to the FCWPC on March 13, 2013, for discussion and on November 30, 2012, a similar referral to the FCWPC was made by Commissioner Michael Gongora. This item was heard at the April 25, 2013 FCWPC meeting. The item was introduced and an explanation of the additional tax liability incurred by employees providing health and dental coverage for their registered domestic partners was provided. The item was then discussed by the FCWPC who agreed the additional tax liability created tax inequities between employees providing health and dental coverage for their legal spouse versus coverage provided by and employee for their registered domestic partner. The members of the FCWPC unanimously approved the Administration's suggested remedy, correcting an inequality imposed by the Federal Government, by providing reimbursement of the additional tax liability to those employees providing medical and/or dental coverage to their registered domestic partner. By passing such an ordinance, the City would be correcting an inequality imposed by the Federal Government, enhancing our City's message of embracing City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 2 of 8 and welcoming equality, diversity and no tolerance for discrimination. In addition, Employers who offer the reimbursement also do so to attract the most talented labor pool for their workforce. This item was presented at the May 8, 2013, City Commission meeting for First Reading. During the discussion, Commissioner Weithorn questioned if the reimbursement of this additional tax liability incurred by the employee was considered additional income and whether or not the reimbursement amount would be considered as pensionable compensation. In addition, Commissioner Libbin made a motion changing the effective date of the reimbursement from October 1, 2013, to commence immediately upon the approval of the amendment of the ordinance. The Administration was directed to address these issues and present the findings directly to the City Commission at the June 5, 2013, City Commission meeting. ANALYSIS Exclusions from taxable compensation for benefit costs provided by an employer are governed by the Internal Revenue Service (IRS) Code. These requirements provide that, to be excluded from paying federal income taxes on insurance benefits, the benefits must be provided to the employee and their qualified tax dependent(s), as defined by IRS. Qualified tax dependents include the employee's legal spouse and/or dependent children. For federal tax purposes, domestic partners, both same or opposite sex, are not included in the IRS definition of a "spouse", therefore tax benefits at the federal level do not exist for domestic partners (except in rare instances where the domestic partner might also qualify as the employee's dependent). Unless the domestic partner is the employee's qualified tax dependent, the premium paid by an employer for domestic partner health care benefits is considered as income to the employee and must be included as taxable income to the employee. The City offers health benefits to all general employees and their legal dependents through a self funded insurance plan. In addition, the City also contributes to both, the International Association of Fire Fighters (IAFF) Health Trust and the Fraternal Order of Police (FOP) Health Trust plans. The City provides health benefits coverage for an employee's registered domestic partner, either same or opposite sex. In addition, the IAFF Health Trust also provides healthcare coverage to registered domestic partners; however, the FOP Health Trust does not provide for this benefit. In accordance with IRS code, the employer's share of the premium cost for healthcare coverage provided to a domestic partner is considered income and is therefore, subject to federal income tax and Medicare tax withholdings. This cost is considered imputed income and is reported on the employee's annual W-2 earnings statement. In addition, since the domestic partner is not considered a qualified tax dependent under the IRS code, the employee's premium contributions for the coverage provided to a domestic partner is deducted from their payroll check as a post-tax contribution. An employee who enrolls his/her domestic partner for health benefits has two (2) medical deductions, one for the employee's pre-tax premium payment equivalent to the premium cost of "Employee Only" coverage and a second, post-tax deduction for the domestic partner's post-tax premium payment, equivalent to the difference between the "Employee Only' contribution rate and the contribution rate for `Family" coverage. This post-tax premium payment for the domestic partner's healthcare coverage is in addition to the employee's federal tax liability for the City's premium payment for the domestic partner's coverage. City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 3 of 8 The City provides a premium subsidy for all medical plans including the Self-Funded Health Plan and the International Association of Fire Fighters (IAFF) Health Trust plan and the Fraternal Order of Police (FOP) Health Trust plan. The attached spreadsheet ("Attachment A") provides a summary of the City's current monthly premium costs and the monthly and annual additional taxable income charged to an employee who has elected domestic partner healthcare coverage for the Self-Funded Health plan and the IAFF Health Trust plan which, both provide for registered domestic partnership healthcare coverage. This same formula is applicable to dental insurance, as also referenced in the table. This taxable income is referred to as imputed income and is equal to the difference between the City's premium contribution for "Employee Only" coverage and the City's premium contribution for"Family" coverage. ADMINISTRATION DUE DILIGENCE To provide financial relief for the additional federal income tax liability for the coverage of a domestic partner, the City could increase the employee's pay in an amount equal to the tax liability incurred by the employee for the domestic partner healthcare coverage. Because the employee's tax liability for the benefit is mandated by the IRS, the Administration wanted to be certain that the City and the employee would not incur any legal or financial consequences for providing a refund to the employee for this additional tax liability. To that end, the Administration sought advice from its benefit plan consultant, Gallagher Benefit Services (GBS). The benefits attorney for GBS has advised the Administration that adjusting an employee's earnings to offset the additional tax liability is lawful because the City would still be in compliance with the IRS code, as the employee would continue to incur the tax liability for the value of the coverage for their domestic partner's healthcare coverage which would continue to be reported on the employee's annual W2. The City's reimbursement of the tax liability would be considered additional income to the employee and this additional income would be subject to federal tax withholdings. The reimbursement offered to the employee by the City is considered a taxable adjustment to the employee's pay— it is not a refund. Since the employee's tax liability is a fixed bi-weekly cost based on their selected medical and/or dental insurance plan, the tax liability can be calculated on a dollar-to-dollar basis to determine the City's reimbursement. The City's intent is that this reimbursement will not be considered pensionable. In response to the inquires expressed by the City Commission during the May 8, 2013, City Commission meeting, the Administration reached out to Jim Linn, the City's pension attorney, and to Paul Hebert of Gallagher Benefit Services, the tax attorney for the City's benefits consultant to address these issues. According to tax attorney Paul Hebert, since the dollars reimbursed to the employee are not reimbursed for business expenses or made pursuant to a non-accountable plan, such as a tuition reimbursement, this reimbursement to the employee is considered earnings and should be reflected in "Box 1" of the employee's annual W2 Federal Taxes Earnings Statement. The City's pension attorney Jim Linn, from Lewis, Longman and Walker, P.A., has provided a legal opinion (Attachment D), regarding the question of whether or not this reimbursement would be considered as pensionable compensation for employees who participate in either, the Miami Beach Employees' Retirement Plan (MBERP) or the City Pension Fund for Firefighters and Police Officers in the City of Miami Beach (Fire and Police Pension). According to Mr. Linn, the definition of "Earnings" in the MBERP ordinance specifically excludes extra compensation City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 4 of 8 from the member's salary in determining the member's retirement benefit and therefore, the MBERP ordinance would not require any amendments in order to exclude this reimbursement from being pensionable. In the Fire and Police Pension Plan, the definition of "Salary" includes all compensation received by Firefighters and Police Officers. Therefore, ensuring that the proposed reimbursement would not be pensionable for qualifying members of the IAFF and the FOP would be subject to agreement with each of the unions. In addition, if agreement is reached, the Fire and Police Pension Plan ordinance will require amendments to specifically exclude the domestic partner tax reimbursement from being pensionable. On May 29, 2013, the City met with the IAFF for a collective bargaining session. During this meeting, the IAFF agreed that should this ordinance pass on second reading, the reimbursement for any qualifying employee covered by the IAFF will be excluded from pensionable earnings. At the time of this writing, no formalized agreement has been executed between the City and the IAFF. Upon doing so, eligible members covered by the IAFF will qualify for this reimbursement. The City also met with the FOP on May 29, 2013, for a formal collective bargaining session where both parties discussed the domestic partner tax credit reimbursement. At the time of this writing, the City has not reached agreement with the FOP. As previously stated, the FOP does not currently provide domestic partner health benefits through the FOP Health Trust. It is important to note that the City currently offers dental coverage to those employees covered by the FOP and also extends dental coverage for an employee's registered domestic partner. At this time, no employees covered by the FOP receive dental coverage from the City for a registered domestic partner. In order for an employee covered by the FOP to qualify to receive a reimbursement for their domestic partner's dental coverage, the FOP would need to agree that the reimbursement would be exempt from pensionable compensation for all qualifying employees covered by the FOP bargaining unit. FINANCIAL IMPACT As of January 17, 2012, the City has 1,938 active full-time and part-time employees, 68 employees who are registered with the City's Human Resources Department as having a domestic partner. Of the 68 registered employees, eleven (11) active and two (2) retirees have elected to enroll in the City's medical and/or dental coverage and six (6) have elected coverage in the IAFF Health Trust plan. The attached schedule (Attachment"B") calculates the fiscal impact of implementing a bi-weekly tax reimbursement to each of the aforementioned City employees with domestic partners enrolled in their health benefits plan. Based on the attached analysis, should the reimbursement be implemented in June 2013, the City's total fiscal impact for refunding the employee's additional tax liability for domestic partner coverage is approximately $18,000 for the remainder of the current Fiscal Year, October 1, 2013 through September 30, 2013. In addition, utilizing the attached analysis, which only considers current employee enrollment for a registered domestic partner, the City's Fiscal Year cost is estimated to be $53,850.36. By order of magnitude, if enrollment for domestic partner healthcare coverage increased by forty-percent (40%), the City's annual cost for the reimbursement is estimated to be less than $80,000, (based on current medical and dental premium costs). As previously mentioned, the City's intent is to ensure that the proposed reimbursement is not pensionable. It is important to note that a potential financial impact may City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 5 of 8 be incurred if an employee receiving the reimbursement is compensated for overtime. Pursuant to the Federal Labor Standards Act (FLSA), the reimbursement is considered as compensation and therefore, must be included when calculating the employee's regular rate of pay for overtime purposes. The Administration is unable to provide an estimate of this impact at this time. GOVERNMENT AGENCIES THAT ARE GROSSING UP' Three (3) other known municipalities offer reimbursement of the employee's income tax liability for domestic partner coverage; San Francisco, California; Cambridge, Massachusetts; and the City of Hallandale Beach, Florida. Additionally, the Palm Beach County Property Appraiser's Office enacted a "grossing up" policy, making it the first known county agency in Florida to adopt such a policy. Their adopted policies are as follows: CAMBRIDGE, MA Effective July 1, 2011, employees for the City of Cambridge, Massachusetts, who have same- sex spouses, received an additional payment to cover federal taxation of the benefits coverage the city provides those spouses. The Cambridge action was in response to a January 10, 2011, City Council resolution ordering a study of how the federal tax treatment of spousal benefits affects the benefits that the city provides its employees and their spouses. It also ordered that the city find a way to ameliorate the effect of the differential tax treatment for city employees with same-sex spouses. On May 23, 2011, Cambridge City Manager, Robert W. Healy issued a letter stating that the city's remedy for the disparity was to provide a quarterly stipend that is equal to twenty percent (20%) of reported taxable income imputed to the employee for health and dental coverage. This program began_July 1, 2011, for non-union and management employees; for employees who belong to unions, the city could implement the stipend as part of new contracts when they are negotiated. CITY OF HALLANDALE BEACH, FLORIDA At its November 7, 2012, City of Hallandale Beach Commission meeting, a resolution was adopted by the Mayor and City Commission, approving a tax equity reimbursement program for domestic partnerships, authorizing the City Manager to take the necessary action to implement the program. The tax equity solution offers City of Hallandale Beach employees who enroll their domestic partners under the City's health insurance plan with a $500 tax equity reimbursement to mitigate the impact of the additional imputed income tax. A tax equity reimbursement application is required to be filed with its Human Resources Department on May 15` of every year that that the additional tax was deducted. The City of Hallandale Beach was the first city in the State of Florida to implement a tax equity reimbursement program. 1 Gross up means to increase a net amount to include deductions, such as taxes,that would be incurred by the receiver. City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 6 of 8 PALM BEACH COUNTY PROPERTY APPRAISER GARY R. NIKOLITS, FLORIDA The Palm Beach County Property Appraiser's Office implemented a policy to offset the additional taxes paid by employees who elect to provide health insurance to their domestic partners. The action was taken upon the request of the Palm Beach County Human Rights Council. The policy, which went into effect in January 2013, provides employees who elect to insure their domestic partners with a tax equity reimbursement of twenty dollars ($20) on a bi-weekly basis, aimed at mitigating the impact of the additional imputed income tax. Palm Beach County Property Appraiser Gary R. Nikolits is the first elected constitutional officer in Florida to implement a tax equity program. His office has offered domestic partnership health insurance since 2004. Currently no state agencies offer grossing up. However, two (2) other Florida government agencies are in the process of implementing grossing up polices including, the City of West Palm Beach and the Palm Beach County Tax Collector's Office. PRIVATE SECTOR POLICIES As of December 2012, TD Bank announced that it will begin offsetting the tax burden that its employees pay for domestic partner benefits. Other private employers who have implemented similar programs include: American Express, Apple, Bank of America Corp., Cisco Systems Inc, Corning, Biogen Corp., Facebook, Goldman Sachs, Google, Kimpton Hotels, Microsoft, Morgan Stanley and Yahoo!. It is important to note, in discussion with each of the entities who have enacted a reimbursement program to their employees providing health care coverage for a domestic partner, none have experienced a significant increase in the number of employees enrolling their domestic partner in health care coverage. COMPUTING THE GROSS UP AMOUNT In processing the tax reimbursement for an employee providing medical coverage for their registered domestic partner, the Administration deliberated how it could determine the appropriate reimbursement in order to make the employee financially whole. In other words, Administration calculated the difference in Federal Income taxes paid by an employee who is legally married and purchasing the City's medical and/or dental plan coverage for their spouse; and, an employee purchasing the City's medical and dental plan for their registered domestic partner. In order to determine this liability, multiple scenarios were processed within the payroll database for each employee whose domestic partner was enrolled in the City's medical and/or dental plans as follows: • Scenario One (1) — A sample employee's enrollment was processed as if they were electing medical and dental coverage for their legally married spouse; providing them with "Family Medical" coverage. As the spouse is considered a tax dependent by the IRS, there is no additional tax liability to the employee for the spouse's coverage. In this City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 7 of 8 scenario, the employee's bi-weekly contribution is pre-tax. Therefore, an employee's tax liability is reduced because their pre-tax premiums reduce their taxable wages. • Scenario Two (2) - A sample employee's enrollment was processed as if they were electing medical and dental coverage for their registered domestic partner. Pre-tax contributions were taken for "Employee Only" coverage and post-tax deductions were taken for the difference of "Employee Only" coverage and "Family" coverage for the registered domestic partner. Furthermore, the additional tax liability, or "Imputed Income" incurred by the employee for the City's cost for the registered domestic partner's coverage (this cost is equal to the difference between the City's costs for Employee Only" and "Family" coverage) was included in the employee's earnings as imputed income. The employee's tax liability was determined by subtracting the employee's net pay as described in Scenario Two (2), from their net pay in Scenario One (1). It is important to note that the Administration made no changes in the employee's W2 election, the only difference is the change in enrollment from domestic partner to spouse. Using this method provides the employees with the most accurate determination of the actual extra tax liability. An example of this payroll process can be viewed in Attachment"C". The sample employee depicted in Attachment "C" would receive a bi-weekly reimbursement of $142.92, which is the total federal income tax liability for electing medical and dental coverage for their registered domestic partner. Grossing-up the Gross-up It is important to note, the bi-weekly reimbursement amount, or the gross-up, is subject to federal income tax, as well. In an effort to make the employee whole, the gross-up amount should be grossed-up to consider the additional tax liability to the employee. To determine this additional tax liability, each employee whose domestic partner was enrolled in City medical coverage would have their payroll processed under a third scenario. • Scenario Three (3) - A sample employee's enrollment was processed providing coverage for their registered domestic partner; pre-tax contributions were taken for "Employee Only" coverage and post-tax deductions were taken for the difference of "Employee Only" coverage and "Family" coverage for the registered domestic partner. The previously determined additional tax liability was included in the employee's earnings as imputed income as well as the gross-up amount determined by subtracting the employee's federal income tax liability under Scenario One (1) from their federal income tax liability under Scenario Two (2). The new gross-up of the gross-up amount would be determined by subtracting the employee's federal income tax liability under Scenario Two (2) from their federal tax liability under Scenario Three (3). This additional federal income tax liability of$37.80 would be added to the tax liability from the difference of Scenario One (1) and Two (2) to create the total gross-up amount of $180.72 to be reimbursed. A copy of this payroll process can be found in Attachment"C". CONCLUSION As recommended by the Administration, the FCWPC further recommends the resulting gross-up of the gross-up amount in the three (3) scenarios referenced above be refunded on a bi-weekly City Commission Meeting June 5,2013 Domestic Partnership Tax Credit Page 8 of 8 basis to employees who have elected medical coverage for their registered domestic partner. This amount would be determined on an annual basis, beginning with the employee's first payroll check following the City Commission's approval of the Ordinance, and thereafter, at the beginning of the City's Fiscal Year, which begins on October 1 st of each calendar year. Said reimbursement would remain unchanged until the beginning of each new fiscal year. The estimated annual fiscal impact of grossing up is $80,000 based on current enrollment and insurance premium costs. If approved, the Administration will immediately begin to notify all employees of the City's decision to reimbursement of the cost of providing coverage to an employee's registered domestic partner during the City's annual open enrollment and will begin processing any qualifying reimbursements immediately upon ratification of the proposed ordinance. In addition, at the request of the FCWPC, the Administration will work with the FOP Health Trust to encourage them to provide medical coverage to their members with registered domestic partners. JLM//KGB/CMG/SR/CD T:\AGENDA\2013\June 5 0omestic Partner Tax Credit Memo.docx 1 9 "Attachment A" 'Determination of Imputed Income i i i 3 t! 4 S: E i 33I 1 4f f t "Attachment A" Determination of Inputed Income Exludes FOP Health Trust as they currently do not provide health benefits for domestic partners Medical Plan Employee Only Coverage Family Coverage Total Medical Total Monthly Employee City .Employee City Plan Premium Pays Pays Monthly Pays Pays Premium Standard HMO $464.56 $134.72 1$329.84 Standard HMO $1;151.86 $472.26 $679.60 I i Premium HMO $763.48 $381.74 $381.74 Premium HMO $1,892.80 :$946.40 $946.40 Standard PPO $902.42 $261.70 $640.72 Standard PPO $2,214.64 $908.00 $1,306.64 Premium PPO $1,527.80 . $763.90 $763.90 Premium PPO $3,748.92 $1,874.46 51,874.46 POS $850.12 $425.06 $42506 POS $2,109.72 $1,054.86 $1,054.86 IAFF-Health Trust* $522.02 $40.00 $482.02 IAFF Health Trust* $1,248.65 $74.50 $1,174.15 Employee's Taxable Monthly Imputed_ Income The difference of the City's cost for Family coverage vs Employee Only Coverage I Monthly Annual Imputed imputed Income Income Family Coveage less Equals Imputed Taxed as Taxed as ,Employee Only coveage Income Earnings I Earnings i Standard HMO $679.60-$329.84=$349.76 $349.76 $4,197.12 I Premium HMO $946.40-$381.74=$564.66 $564.66 $6,775.92 Standard PPO $1,306.64-4640.72'=$665.92 $665.92 $7,991.04 Premium PPO $1,874.46-$763.90=$1,110,56 $1,110.56 $13,326.72 POS $1.,054:86-$425.06=$629.80 $629.80 $7,557.60 IAFF Health Trust* $1,174.15-$482.02=$692.13 $692.13 _$8;305.56 _ t Dental Plan i Employee Only Coverage Employee+1 Coverage Total Total Monthly Employee City Employee City Dental Premium Pays Pays Monthly Pays Pays Premium PPO $20.08 $10:04 $10.04 PPO $38.70 $19.35 $19.35 DHMO $7.38 $3.69 $3.69 DHMO $1190 $6.45 $6.45 i Employee's Taxable Monthly Imputed Income The difference of the City's cost for Family j coverage vs Employee'Only Coverage Monthly Annual Imputed Imputed Income Income I Employee+ 1 coverage less Equals Imputed Taxed as Taxed as i Employee Only coveage I Income Earnings Earnings PPO $19.35-$10.04=$9.31 $9.31 $111.72 DHMO $6.45-$169=$2.76 $2.76 $33.12 1 Includes premium cost for dental. The IAFF Health Trust medical and dental benefits are bundled in one plan. i l .. ....._.._... ......... __ "Attachment B" 'Computing the Gross up Amount Spreadsheet ...................- 3 A ` m � -i n ci .4 1 N m,m p W � c� fEj Ln Sri T � N � 'o'm m n ry N m�e o �-1 '^ •"1 ry mo it ;:� �.. 'c ` m .+ v boove rvrno� m.t? oa NIn,II Q E o u c ritdta'mNdoNmriviNlool Im ilnA t ° < — Cto vY v1 tb/!'N�L1 I H ° E of u w o ° b.boa "' n00m, ntr NO Tbbe E ' ac o m o o, m cl I o a N to cn nt o o r m W v E a o • Iri o o ry ai m tT r` to'o N r: .i.4 N m,o.m W IWrI ci'o - cWl n r.oo .Np o b v '9 E E �. 'a o 3 LL % F ro f e' m .-I-.-I °1 °i to b W {n e b v N -C E CO d ly Ej $ ,o Y t m m y 'N m W o N p (•� B � W m .-tCO V� NOO Wmme � ho .� NCnp $` E E °�' ba V o'GoINT Voo � �.lp �p n ° rW o a .« a a c to ry m h m h rv'N r� rl•. ID b �u N m m In °- E .� -;°. N r E w A r N H N 'ah V!N N v1 V!t4 V1 v?Vy N N t4 W u C y j 'C .° j .L a•° 8E y� y O t� fy}°� ppyd `w Q 'u O ll — t�.' 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S m v m z a d e N T b N'b ti N h T b Vl W N N N E i-- E E 'L h' N_vF 4A N VS 1n+n N N M N N w iA N ur w to H t) a r d c, a .a N ° a E o S c E 1i c � v m�ogm � ,n-i-o � ahin � �.`rr0000-� < N. � a v a E � 'v a to .a o v.: tr td td nS'ri m n o rv4 t} n a m v a Eg pr r°� nmom nmm �+ tntnprvm . 1 N o d a m d LL pl In'W N N N Ol . .d m h n N N.N pp G-E a Y u LL 4R to VY. 'VT 1h tA'Vf'tA N VT N t/T+n LY.1n u 3 N C C Gd O E. c .s d 9 d E � �¢1 a s 'M V1''+ lb ItG:N m r H p m N-In m m Ill'W m S a o E � E aho m to m o Ip n m M m N,."'-1,w a v j v E '° E "Attachment C" Sample Employee'.s Payroll Processing Worksheets ............................ ....................... A U l7 VV VI CD LL. 1 lilt ow. 0, C O CL rl 99 WLU W to 2'j m O ui 9 .990 0 Lu a iL -- --- al E _Q E co 0.D.a V-a m Gr Ir ON as E- UJ d do Q 9 8 d dd g g a( E E:k ............................ IL M E 6 L) LLI ""E V) m LLJ Ul I W Ig ;; 8sov R CN ry m ID rr g LU LU cl z .0 I't Ej t"n cow. o'f "i�-i m am W E z E O 10 Hit E E E m tu CL(L 0 0.0 tL r— H z 0 U w LU U) V) 0 E z OS LU R P 12 q q C! 00 0 N 0 6 6^ci 0 w 0 m i I E E -5 F2 L cx E W ............. LEWIS LONGMAN & �e WALKER P.A. A T T O R N E Y S A T L A W REPLY To: TALLAHASSEE May 27, 2013 Sylvia Crespo-Tabak Human Resources Director City of Miami Beach 1700 Convention Center Drive Miami Beach, FL 33139 Re: Domestic Partnership Tax Reimbursement— Exclusion from Pensionable Earnings Dear Ms. Crespo-Tabak: This responds to your request for a legal opinion concerning the domestic partnership tax reimbursement program now under consideration by the City Commission. Specifically, you have asked whether the domestic partnership tax reimbursement would be included in an employee's pensionable earnings for the purpose of calculating benefits and contributions under the City's pension plans, and whether the City may lawfully exclude the domestic partnership tax reimbursement from pensionable earnings. It is our understanding that the City Commission is considering an ordinance that would provide a payment to City employees who are registered with the City's Human relations Department as having a domestic partner, and have enrolled their domestic partner in the City health plan or IAFF health trust. Under federal law, the premium paid by an employer for the health benefits of an employee's domestic partner is considered taxable income to the employee. Under the ordinance, the City would reimburse employees who incur additional tax liability as a result of domestic partner health coverage for the amount of the additional tax plus a "gross up" amount. The City has been advised that payments to employees under the domestic partnership tax reimbursement program will be considered a taxable adjustment to the employee's pay, and reflected as such on the employee's W-2 form. See Things Differently BRADENTON JACKSONVILLE TALLAHASSEE WEST PALM BEACH 101 Riverfront Boulevard 245 Riverside Avenue 315 South Calhoun Street 515 North Flagler Drive Suite 620 Suite 150 Suite 830 Suite 1500 Bradenton, Florida 34205 Jacksonville,Florida 32202 Tallahassee.Florida 32301 West Palm Beach,Florida 33401 p 941-708-4040 • 11941-708-4024 p+904-353-6410 • f 904-353-7619 p 850-222-5702 • 11850-224-9242 p 1561-640-0820 • f 561-640.8202 00207307-1 www.11w-law.com Ms. Sylvia Crespo-Tabak May 27, 2013 Page 2 Police Officers and Firefighters Under the City's Pension Plan for Police Officers and Firefighters, a member's retirement benefit is based on a formula that includes the member's average monthly "Salary." Section 62 of the Plan defines "Salary" as: Salary, for the purpose of determining member contributions under this System, means the member's base pay, longevity pay, overtime, shift differential and extra compensation allowance such as uniform allowance, before reduction for the picked-up member contributions and before reduction for any amounts contributed in accordance with sections 125 or 457 of the Internal Revenue Code. However, for periods prior to October 1, 2000 and solely with respect to May 1993 Members, the term "Salary" shall refer only to base pay and longevity pay, excluding any payment of overtime, shift differential or extra compensation allowance such as uniform allowance, but determined before reduction for the picked-up member contributions and before reduction for any amounts contributed in accordance with sections 125 or 457 of the Internal Revenue Code.... A "May 1993 Member" means a member first employed by the City on or after May 19, 1993. Therefore, based on the Plan definition of "Salary," it appears that the salary of all police officers and firefighters has, since October 1, 2000, included payments for overtime, shift differential and "extra compensation allowance such as uniform allowance." The Plan does not provide further guidance on the meaning of "extra compensation allowance"; however, sections 66(d)(1) and (2) state: Effective July 14, 2010, all compensation received by a firefighter member who is eligible for overtime pay and who receives pay for off-duty services performed after that date for which compensation is received through the City shall be included in such member's Salary for pension contribution and benefit purposes... Effective July 14, 2010, all compensation received by a police officer member who is eligible for overtime pay and who receives pay for off-duty services performed after that date for which compensation is received through the City, shall be included in such member's Salary for pension contribution and benefit purposes... Sections 66(d)(1) and (2) go on to limit the amount of overtime pay and pay for off-duty services that may be included in the pensionable earnings of police officers and firefighters. Reading the above language of 66(d)(1) and (2) together with the definition of salary in section 62, it appears that "all compensation" received by a police officer or 00207707.1 Ms. Sylvia Crespo-Tabak May 27, 2013 Page 3 firefighter, except as limited for overtime and off-duty services pay, is included in the pensionable earnings of police officers and firefighters. We have asked that this be confirmed with the City's payroll office. If in fact "all compensation" received by police officers and,firefighters is now included in pensionable earnings (other than as limited for overtime and off-duty pay), the domestic partnership tax reimbursement would also likely be included in pensionable earnings, since it will be a taxable adjustment to the employee's pay. Therefore, an amendment to the Police Officers and Firefighters Pension Plan would be necessary in order to ensure that the domestic partnership tax reimbursement is excluded from the pensionable earnings of those Plan members who receive the reimbursement. The amendment would need to expressly exclude the domestic partnership tax reimbursement from the definition of"Salary" in section 62. Any change in the definition of "Salary" would be a mandatory subject of collective bargaining negotiations with the unions representing the affected employees. See, City of Tallahassee v. Pub. Emp. Relations Comm'n, 393 So. 2d 1147, 1150 (Fla. 1st DCA 1981) affd, 410 So. 2d 487 (Fla. 1981). Agreement of the unions or imposition through the impasse resolution process contained in section 447.403, Florida Statutes, would be required in order to implement this change. City Employees Other Than Police Officers and Firefighters Ordinance 2006-3504 establishes the Miami Beach Employees' Retirement Plan for employees other than police officers and firefighters. This plan also provides a benefit formula that includes a member's final average monthly earnings. Section 2.11 of the Plan defines "Earnings" as: "Earnings" mean base pay, including longevity pay, for personal services rendered as an Employee, but excluding any payment of overtime, shift differential or extra compensation allowances such as uniform allowances... Based on the above definition of "earnings," any payment of extra compensation is specifically excluded from the member's earnings in determining the member's retirement benefit; thus, the domestic partnership tax reimbursement would not be considered part of an employee's pensionable earnings. Conclusion Under the City's current Pension Plan for Police Officers and Firefighters, it appears that domestic partnership tax reimbursement payments would be included in the 00207)07-1 Ms. Sylvia Crespo-Tabak May 27, 2013 Page 4 pensionable earnings of police officers and firefighters. An amendment to the Plan definition of salary would be necessary in order to ensure that the domestic partnership tax reimbursement is excluded from the pensionable earnings of those Plan members, who receive the reimbursement. This change would require collective bargaining with the unions that represent police officers and firefighters. Under the current Miami Beach Employees' Retirement Plan for employees other than police officers and firefighters, domestic partnership tax reimbursement payments would be excluded from pensionable earnings. Please let us know if questions or wish to discuss these matters in more detail. Sincerely, Jam 's W. Linn Jennifer Cowan JWUjc 00207307.1 20HE I THURSDAY,MAY 23,2013 NE IAO EAR CITY OF MIAMI BEACH NOTICE OF PUBLIC HEARINGS NOTICE 1S HEREBY given that public hearings will be held by the Mayor and City Commission of the City of Miami Beach,Florida,In the Commission Chambers,3rd Floor,City Hall,1700 Convention Center Drive, Miami Beach,Florida,on Wednesday,June 5,2013 to consider the following 10.45 a.m. Sunset Harbour Residential Parking Requirements An Ordinance Amending The Code Of The City Of Miami Beach,Florida By Amending Chapter 130, "Off-Street Parking,"Article 11"District;Requirements,"Section 130-33"Off-Street Parking Requirements For Parking Districts Nos.2,3,4 And 5,"By Amending The Parking Requirements For Sunset Harbour Parking District No.5 For Residential And Live-Work Type Uses;Providing For Codification;Repealer; Severabil'ity;Applicability;And An Effective Dale. I qulrles may be directed to the Planning Department at(305)673-7550. 12:00 p.m. An Ordinance Amending The Code Of The City Of Miami Beach By Amending Chapter 62, Entitled "Human Relations," By Amending Article III, Entitled"Domestic Partnerships,"By Amending Section 62-128, Entitled "Employment Benefits" To Add Section 62-128(4) To Provide Tax Equity To City Employees With Domestic Partners Enrolled In The City's Health And Dental Plans Who Currently Bear A Disproportionate Tax Burden Over That Of Their Married Counterparts. Inquiries may be directed to the Human Resources Department at(305)673-7524. 5:00 P.M. Afton Road Historic District Buffer Overlay: An Ordinance Amending The Code Of The City Of Miami Beach,Florida,By Amending Chapter 142, "Zoning Districts And Regulations,"Article III, 'Overlay Districts,"Creating Division 8"Alton Road- Historic District Buffer Overlay," By Including Section 142-858"Location And Purpose,"And Section 142-859"Development Regulations,."Including Among Other Provisions Regulations On Maximum Floor Area Ratio;Maximum Building Height;Minimum Setbacks;Building Separation;Demolition Or Additions To Contributing Buildings In A Historic District;And Land Use Regulations For Location Of Retail Uses, Restaurants,Bars,Entertainment Establishments,Alcoholic Beverage Establishments And Similar Uses; Requiring Conditional Use Approval Ot Such Uses In Excess Of 10,000 Sq.Ft.;And Prohibiting Alcoholic Beverage And Entertainment Establishments in Open Areas With Exceptions As Prescribed In The Ordinance;Providing For Codification;Repealer,Severability,And An Effective Date. Inquiries may be directed to the Planning Department at(305)673-7550. 5:05 P.M. Afton Road Parking District No.6: An Ordinance Amending The Code Of The City Of Miami Beach,Florida, By Amending Chapter 130 Off-Street Parking,Article It"Districts;Requirements,"Section 130-31 "Parking Districts Established," Creating A New Parking District No. 6, And Section 130-33 "Off-Street Parking Requirements For Parking Districts Nos.2,3 And 4,"By Adding New Parking Regulations For Parking District No.6,For Properties With A Lot Line On Afton Road From 5th Street To Dade Boulevard,Including A Reduction In Off-Street Parking Requirements For Certain Land Uses And Bicycle Parking Requirements;Providing For Codification;Repealer;Severability;And An Effective Date. Inquiries may be directed to the Planning Department at(305)673-7550. INTERESTED PARTIES are invited to appear at this meeting,or be represented by an agent,or to express their views in writing addressed to theClty Commission,Go the City Clerk,1700 Convention Center Drive, 1st Floor,City Hall,Miami Beach,Florida 33139.Copies of these items are available for public inspection during normal business hours in the City Clerk's Office,1700 Convention Center Drive,1st Floor,City Hall, Miami Beach,Florida 33139.This meeting may be continued,and under such circumstances additional legal notice will not be provided. Rafael E.Granado,City.Clerk City of Miami Beach Pursuant to Section 286.0105,Fla.Stat.,the City hereby advises the public that:it a person decides to appeal any decision made by the City Commission with respect to any matter considered at its meeting or its hearing,such person must ensure that a verbatim record of the proceedings is made,which record Includes the testimony and evidence upon which the appeal is to be based.This notice does not constitute consent by the City for the Introduction or admission of otherwise inadmissible or irrelevant evidence,nor does it authorize challenges or appeals not otherwise allowed by law. To request this material in accessible format,sign language interpreters,information on access for persons with disabilities and/or any accommodation to review any document or participate in any City-sponsored proceeding,please contact us five days in advance at(305)673-7411(voice)or TTY users may also call the Florida Relay Service at 711. Ad ff 781