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122988.1 <br />TO: Mark E. Bernhardsonr City Administrator <br />FROM: Tom Kuehn, Finance Director^ <br />DATE: Janv^atfy 3, 1989 <br />SUBJECT: Internal Revenue Code Section 89 Compliance <br />Attachment:A. League of Minnesota Cities Article on <br />Section 89 - December 1988 <br />ISSUE - The 1986 Tax Reform Act established a new section in the <br />Internal Revenue Code (section 89) which sets forth basic <br />qualification standards and nondiscrimination tests with which <br />certain types of employer-sponsored health and welfare benefit <br />plans must comply. The City of Orono, along with all other <br />municipalities offering health and life plans, is subject to <br />compliance. <br />DISCUSSION - The City, as with all employers offering health and <br />life insurance plans, must comply with the provisions of Section <br />89. The League of Minnesota Cities magazine had an informative <br />article regarding this subject in the December 1988 issue. In <br />that article the author noted that "the requirements are <br />extremely complex and lengthy." He also stated that "there isn't <br />space in . . . this magazine ... to cover all the ins and outs <br />of Section 89." I have attached a copy of that article for your <br />information. <br />The basic problem of compliance, meeting all the legal criteria, <br />is complicated by the varied consultants (attorneys, certified <br />public accountants, insurance companies) offering to do t:,e <br />necessary testing proceedures and reviews to determine <br />nondiscrimination status of each plan. We do have a good <br />consultant available to us. The LOGIS Health Care Group Plan is <br />administered by DCA, Inc. who has offered their services at a <br />discount to the LOGIS health plan members. DCA, in conjunction <br />*th the law firm of Moore, Costello & Hart, will help us <br />ntify the data to be collected in conjunction with Section 89; <br />jommend actions to help us meet our benefit plan objectives <br />within the context of Section 89; and perform the initial tests <br />to project the application of the nondiscrimination rules of <br />section 89(d) and (e) to our benefit plans. Moore, Costello &