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Resolution No. 93211 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 RESOLUTION NO. 9321 A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF VERNON APPROVING, RATIFYING AND ADOPTING DOCUMENTS NECESSARY FOR THE ADMINISTRATION OF THE CITY OF VERNON FLEXIBLE BENEFIT PROGRAM THE EXECUTION OF A CITY OF VERNON FLEXIBLE HEALTH AND DEPENDANT CARE BENEFIT PROGRAM WITH IGOE & COMPANY INCORPORATED DBA IGOE ADMINISTRATIVE SERVICES WHEREAS, the Finance Committee Section of the City Council of the City of Vernon recommended the establishment of an optional health care and dependent care benefit program allowing participating employees to voluntarily set aside a portion of their salary on a before -tax basis in a flexible spending account to cover certain health care and child care expenses under Section 125 of the Internal Revenue Code (the "Flexible Benefit Plan"); and WHEREAS, the Risk Manager of the City of Vernon, in conjunction with Gallagher Benefit Services of California, the City's insurance broker, has chosen the services of Igoe & Company Incorporated, dba Igoe Administrative Services ("Igoe"), to provide administrative services for the Flexible Benefit Plan based upon its experience, knowledge, responsiveness and cost in providing the administrative services; and WHEREAS, on March 27, 2007, the Finance Committee Section of the City Council of the City of Vernon adopted Resolution No. FI-283 authorizing the establishment of an account with Bank of America and lauthorizing the execution of checks or other instruments necessary for the administration of the Flexible Benefit Plan; and WHEREAS, the Risk Manager executed an Administrative 28 1IServices Agreement on March 13, 2007, subject to ratification by the 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 City Council of the City of Vernon, to commence the Plan on an initial short-term basis of May 1, 2007 through December 31, 2007 and authorized the payment of fees in the s-um of $1,900.00 to implement the Plan, subject to ratification by the City Council; and WHEREAS, the Risk Manager has recommended that the actions taken to create and implement the Flexible Benefit Plan, including but not limited to the execution of the necessary documents with Igoe and payment of the necessary fees be ratified; and WHEREAS, the Risk Manager has recommended that the City Council adopt an Amended and Restated Specimen Plan proto-type document and Summary Plan Description and approve and authorize the execution of an Adoption Agreement as the Plan Sponsor to implement the Flexible Benefit Plan; and WHEREAS, the City Council desires to approve and ratify the Administrative Services Agreement executed by the Risk Manager on March 13, 2007, the payment of the Plan fees in accordance therewith and any other action taken to create and implement the Flexible Benefit Plan; and WHEREAS, the City Council desires to approve and adopt the Amended and Restated Specimen Plan proto-type document and Summary Plan Description and to approve and authorize the execution of an Adoption Agreement; and WHEREAS, the City Council of the City of Vernon has (determined that, pursuant to the provisions of subsection (a) of Section 2.27 of the Vernon City Code, it is in the public interest and necessity to ratify the actions of the Risk Manager relating to the Flexible Benefit Plan and to approve and adopt the necessary documents to implement the Plan. - 2 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 W NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF VERNON AS FOLLOWS: SECTION 1: The City Council of the City of Vernon hereby finds and determines that the recitals contained hereinabove are true and correct. SECTION 2: The City Council of the City of Vernon hereby approves and ratifies the execution of the Administrative Services Agreement by the Risk Manager on March 13, 2007 and the payment of $1,900.00 in accordance with the terms of the Plan. A copy of the Administrative Services Agreement is attached hereto as Exhibit A and incorporated by reference. SECTION 3: The City Council of the City of Vernon hereby approves and adopts the Amended and Restated Specimen Plan proto-type document, the Summary Plan Description and the Adoption Agreement in substantially the same form as the copies which are attached hereto as Exhibit B and incorporated by reference. SECTION 4: The City Council of the City of Vernon hereby approves and authorizes the Mayor or Mayor Pro-Tem to execute the Adoption Agreement for, and on behalf of, the City of Vernon and the City Clerk is hereby authorized to attest thereto. SECTION 5: The City Council of the City of Vernon hereby authorizes the City Attorney, or his designee, to make whatever nonsubstantive, administrative and/or text changes, upon advice of (counsel, to the Plan documents or Adoption Agreement. - 3 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 SECTION 6: The Acting City Clerk of the City of Vernon shall certify to the passage of this resolution, and thereupon and thereafter the same shall be in full force and effect. APPROVED AND ADOPTED this 21st day of May, 2007. A TEST: r' NUELA GIRON, ity Clerk Name: LEONTS C. MALBURG Title: Mayor /W(XkX)M(XXXM - 4 - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 STATE OF CALIFORNIA ) ) ss COUNTY OF LOS ANGELES ) I, MANUELA GIRON, City Clerk of the City of Vernon, do hereby certify that the foregoing Resolution, being Resolution No. 9321, was duly adopted by the City Council of the City of Vernon at a regular meeting of the City Council duly held on Monday, May 21, 2007, and thereafter was duly signed by the Mayor or Mayor Pro-Tem of the City of Vernon. (SEAL) MANUELA GI ON City Clerk - 5 - EXHIBIT ul, City of Vernon Flexible Benefit Plan Administrative Services Agreement This Agreement specifies the services to be provided to The City of Vernon, in the ongoing administration of the City of Vernon Flexible Benefit Plan (the "Plan"/"Covered Entity') as well as the specified responsibilities of The City of Vernon (the "Plan Administrator"/"Plan Sponsor") and Igoe fr Company Incorporated dba Igoe Administrative Services (the "Contract Administrative Firm"/"Business Associate"). The Contract Administrative Firm ("Business Associate") shall be engaged by the Plan Administrator/Plan Sponsor as a subcontractor in the performance of administrative services for the Plan. 1. In accordance with the terms of this Agreement, the Contract Administrative Firm shall have the following responsibilities: A. The Contract Administrative Firm shall provide Flexible Benefit Plan services in accordance with this Agreement, as requested by the Plan Administrator/Plan Sponsor in connection with the Plan. B. The Contract Administrative Firm shall consult with Plan Administrator/Plan Sponsor on the design of the Plan. C. The Contract Administrative Firm shall provide the Plan Administrator/Plan Sponsor with the following sample documentation in order to initiate the administrative function: (i) A sample Plan Document for review, and potential adoption by Plan Sponsor and Plan Sponsor's legal counsel; A master set of Employee Communication/Enrollment Materials, including: a. A Summary Plan Description; and b. Election Forms to be used during the Enrollment Process; and C. Reimbursement Request Forms; and d. Instructions for filing claims for reimbursement and appeals procedures. The Plan Sponsor is not required to adopt or utilize the sample Plan Documents, Enrollment Materials or Forms provided by the Contract Administrative Firm and may use its own forms, subject to review by the Contract Administrative Firm. Contract Administrative Firm makes no warranties, or representations regarding the adequacy of such documentation. Additional fees may apply if additional work is required to process enrollments or reimbursements if the forms submitted by the Plan Administrator/Plan Sponsor do not comply with the Contract Administrative Firm's requirements. D. At the request of the Plan Administrator/Plan Sponsor, the Contract Administrative Firm shall conduct enrollment meetings to explain the Plan to employees. Additional fees may apply for this service (including travel expenses), based on the rates outlined in Exhibit B of this Agreement. E. Process Reimbursement Requests, including determining the eligibility of expenses which qualify for reimbursement; provide an explanation in a written format for any expenses submitted which do not qualify for reimbursement under IRS regulations; provide instructions to participants for re -submitting OE d"c L'OMPsi/V 31812007 requests in instances where required information may be missing. In the event of an appeal by a participant, the Contract Administrative Firm agrees to reimburse expenses based on final claims approval provided by the Plan Administrator/Plan Sponsor. F. The Contract Administrative Firm will use the Plan Administrator/Plan Sponsor's Flexible Benefit Plan checking account or make other arrangements with such employer, as so directed by the Plan Administrator/Plan Sponsor, in order to process participant reimbursements. G. Provide a check register or similar report to the Plan Administrator/Plan Sponsor for all transactions posted during each processing period. H. Conduct Non-discrimination testing on the 125 Plan(s), based on information provided by the Plan Administrator/Plan Sponsor, and provide Plan Administrator/Plan Sponsor with a written interpretation following each open enrollment period. Provide a contribution worksheet for Plan Administrator/Plan Sponsor to reconcile payroll contribution amounts to be redirected into the Flexible Benefit Plan prior to each payroll period. J. Provide sample forms for the Plan Administrator/Plan Sponsor to communicate participant terminations and qualifying change in status events to the Contract Administrative Firm. K. Provide a year-to-date report of account balances, reimbursements paid, and scheduled payroll contributions amounts for all participants enrolled in the Flexible Spending Accounts for each month. L. Provide preparation of IRS Form 5500, if applicable, following the close of each Plan Year. M. The Contract Administrative Firm will attend any audit or hearing held by a government agency or bureau regarding compliance issues directly pertaining to administration services performed by Contract Administrative Firm during the term of this Agreement and will provide any and all requested documents in their possession. This provision will survive the expiration or termination of this Agreement. 2. Business Associate Contract Provisions:. A. For purposes of this Agreement, the Contract Administrative Firm, Igoe ft Company Incorporated means the "Business Associate" and the City of Vernon Flexible Benefit Plan means the "Covered Entity'. All definitions referred to in the Business Associate Contract Provisions of this Agreement shall have the same meaning as those described in 45 CFR §§ 160.103, 164.103, 164.304 and 164.501. B. Obligations and Activities of Business Associate in accordance with HIPAA regulations regarding Protected Health Information (PHI) and Electronic Protected Health Information (EPHI): li) Business Associate agrees to not use or further disclose Protected Health Information other than as permitted or required by the Agreement or as Required by Law. [IE.& COMPAN 31812007 (ii) Business Associate agrees to use appropriate safeguards to prevent use or disclosure of the Protected Health Information other than as provided for by this Agreement. (iii) Business Associate agrees to mitigate, to the extent practicable, any harmful effect that is known to Business Associate of a use or disclosure of Protected Health Information by Business Associate in violation of the requirements of this Agreement. (iv) Business Associate agrees to report to Covered Entity any use or disclosure of the Protected Health Information not provided for by this Agreement for which it becomes aware. (v) Business Associate agrees to ensure that any agent, including a subcontractor, to whom it provides Protected Health Information received from, created or received by Business Associate on behalf of Covered Entity agrees to the same restrictions and conditions that apply through this Agreement to Business Associate with respect to such information. NO Business Associate agrees to make internal practices, books, and records relating to the use and disclosure of Protected Health Information received from, or created or received by Business Associate on behalf of, Covered Entity available to the Covered Entity, or at the request of the Covered Entity to the Secretary, in a time and manner designated by the Covered Entity or the Secretary, for purposes of the Secretary determining Covered Entity's compliance with the Privacy Rule. (vii) Business Associate agrees to document such disclosures of Protected Health Information and information related to such disclosures as would be required for Covered Entity to respond to a request by an Individual for an accounting of disclosures of Protected Health Information in accordance with 45 CFR §164.528. (viii) Business Associate agrees to implement any and all administrative, technical and physical safeguards necessary to reasonably and appropriately protect the confidentiality, integrity and availability of electronic Protected Health Information that it creates, receives, maintains or transmits on behalf of Covered Entity. (ix) Business Associate agrees to ensure that access to Electronic Protected Health Information related to the Covered Entity is limited to those workforce members who require such access because of their role or function. (x) Business Associate agrees to implement safeguards to prevent its workforce members who are not authorized to have access to such Electronic Protected Health Information from obtaining access and to otherwise ensure compliance by its workforce with the Security Rule. (xi) Business Associate agrees to ensure that any agent, including a subcontractor, to whom it provides Electronic Protected Health Information received from, or created or received by Business Associate on behalf of, Covered Entity agrees to the same restrictions and conditions that apply to Business Associate with respect to such information. (xii) Business Associate agrees to report to Covered Entity, in writing, any security incident of which it becomes aware. Security incident shall mean successful unauthorized access to, disclosure, modification or destruction of, or interference with, the Electronic Protected Health Information by a third party. (xiii) Upon request from Covered Entity, Business Associate agrees to provide information to Covered Entity on unsuccessful unauthorized access, use, disclosure, modification or destruction of the Electronic Protected Health Information to the extent such information is available to Business Associate. fiQE d'c L77/NF*A!V 31812007 (xiv) As required by the Security Rule, Business Associate agrees to treat a material breach of this Agreement as a breach of the Agreement and to an early termination of the Agreement by Covered Entity. C. Permitted Uses and Disclosures by Business Associate Except as otherwise limited in this Agreement, Business Associate may use or disclose Protected Health Information to perform functions, activities, or services for, or on behalf of, Covered Entity as specified in this Agreement, provided that such use or disclosure would not violate the Privacy Rule if done by Covered Entity. 3. The Contract Administrative Firm is willing to perform the services described in this Agreement, provided that Contract Administrative Firm shall not assume the responsibilities of the Plan Administrator/Plan Sponsor under the Plan, and provided that Contract Administrative Firm shall not constitute or be deemed or construed to constitute the "Plan Administrator' of the Plan as such term is defined in the Plan and within the meaning of ERISA Section 3(16). The Contract Administrative Firm will use reasonable care and due diligence in the performance of its responsibilities hereunder. In addition, except as expressly set forth herein, the Contract Administrative Firm shall not be a "fiduciary" of the Plan as such term is defined in ERISA Section 3(21). Plan Administrator/Plan Sponsor agrees that this responsibility is, and remains, that of the Plan Administrator/Plan Sponsor. 4. In accordance with the terms and conditions of this Agreement, the Plan Administrator/Plan Sponsor agrees to the following: A. The Plan Administrator/Plan Sponsor desires to engage the Contract Administrative Firm to provide professional services in accordance with this Agreement, and the Contract Administrative Firm desires to accept such engagement. B. The Plan Administrator/Plan Sponsor shall administer the Plan or appoint a person or committee to administer the Plan (the "Plan Administrator"). C. The Plan Administrator/Plan Sponsor understands and acknowledges that Contract Administrative Firm is responsible only for providing the services specifically allocated to the Contract Administrative Firm in this Agreement. D. If using a vendor for electronic enrollment for your group health benefits, the Plan Sponsor/Plan Administrator shall remain ultimately responsible for the accuracy of the Flexible Benefit Plan elections and all related records. The Plan Sponsor/Plan Administrator- is responsible for capturing all electronic enrollment data and transmitting it to the Contract Plan Administrator prior to the appropriate effective dates. The Plan Sponsor/Plan Administrator to review such reports and to provide corrections as needed. The Contract Plan Administrator will continue to provide all reporting as outlined in this Agreement. E. The Plan Administrator/Plan Sponsor shall establish a zero -balance Flexible Benefit Plan checking account or make other arrangements with such employer in order for the Contract Administrative Firm to process claims for reimbursement under the Plan. i r v 31812007 F. The Plan Administrator/Plan Sponsor shall report all participant terminations and all qualifying change in status events in a written format, including all requested information, to the Contract Administrative Firm prior to the first affected payroll date. Should this information not be provided in a complete or timely manner, the Plan Administrator/Plan Sponsor agrees to pay any resulting administrative fees which may be incurred in order to process retroactive adjustments to payroll contributions or reimbursement claims processed in error. G. The Plan Administrator/Plan Sponsor shall provide the Contract Administrative Firm, confirmation of redirections into the Flexible Benefit Plan, based on reports provided by the Contract Plan Administrative Firm, in a timely manner, thus allowing the Contract Administrative Firm to post contributions for the purpose of processing reimbursements. Should this information not be received in a complete and timely manner, the Plan Administrator/Plan Sponsor agrees to pay any resulting administrative fees required to process any retroactive changes, as fees for this service are not covered under this Agreement. H. The Plan Administrator/Plan Sponsor agrees to provide to the Contract Administrative Firm, upon each open enrollment period and with each new enrollment in the Plan, all required data to perform IRS -required 125 Plan Non-discrimination Testing. The Plan Administrator/Plan Sponsor agrees to report any changes to the Contract Administrator, which may affect the qualification of the Plan for meeting Non-discrimination requirements. In addition, the Plan Administrator/Plan Sponsor agrees to initiate any action required in the event the Plan is reported as discriminatory. I. The Plan Administrator/Plan Sponsor agrees to provide to the Contract Administrative Firm, upon each open enrollment period and with each new enrollment in the Plan, all required data to perform IRS -required 125 Plan Non-discrimination Testing. The Plan Administrator/Plan Sponsor agrees to report any changes to the Contract Administrator, which may affect the qualification of the Plan for meeting Non-discrimination requirements. In addition, the Plan Administrator/Plan Sponsor agrees to initiate any action required in the event the Plan is reported as discriminatory. J. The Plan Administrator/Plan Sponsor shall retain documentation relating to Plan operations that may be requested in an IRS or Department of Labor audit of Plan operations - including, but not limited to: Non-discrimination testing information, executed copies of the Plan, Salary Redirection Agreements ("Enrollment Forms"), Plan Amendments, Resolutions adopting the Plan, and Form 5500s, (if applicable), for seven years after the close of each Plan Year. K. The Plan Administrator/Plan Sponsor shall ensure that only common law employees participate in the Plan (employees of companies described in IRC Section 414 (b), (c) or (m) and listed in the Plan as participating affiliates may also participate] and to ensure that the terms of its Plan Document are properly enforced. L. The Plan Administrator/Plan Sponsor shall provide all requested information on a timely basis for Igoe £t Company Incorporated to file an annual Form 5500 Return, if applicable, for the cafeteria plan within seven months following the close of each plan year. In addition, the Plan Sponsor may be required to provide requested information in order for Igoe & Company Incorporated to file Form 5500 Annual Returns for the component benefit plans offered through the cafeteria plan, (component QE � C'OMPAN 31812007 benefit plans would be a multiple plan including Premium Conversion Plans, Dependent Care FSA and/or Medical FSA). M. The Plan Administrator/Plan Sponsor shall provide the required information on a timely basis in order for Igoe & Company Incorporated to perform Non-discrimination testing required by the Internal Revenue Code for 125 Plan(s) (including, but not limited to: ensuring that a non-discriminatory classification of employees is eligible for the plan, that contributions and benefits do not discriminate in favor of highly compensated employees, and that no more than 25% of the total pre-tax benefits is received by officers and owners). Additional information may be required in order for Igoe & Company Incorporated to conduct Non-discrimination testing for the component benefits offered through the cafeteria plan (including insurance and flexible spending account benefits). Igoe & Company Incorporated will perform Non-discrimination testing shortly after enrollment. N. (If Applicable) — If a Flex Plan participant uses his/her Flex Convenience Debit Card for a transaction that falls outside of the debit card parameters set for automatic adjudication and approval, a request for substantiation will be sent automatically via e-mail. If no response is received within 14 days a second electronic letter will be sent. Once a card is deactivated, the participant will no longer have the ability to use their card until he/she provides resolution through one of the following methods. In either case the employer will be charged $25.00 per reactivation: • Provide receipts as substantiation to Igoe & Company along with a copy of the letter he/she received. The information may be faxed to 858-777-5424. Upon receipt, the transaction will be adjudicated and their card will be reactivated and the employer will be charged $25.00 per reactivation. Refund the Flexible Benefit Plan equal to the amount of the transaction via either a payroll deduction or a personal check. Upon notification from the employer that the refund is complete, the transaction will be reversed and the card will be reactivated and the employer will be charged $25.00 per reactivation. 5. Obligations of Covered Entity in accordance with HIPAA regulations regarding Protected Health Information (PHI): A. Covered Entity shall notify Business Associate of any restriction to the use or disclosure of Protected Health Information that Covered Entity has agreed to in accordance with 45 CFR 164.522, to the extent that such restriction may affect Business Associate's use or disclosure of Protected Health Information. B. Covered Entity shall not request Business Associate to use or disclose Protected Health Information in any manner that would not be permissible under the Privacy Rule if done by Covered Entity. 6. Plan Administrator/Plan Sponsor acknowledges that they have read this Agreement in its entirety and Plan Administrator/Plan Sponsor acknowledges that it has been advised to consult with, and has consulted as it deems necessary, its own attorney with respect to the matters herein, and acknowledges that Contract Administrative Firm is not providing any tax or legal advice as a result of its professional services under this 31812007 Agreement. In addition, the Plan Administrator/Plan Sponsor agrees to the fees outlined in Exhibit A and Exhibit B of this Agreement. Failure to pay fees when due may result in termination of this Agreement. The Administrative Fee Schedule, which is attached to this Agreement as Exhibit A, is made a part hereof as of the effective date of this Agreement. 7. Should either party institute legal action to enforce its rights under this Agreement, the venue shall be in San Diego County, State of California, and the prevailing party in such action shall be entitled to recover reasonable attorney's fees and costs. 8. Should Plan Administrator/Plan Sponsor, at any time during the coverage period of this Agreement, file in the United States for the Debt Relief or Reorganization of any type, all services from the date of the filing forward to the end of the contract period shall be paid for by cashier's check or money order prior to work being performed by the Contract Administrative Firm. All other terms and conditions of the contract shall remain in effect. 9. Plan Administrator/Plan Sponsor agrees to accurately complete an administrative instruction/summary form, as supplied by the Contract Administrative Firm, upon implementation or renewal of the Plan. Plan Administrator/Plan Sponsor agrees that these forms will provide the basis of the Contract Administrative Firm's administrative actions under this Agreement. Further, Plan Administrator/Plan Sponsor agrees that any changes to the information supplied on these forms may only be made in writing and are only effective when acknowledged by the Contract Administrative Firm in writing. Additional fees may be incurred for any retroactive changes made after the Plan Administrator/Plan Sponsor has agreed to the administration design in writing or for any changes which may be requested mid -year (after the open enrollment period). 10. Term and Termination. A. Term. This Agreement shall govern the contract period beginning May 1, 2007 and ending December 31, 2007, unless terminated earlier by either party at any given time upon thirty (30) days written notice. B. The Term of this Agreement shall be effective as of the date of the signature on this Agreement, and, with respect to HIPAA Privacy Rules, this Agreement shall terminate when all of the Protected Health Information provided by Covered Entity to Business Associate, or created or received by Business Associate on behalf of Covered Entity, is destroyed or returned to Covered Entity, or, if it is infeasible to return or destroy Protected Health Information, protections are extended to such information, in accordance with the termination provisions in this Section. C. Termination for Cause. With respect to HIPAA Privacy Rules, upon Covered Entity's knowledge of a material breach by Business Associate, Covered Entity shall provide an opportunity for Business Associate to cure the breach or end the violation and terminate this Agreement and the Administrative Services Agreement if Business Associate does not cure the breach or end the violation within the time specified by Covered Entity, or immediately terminate this Agreement and the Administrative Services Agreement sections if Business Associate has breached a material term of this Agreement and cure is not possible. R �FCOMPAN 31812007 D. Effect of Termination. Except as provided for above with respect to HIPAA Privacy Rules, upon termination of this Agreement, for any reason, Business Associate shall return or destroy all Protected Health Information received from Covered Entity, or created or received by Business Associate on behalf of Covered Entity. This provision shall apply to Protected Health Information that is in the possession of subcontractors or agents of Business Associate. Business Associate shall retain no copies of the Protected Health Information. In the event that Business Associate determines that returning or destroying the Protected Health Information is infeasible, Business Associate shall provide to Covered Entity notification of the conditions that make return or destruction infeasible. Upon mutual agreement of the Parties that return or destruction of Protected Health Information is infeasible, Business Associate shall extend the protections of this Agreement to such Protected Health Information and limit further uses and disclosures of such Protected Health Information to those purposes that make the return or destruction infeasible, for so long as Business Associate maintains such Protected Health Information. 11. Miscellaneous. A. Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California. B. Assignability. This Agreement and the rights, benefits, privileges, duties and responsibilities of the parties hereto may not be assigned by any other party hereto without the prior written consent of the parties hereto. C. Amendment. In regard to Protected Health Information (PHI), the Parties agree to take such action as is.necessary to amend this Agreement from time to time as is necessary for Covered Entity to comply with the requirements of the Privacy Rule and the Health Insurance Portability and Account- ability Act, Public Law 104-191. D. Binding Nature of Agreement. This Agreement is binding upon signature by both parties and shall inure to the benefit of the heirs, executors, successors and assignors of the parties hereto. E. Complete Agreement. This Agreement and all accompanying Exhibits constitute the complete Agreement of the parties regarding its subject matter and replaces and supersedes any prior written or oral agreement between the parties regarding its subject matter. F. Confidentiality. The Contract Administrative Firm will maintain the confidentiality of all records and information obtained in conjunction with the services to be performed hereunder in accordance with HIPAA Privacy regulations. The information therein shall not be divulged or disclosed or made available to persons, other than the Plan Sponsor/Plan Administrator, without written approval by the Plan Sponsor/Plan Administrator or a court of competent jurisdiction. This paragraph will survive the termination or expiration of the Agreement. QE cF C`©MP�itV 31812007 G. Construction and Severability. The captions of this Agreement and its paragraphs and subparagraphs are for the convenience of the parties only and shall not be taken in account in the construction and interpretation of this Agreement. The terms of this Agreement are severable; should any portion of this Agreement be invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement and this Agreement shall be construed and interpreted as though such invalid or unenforceable provision was not contained herein. H. Independent Contractor. The Contract Administrative Firm's relationship with Plan Administrator/Plan Sponsor is that of independent contractor and nothing in this Agreement shall be construed as creating the relationship of employer or employee between the Plan Administrator/Plan Sponsor and officers, employees, or agents of the Contract Administrative Firm or the relationship of a partnership or joint venture between the parties, as outlined in Section 4 of this Agreement. I. Interpretation. In regard to Protected Health Information (PHI), any ambiguity in this Agreement shall be resolved in favor of a meaning that permits Covered Entity to comply with the Privacy Rule. J. Modifications. This Agreement may not be modified or amended except by means of written modification or amendment of this Agreement or their legal successors in interest. K. Regulatory References. All references in this Agreement to a section in the Privacy Rule means the section as in effect or as amended, and for which compliance is required under the Health Insurance Portability and Accountability Act, Public Law 104-191. L. Survival. The respective rights and obligations of Business Associate under HIPAA Privacy Rules, as outlined in this Agreement, shall survive the termination or expiration of this Agreement. M. Warranties. No representations or warranties have been provided by any party to this Agreement or to any other party to this Agreement except as specifically set forth in this Agreement. 12. Indemnification of the Contract Administrative Firm ("Business Associate") and the Plan Administrator/Plan Sponsor ("Covered Entity") Contract Administrative Firm/Business Associate shall indemnify, defend and hold harmless Plan Administrator/Plan Sponsor, its affiliates, directors, officers and employees or any of them from any claim, expense, foss, damage, settlement, judgment, penalty and liability, including reasonable attorneys' fees and court costs (individually and collectively, "Claims") resulting in any way from or arising out of Contract Administrative Firm's/Business Associate's performance of or failure to perform this Agreement, including, without limitation, Claims resulting from or arising out of acts or omissions by Contract Administrative Firm/Business Associate, its employees, officers, directors, agents, or other individuals who provide services under this Agreement. Plan Administrator/Plan Sponsor shall indemnify, defend and hold harmless Contract Administrative Firm/Business Associate, its affiliates directors, officers and employees or any of them from any claim, expense, loss, damage, settlement, judgment penalty and liability including reasonable attorney's fees and QE e� COMPA/V 31812007 court costs (individually and collectively, "Claims") resulting in any way from or arising out of Plan Administrator's/Plan Sponsors performance of or failure to perform this Agreement, including, without limitation, Claims resulting from or arising out of acts or omissions by Plan Administrator/Plan Sponsor, its employees officers, directors, or agents. [Signatures Follow on Next Page] 31812007 GOE dic COMPPAN The Parties to the agreement consent and agree to all of the provisions and by their signature cause this Agreement to become effective as of the date of signature. Remittance of and acceptance of payment for services hereby binds both parties to this agreement. City of Vernon Flexible Benefit Plan ("Covered Entity") Plan Sponsor/Plan Administrator: City of Vernon Contract Admini ('Business Asso Date: March 6, 2007 31612007 QE fit` COMPA/U. EXHIBIT A: ADMINISTRATIVE FEE SCHEDULE City of Vernon Contract Period: May 1, 2007 — December 31, 2007 MONTHLY ADMINISTRATIVE CHARGES — Flexible Spending Accounts Monthly administration fees will be billed based on the number of active enrolled participants. First 1 — 30 participants Next 31— 200 participants Next 201— 400 participants Next 401 — 600 participants Next 601 — 800 participants Next 801 —1000 participants Over 1,000 participants Minimum Monthly Fee $175.00 $5.75 per participant per month $5.50 per participant per month $5.25 per participant per month $5.00 per participant per month $4.75 per participant per month To be negotiated Actual postage expenses will be billed on a monthly basis. Clients who allow terminated Medical Care participants with positive balances to submit expenses through the Plan Year End Grace Period will be charged for all inactive Medical Care participants with a positive balance according to the above fee schedule. PLAN YEAR END GRACE PERIOD CHARGES All active participants with positive balances during the Plan Year End Grace Period will charged according to the above fee schedule. EXTENSION PERIOD END GRACE PERIOD CHARGES (if applicable) All active participants with positive balances during the Extension Period End Grace Period will charged according to the above fee schedule. OPTIONAL SERVICES Any services not explicitly outlined in this Agreement may require additional fees. Optional services may include, but are not limited to, Specialized Reporting, Additional Services, Information Systems Programming or Consultation. Fees for these services will be determined based on the time required to complete said service and will be agreed to by both parties prior to performance of such services. ANNUAL RE -ENROLLMENT FEE Provided Igoe & Company and the client mutually accept future services; Igoe & Company reserves the right to charge an Annual Enrollment Fee. The client will be provided with a proposal of fees for the new Plan Year no later than 60 days before the end of the current Plan Year. .All fees for services must be paid in full prior to the preparation of any renewal materials. Included services are: ♦ Load -on of all new enrollments and building of new database for each Plan Year ♦ Add new participants after initial set up of Plan ♦ Preparation of new master enrollment materials, including Summary Plan Description The minimum monthly fee will apply when a client chooses not to renew for the next Plan Year and requests Igoe b Company to administer the Plan Year Grace Period for the ending Plan Year. W17E tic £OMPAN 31812007 ADDITIONAL ADMINISTRATIVE FEES The following services are not included in the administration fees. The client will incur additional fees when these services are required or requested. Adjustments/Corrections/Changes of Status $75.00 Fee applies for when additional services are required. PER HOUR Examples of additional services: void & re -issue of checks, failed direct deposit, correction of (BILLED IN'/. HOUR INCREMENTS, WITH A MINIMUM OF %HOUR) incorrect data submitted on forms, etc. Multiple Payroll Cycles $15.00 Applies when client has multiple pay periods. For example, weekly, bi-weekly, monthly, etc. PER MONTH ADDITIONAL PAYROLL CYCLE Special Check Run $25.00 Checks produced on non-scheduled processing day. Additional fees will apply when client PER SPECIAL RUN requests replacement check be generated prior to next scheduled processing day Weekly Processing of Reimbursements $0.25 Igoe & Company will process reimbursements each week on a set administrative schedule PER PARTICIPANT PER MONTH Paper Confirmation Statements $2.50 Letters are mailed to participants' home address confirming personal election information. For PER STATEMENT no additional cost, participants can view their account information via the Igoe & Company website 2417 Mailed Account Statements $2.50 Upon request, we will send out current account statements via U.S. Mail. Forno additional PER STATEMENT cost, participants can view their account information via the Igoe & Company website 2417 Direct Deposit Set-up $100.00 Igoe & Company will work directly with each client's bank to set-up and test direct deposit PER ACCOUNT SET-UP reimbursement for Flex Participants Positive Pay Files $100.00 Igoe & Company will create a positive pay data feed built on the specifications provided by the PER SET-UP client's bank Payroll Reimbursement Feeds $100.00 Igoe & Company will work with the client and their payroll vendor (if applicable) to create a PER SET-UP custom data feed for payroll reimbursement. By using a data feed, the client will eliminate the need for manual key entry when reimbursing through payroll Non -Discrimination Re -Testing (125 Plans) $125.00 Applies when retesting is required due to client not providing requested data at Open PER RETEST Enrollment, or anytime during the year when the client requests the Plan(s) to be retested Flex Convenience Debit Card Set -Up $250.00 If client implements the Flex Convenience Debit Card at any time after Open Enrollment Flex Convenience Debit Card Reactivation $25.00 A Flex Convenience Debit Card may become de -activated if an employee does not comply with PER CARD Flex Convenience Debit Card requirements and reactivation of card may be requested PER REACTIVATION Flex Convenience Debit Card Replacement $5.00 Applies when a Flex Convenience Debit Card is lost or stolen and client requests a replacement PER CARD card PER REPLACEMENT Flex Convenience Debit Card Deactivation $5.00 Applies when a Flex Convenience Debit Card is deactivated at the request of the client or PER CARD participant during the Plan Year or at the beginning of any subsequent Plan Year Flex Plan Document Amendments $125.00 Applies when a Plan Document Amendment is necessary to keep your Plan in compliance due PER AMENDMENT :o a Plan change QE a� ['OMPA/V 31812007 EXHIBIT B: ADMINISTRATIVE SERVICES ON -GOING ADMINISTRATIVE SERVICES The following services are included in the administration fees. <a 'V1e1Ar'Online Employer Access To Documents and Reports The view- site allows you to view all customized forms, reports and documentation regarding your Flex Plan. Access to this site will be restricted by 128-bit encrypted super -certificate from Thawte to ensure the strongest possible online security. YourAccount Manager will provide a demonstration of this site upon implementation. 24-Hour On -Line Participant Account Information Participants are given online access with abilities to check account balance and transaction information via Igoe 8 Company Incorporated's web site at www.goigoe.com. Upon enrollment for each new Plan year, all website login information will be provided to you for distribution. Participant Services Igoe Et Company Incorporated Participant Services Department is comprised of a team of qualified personnel available to assist Participants by answering questions and resolving issues that may arise during the Open Enrollment Period and throughout the Plan Year. The Participant Services Team is trained to respond to Participant issues such as: account balance inquiries; contributions, reimbursements, requests posted to Participant accounts; questions on denied requests for which a Participant has received a letter; education regarding eligibility of expenses; confirmation of processing deadlines or reimbursement methods; and IRS Guidelines and Section 125 regulations. Annual Non-discrimination Testing (When Required for 125 Pans) Non-discrimination Testing will begin upon receipt of participant Enrollment Forms, elections and required IRS Non- discrimination information. Three separate tests will be conducted following each Open Enrollment Period to ensure that your Plan is in compliance with IRS Non-discrimination requirements, as follows: ♦ 25% Concentration Test: Testing is required to confirm that no more than 25% of the total benefit is contributed by key employees. ♦ 55% Average Benefit Test: Testing is required to confirm that more than 55% of the average DCAP benefit is contributed by non -highly compensated employees. ♦ 5% Owner Benefits Test: Testing is required to confirm that no more than 25% of the total DCAP benefit is contributed by 5% owners of the firm. GQE.dc CO/NPAN 31812007 Standard Reporting Services ♦ Provide reimbursement register or reimbursement report to coincide with processing schedule ♦ Provide monthly management report ♦ Provide annual IRS Form 5500 Reporting, if applicable Ongoing Education Through the Igoe & Company Incorporated web site: www.goigoe.com, Administrators, Participants and those interested may access: ♦ Rules and Regulations governing IRS Section 125 Flexible Benefit Plans ♦ Updated publications provided by the Internal Revenue Services (IRS) ♦ Links to the Internal Revenue Service (IRS) ♦ Frequently asked Questions with Answers In addition, the viewer may download, free of charge: ♦ Medical Care Reimbursement Plan Worksheets ♦ Dependent Care Assistance Plan Worksheets ♦ Medical Reimbursement Plan Request Forms ♦ Dependent Care Assistance Plan Request Forms ♦ Dependent Care vs. Tax Credit Worksheet ♦ Sample Childcare Provider Receipt Enrollment Materials A Master set of Enrollment Materials are created by Igoe & Company Incorporated prior to each Open Enrollment Period and forwarded to your firm via e-mail at no charge. nE IA 31812007 OPTIONAL ACCOUNT SERVICES The following optional services may incur additional expenses.. These options and any applicable fees should be discussed with your Account Manager or with a member of the Business Development Team during the implementation or annual re -enrollment process. Please note that any changes to your administration requested mid -year might incur additional expenses. Enrollment Meetings $75 Per Meeting Professionally trained Igoe £r Company Incorporated staff members are available by appointment to conduct Open Enrollment Meetings. The Flexible Benefit Plan Presentation will be tailored to match your specific plan design and administration. Meetings are scheduled based on staff availability and advance notice is required. Meetings will be billed at a rate of $75.00 per meeting plus any applicable travel expenses. Online Interactive Enrollment Meetings (Web Cast) Additional Fees Apply Professionally trained Igoe 8 Company Incorporated staff members are available by appointment to conduct a live, interactive enrollment meeting via the Internet. Combining the visual effects of the Internet with a live voice connection and the assistance of a speakerphone, the attendees will experience a unique presentation that explains the specifics of the Flexible Benefit Plan. The length of the call and the number of connections included determine fees for this service. Specialized Reporting $75 Per Hour You may request a specialized form or report to suit your proprietary software or administrative needs. Igoe & Company Incorporated can, in most instances, modify or translate our administrative worksheets or information into several file formats. However, this is contingent upon the integration capabilities of both parties. Additional fees may apply for Specialized Reporting, IT Consultation and any other Miscellaneous Services. Divisional Reporting Additional Fees May Apply The following additional administrative services are available to accommodate multiple location, division, subsidiary and payroll situations: ♦ Reporting and/or billing by entity to separate Human Resource contacts/locations. ♦ Verification of eligibility and/or contributions by entity to separate Human Resource contacts/locations. ♦ Reimbursement reporting by entity to separate payroll contacts. ♦ Administrative training for multiple Finance, Payroll and Human Resource Contacts. ♦ Please contact your Account Manager to discuss any applicable fees. vE � can�P,4nr 31812007 EXHIBIT Iwo10 CITY OF VERNON CAFETERIA PLAN BASIC PLAN DOCUMENT #125 Copyright, 2005-2006 All Rights Reserved. CITY OF VERNON CAFETERIA PLAN BASIC PLAN DOCUMENT TABLE OF CONTENTS ARTICLE 1 INTRODUCTION Section1.01 Plan..................................................................................................................................................... I Section1.02 Application of Plan ............................................................................................................................. I ARTICLE 2 DEFINITIONS ARTICLE 3 PARTICIPATION Section3.01 Participation........................................................................................................................................4 Section3.02 Transfers.............................................................................................................................................4 Section 3.03 Termination and Rehires.....................................................................................................................4 Section 3.04 Procedures for Admission...................................................................................................................4 ARTICLE 4 ACCOUNTS Section 4.01 Premium Conversion Accounts...........................................................................................................5 Section 4.02 Health Care Reimbursement Accounts...............................................................................................5 Section 4.03 Dependent Care Assistance Accounts.................................................................................................6 Section 4.04 Adoption Assistance Accounts...........................................................................................................6 Section 4.05 Forfeitures/Transfers...........................................................................................................................7 Section4.06 Elections..............................................................................................................................................8 Section 4.07 Revocation of Elections......................................................................................................................9 Section 4.08 Health Savings Accounts Special Rules............................................................................................I I Section4.09 Employer Contributions....................................................................................................................I I ARTICLE 5 LIMITATIONS ON CONTRIBUTIONS Section5.01 Nondiscrimination.............................................................................................................................12 Section 5.02 Limitations on Contributions............................................................................................................12 ARTICLE 6 REIMBURSEMENTS Section6.01 Reimbursements................................................................................................................................13 Section 6.02 Claims Procedure for Health Care Reimbursement Account............................................................14 Section 6.03 Claims Procedures for Non -Health Benefits.....................................................................................15 Section 6.04 Minor or Legally Incompetent Payee................................................................................................16 Section6.05 Missing Payee...................................................................................................................................16 ARTICLE 7 PLAN ADMINISTRATION Section7.01 Plan Administrator............................................................................................................................17 Section7.02 Indemnification.................................................................................................................................18 Section7.03 HIPAA Privacy Rules.......................................................................................................................18 Section 7.04 Medical Child Support Orders..........................................................................................................20 ARTICLE 8 AMENDMENT AND TERMINATION Section8.01 Amendment.......................................................................................................................................21 Section8.02 Termination.......................................................................................................................................21 ARTICLE 9 MISCELLANEOUS Section 9.01 Nonalienation of Benefits.................................................................................................................22 Section 9.02 No Right to Employment ............................... .....22 .............................................................................. Section9.03 No Funding Required........................................................................................................................22 Section9.04 Governing Law.................................................................................................................................22 Section9.05 Tax Effect..........................................................................................................................................22 Section 9.06 Severability of Provisions.................................................................................................................22 Section 9.07 Headings and Captions......................................................................................................................22 Section9.08 Gender and Number..........................................................................................................................22 ARTICLE 1 INTRODUCTION Section 1.01 PLAN This document ('Basic Plan Document") and its related Adoption Agreement are intended to qualify as a cafeteria plan within the meaning of Code section 125. To the extent provided in the Adoption Agreement, the Plan provides for the pre-tax payment of insurance premiums and contributions to spending accounts that is excludable from gross income under Code section 125, reimbursement of certain medical expenses that is excludable from gross income under Code section 105(b) and reimbursement of certain dependent care expenses that is excludable from gross income under Code section 129, and reimbursement of certain adoption expenses that is excludable from gross income under Code section 137. Section 1.02 APPLICATION OF PLAN Except as otherwise specifically provided herein, the provisions of this Plan shall apply to those individuals who are Eligible Employees of the Company on or after the Effective Date. Except as otherwise specifically provided for herein, the rights and benefits, if any, of former Eligible Employees of the Company whose employment terminated prior to the Effective Date, shall be determined under the provisions of the Plan, as in effect from time to time prior to that date. ARTICLE 2 DEFINITIONS "Account" means the balance of a hypothetical account established for each Participant as of the applicable date. "Account" or "Accounts" shall include to the extent provided in the Adoption Agreement, a Premium Conversion Account, a Health Care Reimbursement Account, a Dependent Care Assistance Account, an Adoption Assistance Account and such other account(s) or subaccount(s) as the Plan Administrator, in its discretion, deems appropriate. "Adoption Agreement" means the document executed in conjunction with this Basic Plan Document that contains the optional features selected by the Plan Sponsor. "Adoption Assistance Account" means the Account established with respect to the Participant's election to have adoption expenses reimbursed by the Plan pursuant to Section 4.04. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Company" means the Plan Sponsor and any other entity that has adopted the Plan with the approval of the Plan Sponsor. "Compensation" means the cash wages or salary paid to a Participant. "Dependent Care Assistance Account" means the Account established with respect to the Participant's election to have dependent care expenses reimbursed by the Plan pursuant to Section 4.03. "Effective Date" shall have the meaning set forth in the Adoption Agreement. "Eligible Employee" means any Employee employed by the Company, subject to the modifications and exclusions described in the Adoption Agreement. If an individual is subsequently reclassified as, or determined to be, an Employee by a court, the Internal Revenue Service or any other governmental agency or authority, or if the Company is required to reclassify such individual an Employee as a result of such reclassification determination (including any reclassification by the Company in settlement of any claim or action relating to such individual's employment status), such individual shall not become an Eligible Employee by reason of such reclassification or determination. An individual who becomes employed by the Employer in a transaction between the Employer and another entity that is a stock or asset acquisition, merger, or other similar transaction involving a change in the employer of the employees of the trade or business shall not become eligible to participate in the Plan until the Plan Sponsor specifically authorizes such participation. "Emplovee" means any individual who is employed by the Employer. The term "Employee" shall not include: (i) a self-employed individual (including a partner) as defined in Code section 401(c), or (ii) any person who owns (or is considered as owning within the meaning of Code section 318) more than 2 percent of the outstanding stock of an S corporation. "Emplover" means the Company or any other employer required to be aggregated with the Company under Code sections 414(b), (c), (m) or (o); provided, however, that "Employer" shall not include any entity or unincorporated trade or business prior to the date on which such entity, trade or business satisfies the affiliation or control tests described above. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "FMLA" means the Family and Medical Leave Act of 1993 as amended from time to time. "Health Care Reimbursement Account" means the Account established with respect to the Participant's election to have medical expenses reimbursed by the Plan pursuant to Section 4.02. "Insurance Contract" means an insurance policy, contract or self -funded arrangement under which a Participant is eligible to receive benefits regardless of whether such policy, contract or arrangement is related to any benefit offered hereunder. Insurance Contract shall not include any product which is advertised, marketed, or offered as long-term care insurance. "Participant" means an Eligible Employee who participates in the Plan in accordance with Articles 3 and 4. 7.01. "Plan Administrator" means the person(s) designated pursuant to the Adoption Agreement and Section "Plan Sponsor" means the entity described in the Adoption Agreement. "Plan Year" means the 12-consecutive month period described in the Adoption Agreement. "Premium Conversion Account" means the Account established with respect to the Participant's election to have insurance premiums reimbursed by the Plan pursuant to Section 4.01. "Termination" and "Termination of Employment" means any absence from service that ends the employment of the Employee with the Company. ARTICLE 3 PARTICIPATION Section 3.01 PARTICIPATION Each Eligible Employee as of the Effective Date who was eligible to participate in the Plan immediately prior to the Effective Date shall be a Participant eligible to make benefit elections pursuant to Article 4 on the Effective Date. Each other Eligible Employee who was not a Participant in the Plan prior to the Effective Date shall become a Participant eligible to make benefit elections pursuant to Article 4 on the date specified in the Adoption Agreement; provided that he is an Eligible Employee on such date. Notwithstanding the foregoing, a Participant shall be eligible to make elections only for the Accounts as are specifically authorized in the Adoption Agreement. Section 3.02 TRANSFERS If a change in job classification or a transfer results in an individual no longer qualifying as an Eligible Employee, such Employee shall cease to be a Participant for purposes of Article 4 (or shall not become eligible to become a Participant) as of the effective date of such change of job classification or transfer; unless otherwise provided in the Adoption Agreement. Should such Employee again qualify as an Eligible Employee, he shall be eligible to participate as of the first day of the subsequent Plan Year; unless earlier participation is required by applicable law or permitted pursuant to the change of status provisions of Section 4.07(a). If an Employee who was not previously an Eligible Employee becomes an Eligible Employee, he shall be eligible to participate on the first entry date following the later of the effective date of such subsequent change of status or the date the Employee meets the eligibility requirements of this Article 3. Section3.03 TERMINATION AND REHIRES (a) Participants. If a Participant has a Termination of Employment, such Employee shall cease to be a Participant for purposes of Article 4 as of his Termination of Employment. Unless otherwise provided in the Adoption Agreement, if an individual who has satisfied the applicable eligibility requirements set forth in Article 3 as of his Termination date, and who is subsequently reemployed by the Company as an Eligible Employee, shall resume or become a Participant as of the later of the first day of the subsequent Plan Year or the first entry date following reemployment. Notwithstanding the foregoing and if so provided in the Adoption Agreement, the Plan Administrator shall automatically reinstate benefit elections for Terminated Participants who are rehired within 30 days of Termination and permit new benefit elections for Terminated Participants who are rehired more than 30 days after Termination. (b) Non -Participants. An Eligible Employee who has not satisfied the applicable eligibility requirements set forth in Article 3 on his Termination date, and who is subsequently reemployed by the Company as an Eligible Employee, shall be eligible to participate on the first entry date following of the later of the effective date of such reemployment or the date the individual meets the eligibility requirements of this Article 3. Section 3.04 PROCEDURES FOR ADMISSION The Plan Administrator shall prescribe such forms and may require such data from Participants as are reasonably required to enroll a Participant in the Plan or to effectuate any Participant elections made pursuant to Article 4. ARTICLE 4 ACCOUNTS Section 4.01 PREMIUM _CONVERSION ACCOUNTS (a) In General. To the extent that the Adoption Agreement authorizes Premium Conversion Accounts, each Participant may choose to receive his or her full Compensation for any Plan Year in cash or to have a portion of such Compensation applied by the Company toward the Premium Conversion Account described in Subsection (b). The amount of such contributions to and the premiums that may be reimbursed from the Premium Conversion Account shall not exceed the employee -paid portion of premiums payable under the Insurance Contracts specified in the Adoption Agreement. If an Insurance Contract is offered in conjunction with a Company -sponsored benefit plan, a Participant shall be eligible to make contributions to the Premium Conversion Account with respect to that Insurance Contract only if he or she is also eligible to participate in the applicable Company -sponsored plan. The Account established under this Section 4.01 is intended to qualify under Code Sections 79 and 106(a) to the extent so indicated in the Adoption Agreement and shall be interpreted in a manner consistent with such Code sections. Elections for Code section 79 coverage shall be made on an after-tax basis to the extent that the premiums relate to coverage in excess of the limit described in Code section 79(a). (b) Premium Conversion Account. Each Participant's Premium Conversion Account will be credited with amounts withheld from the Participant's Compensation and amounts paid by the Company pursuant to Section 4.09; and will be debited for amounts applied to employee -paid portion of applicable premiums. However, the Plan Administrator will not direct the Company to pay any premium on an Insurance Contract to the extent such payment exceeds the balance of a Participant's Premium Conversion Account. (c) Conflicts. In the event of a conflict between the terms of this Plan and the terms of an Insurance Contract, the terms of the Insurance Contract (or the benefit plan under which it is established) shall control in defining the terms and conditions of coverage including, but not limited to, the persons eligible for insurance, the dates of their eligibility, the conditions which must be satisfied to become insured, if any, the benefits Participants are entitled to and the circumstances under which insurance terminates. Section 4.02 HEALTH CARE REIMBURSEMENT ACCOUNTS (a) In General. To the extent that the Adoption Agreement authorizes Health Care Reimbursement Accounts, each Participant may choose to receive his or her full Compensation for any Plan Year in cash or to have a portion of such Compensation applied by the Company toward the Health Care Reimbursement Account described in Subsection (b). The amount of such contributions to and the premiums that may be reimbursed from the Premium Conversion Account shall not exceed the maximum annual limit described in the Adoption Agreement. The Account established under this Section 4.02 is intended to qualify as a health flexible spending arrangement under Code Sections 105 and 106(a) and shall be interpreted in a manner consistent with such Code sections. (b) Health Care Reimbursement Account. Each Participant's Health Care Reimbursement Account will be credited with amounts withheld from the Participant's Compensation and amounts paid by the Company pursuant to Section 4.09; and will be debited for expenses described in Subsection (c). The entire annual amount elected by the Participant on the salary reduction agreement for the Plan Year for the Health Care Reimbursement Account less any reimbursements already disbursed shall be available to the Participant at any time during the Plan Year without regard to the balance in the Health Care Reimbursement Account provided that the amounts elected in the salary reduction agreement have been paid as provided in the salary reduction agreement. (c) Eligible Expenses. Except as otherwise provided in the Adoption Agreement, a Participant may be reimbursed from his or her Health Care Reimbursement Account for expenses that are: (i) incurred in the Plan Year (except as provided in Section 4.05(c)), (ii) incurred while the Participant participates in the Plan, and (iii) excludable under Code section 105(b); provided that such expenses that are not covered, paid or reimbursed from any other source. Section 4.03 DEPENDENT CARE ASSISTANCE ACCOUNTS (a) In General. To the extent that the Adoption Agreement authorizes Dependent Care Assistance Accounts, each Participant may choose to receive his or her full Compensation for any Plan Year in cash or to have a portion of such Compensation applied by the Company toward the Dependent Care Assistance Account described in Subsection (b). The Account established under this Section 4.03 is intended to qualify as a dependent care assistance program under Code Section 129 and shall be interpreted in a manner consistent with such Code section which provisions are incorporated herein by reference. (b) Dependent Care Assistance Account. Each Participant's Dependent Care Assistance Account will be credited with amounts withheld from the Participant's Compensation and amounts paid by the Company pursuant to Section 4.09; and will be debited for expenses described in Subsection (c). However, the Plan Administrator will not direct the Company to reimburse such expenses to the extent the reimbursement exceeds the balance of a Participant's Dependent Care Assistance Account. (c) Eligible Expenses. (1) In General. A Participant may be reimbursed from his or her Dependent Care Assistance Account to the extent that such reimbursement: (i) is incurred in the Plan Year (except as provided in Section 4.05(c), (ii) is incurred while the Participant participates in the Plan, and (iii) qualifies as dependent care expenses; provided that such expenses that are not covered, paid or reimbursed from any other source and the Participant does not claim a tax benefit for the same expenses. (2) Dependent Care Expenses. Dependent care expenses are defined as expenses incurred for the care of a qualifying individual. A qualifying individual is either: (i) a dependent who is under age 13, or (ii) the Participant's spouse or dependent who lives with the Participant and is physically or mentally incapable of caring for himself/herself. However, these expenses are dependent care expenses only if they allow the Participant to be gainfully employed. Dependent care expenses include expenses for household services and expenses for the care of a qualifying individual. Such term shall not include any amount paid for services outside the Participant's household at a camp where the qualifying individual stays overnight. Expenses described in this Subsection which are incurred for services outside the Participant's household are not taken into account if they are incurred on behalf of the Participant's spouse or dependent who is physically or mentally incapable of caring for himself/herself unless such individual lives at least 8 hours per day in the Participant household. Expenses incurred at a dependent care center are taken into account only if such center complies with all applicable laws and regulations of a state or local government, the center provides care for more than six individuals, and the center receives a fee, payment, or grant for providing services for any of the individuals. (3) Limits. The maximum amount of expense that may be contributed/reimbursed in any Plan Year for the Dependent Care Assistance Account is $5,000 ($2,500 if the Participant is married and filing a separate return). The amount payable may also not be greater than the amount of the Participant's earned income or the earned income of his or her spouse. In the case of a spouse who is a student or a qualifying individual, such spouse shall be deemed to earn $250 per month (one qualifying individual) or $500 per month (more than one qualifying individual). Section 4.04 ADOPTION ASSISTANCE ACCOUNTS (a) In General. To the extent that the Adoption Agreement authorizes Adoption Assistance Accounts, each Participant may choose to receive his or her full Compensation for any Plan Year in cash or to have a portion of such Compensation applied by the Company toward the Adoption Assistance Account described in Subsection (b). The Account established under this Section 4.04 is intended to qualify as an adoption assistance program under Code Section 137 and shall be interpreted in a manner consistent with such Code section which provisions are incorporated herein by reference. (b) Adoption Assistance Account. Each Participant's Adoption Assistance Account will be credited with amounts withheld from the Participant's Compensation and amounts paid by the Company pursuant to Section 4.09; and will be debited for reimbursements described in Subsection (c). However, the Plan Administrator will not direct the Company to reimburse such expenses to the extent the reimbursement exceeds the balance of a Participant's Adoption Assistance Account. (c) Eligible Expenses. (1) In General. A Participant may be reimbursed from his or her Adoption Assistance Account to the extent that such reimbursement is (i) incurred in the Plan Year (except as provided in Section 4.05(c), (ii) incurred while the Participant participates in the Plan, and (iii) qualifies as adoption assistance; provided that such expenses that are not covered, paid or reimbursed from any other source and the Participant does not claim a tax benefit for the same expenses. (2) Adoption Assistance. Adoption assistance is defined as reasonable and necessary adoption fees, court costs, attorney fees and other expenses which are (i) directly related to the legal adoption of an eligible child by the Participant and (ii) not incurred in violation of state or federal law or in carrying out any surrogate parenting arrangement. An eligible child includes a child under age IS or a child who is physically or mentally incapable of caring for himself/herself. However, an eligible child does not include a child of the Participant's spouse. In the case of an adoption of a child who is not a citizen or resident of the United States, any adoption expense with respect to such adoption is not reimbursable until such adoption becomes final. (3) Limits. The maximum amount of expense that may be contributed/reimbursed for the Adoption Assistance Account for any Plan Year beginning in a calendar year is the maximum amount permitted by federal tax law for that calendar year. The annual limit shall be reduced for adoption assistance expenses incurred any prior Plan Year. Section 4.05 FORFEITURES/TRANSFERS (a) Forfeitures. Any balance remaining in a Participant's Account at the end of any Plan Year (or after the grace period if Subsection (c) applies) shall be forfeited and shall remain the property of the Company. Except as expressly provided herein, any balance remaining in a Participant's Account on his date of Termination shall be forfeited and shall remain the property of the Company. However, no forfeiture shall occur until all payments and reimbursements hereunder have been made on claims submitted within the time period specified in Section 6.01(b). (b) Transfers. Amounts may not be transferred between Accounts. (c) Grace Period. If the Adoption Agreement provides for a 2-1/2 month grace period, effective for grace periods beginning on or after the date specified in the Adoption Agreement and notwithstanding anything to the contrary in the Plan, the unused contributions that remain in a Participant's Account at the end of a Plan Year may be used to reimburse expenses that are incurred during the grace period. The grace period shall commence on the first day of the subsequent Plan Year and shall end on the fifteenth day of the third calendar month of the subsequent Plan Year. Unless otherwise provided in the Adoption Agreement, the grace period shall apply to all Accounts in which the Participant is eligible to Participate. Payment or reimbursement of unused benefits shall be subject to the following terms and conditions: (1) Same Account. Unused contributions remaining at the end of a Plan Year relating to a particular. Account may only be used to reimburse expenses incurred with respect to that Account. (2) No Cash Out. Unused contributions remaining at the end of a Plan Year may not be cashed -out or converted to any other taxable or nontaxable benefit. (3) No Carryforward. Any unused contributions remaining at the end of a Plan Year that exceed the expenses for a particular Account that are incurred during the grace period may not be carried forward to any subsequent period (including any subsequent Plan Year) and shall be forfeited. (4) Construction. This Section 4.05(c) is to be construed in accordance with IRS Notice 2005-42 and any superseding guidance. Section 4.06 ELECTIONS (a) New Participants. The Plan Administrator shall provide, where possible, an election form to a Participant before such Participant meets the eligibility requirements of Article 3. In order to participate in the Plan in the initial Plan Year, the Participant must return the completed election form to the Plan Administrator on or before such date as specified by the Plan Administrator. However, any election shall not be effective until a pay period following the later of such Participant's effective date of participation pursuant to Article 3 or the date of the receipt of the election form by the Plan Administrator and shall be limited to the expenses incurred after the effective date of the election. (b) Continuing Participants. Prior to the commencement of each Plan Year, the Plan Administrator shall provide an election form to each Participant and to each other individual who is expected to become a Participant at the beginning of such Plan Year. In order to participate in the Plan in the applicable Plan Year, the Participant must return the completed election form to the Plan Administrator on or before such date specified in the Adoption Agreement, which date shall be no later than the beginning of the first pay period for which the individual's Compensation reduction agreement will apply. (c) Failure to Return Election Form. The failure of a Participant described in Subsection (a) to return a completed election form to the Plan Administrator on or before the specified due date shall constitute an election to receive his or her full Compensation in cash for the remainder of the Plan Year. The failure of a Participant described in Subsection (b) to return a completed election form to the Plan Administrator on or before the specified due date shall constitute an election not to participate for the applicable Plan Year unless a default election is otherwise specified in the Adoption Agreement or under Subsection (d). (d) Premium Conversion Special Election Rules. If elected in the Adoption Agreement, a Participant shall be deemed to elect to contribute the entire amount of any premiums payable by the Participant for the benefits described in Section 4.01 unless he or she affirmatively elects otherwise before such date specified by the Plan Administrator. If elected in the Adoption Agreement, a Participant's election for benefits described in Section 4.01 shall be automatically adjusted for any change in the cost of insurance pursuant to the terms of Treas. Reg. 1.1254. (e) Form of Elections. All elections shall be made in written form unless the Plan Administrator provides procedures for such elections to be made in electronic and/or telephonic format to the extent that such alternative format is permitted under applicable law. (f) Leave of Absence/FMLA/USERRA. If the Plan is subject to FMLA or the Adoption Agreement provides that the Plan is subject to FMLA, the Plan Administrator shall permit a Participant taking unpaid leave under the FMLA to continue medical benefits under such applicable law unless otherwise specified in the Adoption Agreement. To the extent provided in the Adoption Agreement, the Plan Administrator shall also permit a Participant taking unpaid Non-FMLA leave to continue the benefits specified in the Adoption Agreement. Participants continuing participation pursuant to the foregoing shall pay for such coverage (on a pre-tax or after-tax basis) under a method as determined by the Plan Administrator satisfying Treas. Reg. 1.125-3 Q&A-3. Any Participant on FMLA leave who revoked coverage shall be reinstated to the extent required by Treas. Reg. 1.125-3. If the Participant's coverage under the Plan terminates while the Participant is on FMLA leave, the Participant is not entitled to receive reimbursements for claims incurred during the period when the coverage is terminated. Upon reinstatement into the Plan upon return from FMLA leave, the Participant has the right to (i) resume coverage at the level in effect before the FMLA leave and make up the unpaid premium payments, or (ii) resume coverage at a level that is reduced by the amount of unpaid premiums and resume premium payments at the level in effect before the FMLA leave. The Plan Administrator shall also permit Participants to continue benefit elections as required under the Uniformed Services Employment and Reemployment Rights Act and shall provide such reinstatement rights as required by such law. The Plan Administrator shall also permit Participants to continue benefit elections as required under any other applicable state law to the extent that such law is not pre-empted by federal law. (g) COBRA. If the Plan is subject to COBRA (Code section 4980B and other applicable state law) or the Adoption Agreement provides that the Plan is subject to COBRA, a Participant shall be entitled to continuation coverage with respect to his or her Health Care Reimbursement Account as prescribed in Code Section 4980B (and the regulations thereunder) or such applicable state statutes. (h) Procedures. A Participant shall make the elections described in this Section in such form and manner as may be prescribed by the Plan Administrator and at such time in advance as the Plan Administrator may require. Such procedures may include, without limitation, a minimum annual and per -pay period contribution amount, a maximum contribution per pay -period amount consistent with applicable annual limits, and the ability of a Participant to make after-tax contributions to the Plan. Section 4.07 REVOCATION OF ELECTIONS (a) By Participant. Any election made under this Article 4 shall be irrevocable by the Participant during the Plan Year unless revocation is required by the provisions of the Federal Family and Medical Leave Act or other applicable law and is permitted under Treas. Reg. 1.125-4 and the provisions of the Adoption Agreement. If the Adoption Agreement provides that elections may be modified at any time permitted under Treas. Reg. section 1.1254, elections may be modified upon the occurrence of any of the following events: (1) HIPAA Special Enrollment Rights. Participant may revoke an election for coverage under a group health plan during a period of coverage and make a new election that corresponds with the special enrollment rights provided in Code section 9801(f). (2) Change in Status. A Participant may revoke an election during a period of coverage with respect to a qualified benefits plan (as defined in Treas. Reg. 1.125-4(i)(8)) and make a new election for the remaining portion of the period if, under the facts and circumstances: (i) a change in status described in Subsections (A)-(F) occurs; and (ii) the election change is on account of and corresponds with a change in status that affects eligibility for coverage under a qualified benefits plan. (A) Legal Marital Status. Events that change a Participant's legal marital status, including the following: marriage; death of spouse; divorce; legal separation; and annulment. (B) Number of Dependents. Events that change a Participant's number of dependents, including the following: birth; death; adoption; and placement for adoption. (C) Employment Status. Any of the following events that change the employment status of the Participant, the Participant's spouse, or the Participant's dependent: a termination or commencement of employment; a strike or lockout; a commencement of or return from an unpaid leave of absence; a change in worksite and, the extent permitted in Treas. Reg. 1.125-4 and Section 3.03, change in employment status resulting in gaining or losing eligibility under the Plan. (D) Dependent Satisfies or Ceases to Satisfy Eligibility Requirements. Events that cause a Participant's dependent to satisfy or cease to satisfy eligibility requirements for coverage on account of attainment of age, student status, or any similar circumstance. (E) Residence. A change in the place of residence of the Participant, spouse, or dependent. (F) Adoption Assistance. For purposes of adoption assistance provided through Section 4.04 of the Plan, the commencement or termination of an adoption proceeding. (3) Judgment, Decree, or Order. A Participant may modify an election pursuant to a judgment, decree, or order resulting from a divorce, legal separation, annulment, or change in legal custody (including a qualified medical child support order as defined in ERISA section 609) that requires accident or health coverage for a Participant's child or for a foster child who is a dependent of the Participant; provided that the modification: (A) changes the Participant's election to provide coverage for the child if the order requires coverage for the child under the Plan; or (B) cancels coverage for the child if the order requires the spouse, former spouse, or other individual to provide coverage for the child; and that coverage is, in fact, provided. (4) Entitlement to Medicare or Medicaid. A Participant may modify an election for benefits attributable to a Company -sponsored accident or health plan if the Participant, spouse, or dependent becomes entitled to coverage under Medicare or Medicaid (other than coverage consisting solely of benefits under the program for distribution of pediatric vaccines). The Participant may make a prospective election change to cancel or reduce coverage of that Participant, spouse, or dependent under the accident or health plan. Corresponding rights to commence or increase benefits under the accident or health plan shall be granted in the case of loss of coverage under Medicare or Medicaid. (5) Significant Cost or Coverage Changes. A Participant may modify an election for benefits, other than those provided in Section 4.02, as a result of changes in cost or coverage pursuant to Treas. Reg. section 1.125-4. (6) FMLA. A Participant taking leave under the FMLA may revoke an existing election of accident or health plan coverage and make such other election for the remaining portion of the period of coverage as may be provided for under the FMLA. (b) By Plan Administrator. If the Plan Administrator determines that the Plan may fail to satisfy any nondiscrimination requirement or any limitation imposed by the Code, the Plan Administrator may modify any election in order to assure compliance with such requirements or limitations. Any act taken by the Plan Administrator under this Subsection shall be carried out in a uniform and non-discriminatory manner. (c) Automatic Termination of Election. Any election made under this Section shall automatically terminate on the date specified in Sections 3.02 or 3.03. (d) Plan Administrator Discretion. The Plan Administrator reserves the right to determine whether a Participant has experienced an event that would pen -nit an election change under this Section 4.07 and whether the Participant's requested election change is consistent with such event. 10 Section 4.08 HEALTH SAVINGS ACCOUNTS SPECIAL RULES (a) In General. Notwithstanding anything in the Plan to the contrary, this Section 4.08 shall apply to the extent that the Adoption Agreement allows the Plan to fund Health Savings Accounts within the meaning of Code section 223 ("HSA Contributions"). (b) HSA Account. The Plan Administrator shall establish an HSA Account to separately account for contributions/payments used to fund Health Savings Accounts. Each Participant's HSA Account will be credited with amounts withheld from the Participant's Compensation and amounts paid by the Company pursuant to Section 4.09; and will be debited for payments to the applicable Health Savings Account. (c) No Forfeitures. Any balance remaining in a Participant's HSA Account at the end of any Plan Year shall be carried forward and used to fund such benefits in any subsequent Plan Year. (d) Benefit Limited to Account Balance. The Plan Administrator shall not direct the Company to fund a Health Savings Account to the extent the payment exceeds the balance of a Participant's HSA Account. (e) Period of Coverage. The mandatory twelve month period of coverage shall not apply to HSA Contributions. (0 Modifications of Elections. A Participant who elects to make HSA Contributions may start or stop the election or increase or decrease the election at any time as long as the change is effective prospectively (i.e., after the request for the change is received). The Plan Administrator may place additional restrictions on the election of HSA Contributions; provided, however, that the same restrictions shall apply to all Participants. (g) HSA Comparability Rules. Any contribution to an HSA from the Plan shall comply with Treas. Reg. section 54.4890G-5 and any superseding guidance. Section 4.09 EMPLOYER CONTRIBUTIONS The Company may contribute to the Plan to the extent provided in the Adoption Agreement. Such contributions shall be credited to the applicable Account at such time as deternvned by the Company. Notwithstanding the foregoing, Company contribution to a Participant's Health Care Reimbursement Account may not exceed the amount of Participant's contribution to such Account. 11 ARTICLE 5 LIMITATIONS ON CONTRIBUTIONS Section 5.01 NONDISCRIMINATION (a) Cafeteria Plan. The Plan may not discriminate in favor of highly compensated employees (within the meaning of Code section 125(e)) as to benefits provided or eligibility to participate. (b) Group Term Life. The Plan may not discriminate in favor of key employees (within the meaning of Code section 416(i)(1)) as to benefits provided or eligibility to participate with respect to any group term life insurance offered pursuant to Section 4.01. (c) Health Care Reimbursement Accounts. The Plan may not discriminate in favor of highly compensated employees (within the meaning of Code section 105(h)(5)) as to benefits provided or eligibility to participate with respect to the Account described in Section 4.02. (d) Dependent Care Assistance Accounts. The Plan may not discriminate in favor of highly compensated employees (within the meaning of Code section 414(q)) as to benefits provided or eligibility to participate with respect to the Account described in Section 4.03. (e) Adoption Assistance Accounts. The Plan may not discriminate in favor of highly compensated employees (within the meaning of Code section 414(q)) as to benefits provided or eligibility to participate with respect to the Account described in Section 4.04. Section 5.02 LIMITATIONS ON CONTRIBUTIONS (a) Cafeteria Plan. Key employees (within the meaning of Code section 416(i)(1)) may not receive more than 25% of the aggregate benefits provided for all employees under the Plan. (b) Dependent Care Assistance Accounts. Shareholders or owners owning more than 5% of the capital or profits interest of the Employer may not receive more than 25% of the aggregate benefits provided for all employees under the Plan with respect to the Account described in Section 4.03. The average benefits provided under Section 4.03 to Participants who are not highly compensated employees must be at least 55 percent of the average benefits provided to highly compensated employees of the Company. (c) Adoption Assistance Accounts. Shareholders or owners owning more than 5% of the capital or profits interest of the Employer may not receive more than 5% of the aggregate benefits provided for all employees under the Plan with respect to the Account described in Section 4.04. 12 ARTICLE 6 REIMBURSEMENTS Section 6.01 PROCEDURES FOR REIMBURSEMENT (a) Benefits Provided by Insurance. All claims for benefits that are provided under Insurance Contracts shall be made by the Participant to the insurance company issuing such contract. (b) Timing of Claims. Reimbursements and/or payments shall only be made for expenses incurred in the applicable Plan Year while the Participant participates in the Plan. Except as otherwise expressly provided herein, no reimbursement and/or payment shall be made for any expenses relating to services rendered before participation or after Termination of Employment for any reason. All claims for reimbursement and/or payment must be made within the time periods specified in the Adoption Agreement. (c) Documentation. A Participant or any other person entitled to benefits from the Plan (a "Claimant") may apply for such benefits by completing and filing a claim with the Plan Administrator. Any such claim shall include all information and evidence that the Plan Administrator deems necessary to properly evaluate the merit of and to make any necessary determinations on a claim for benefits. The Plan Administrator may request any additional information necessary to evaluate the claim. (d) Payment. To the extent that the Plan Administrator approves the claim, the Company shall: (i) reimburse the Claimant, or (ii) at the option of the Plan Administrator, pay the service provider directly for any amounts payable from the Accounts established hereunder. The Plan Administrator shall establish a schedule, not less frequently than annually, for the payment of claims. The Plan Administrator may provide that payments/reimbursements of less than certain amount may be carried forward and aggregated with future claims until the reimbursable amount is greater than such minimum, provided, however, that the entire amount of payments/reimbursements outstanding at the end of the Plan Year shall be reimbursed without regard to the minimum payment amount. (e) Coordination with HRA. A Participant who is also eligible to participate in a Code section 105 health reimbursement arrangement ("HRA") sponsored by the Company shall not be entitled to payment/reimbursement under the Health Care Reimbursement Account for expenses that are reimbursable under both the Health Care Reimbursement Account and the HRA until the Participant has received his or her maximum annual reimbursement under the HRA. Notwithstanding the foregoing, a Participant shall be entitled to payment/reimbursement under the Health Care Reimbursement Account if before the Plan Year begins, the plan document for the HRA specifies that coverage under the HRA is available only after expenses exceeding the applicable dollar amounts in the Health Care Reimbursement Account have been paid. (f) Death. If a Participant dies, his beneficiaries or his estate may submit claims for expenses or benefits for the portion of the Plan Year preceding the date of the Participant's death. A Participant may designate a specific beneficiary for this purpose. If no such beneficiary is specified, the Plan Administrator may pay any amount due hereunder to the Participant's spouse, one or more of his or her dependents or a representative of the Participant's estate. Such payment shall fully discharge the Plan Administrator and the Company from further liability on account thereof. (g) Form of Claim/Notice. All claims and notices shall be made in written form unless the Plan Administrator provides procedures for such claims and notices to be made in electronic and/or telephonic format to the extent that such alternative format is permitted under applicable law. (h) Refunds/Indemnification. If the Plan Administrator determines that any Claimant has directly or indirectly received excess payments/reimbursements or has received payments/reimbursements that are taxable to the Claimant, the Plan Administrator shall notify the Claimant and the Claimant shall repay such excess amount (or at the option of the Plan Administrator, the Claimant shall repay the amount that should have been withheld or paid as payroll or withholding taxes) as soon as possible, but in no event later than 30 days after the date of notification. A Claimant shall indemnify and reimburse the Company for any liability the Company may incur for making such 13 payments, including but not limited to failure to withhold or pay payroll or withholding taxes from such payments or reimbursements. If the Claimant fails to timely repay an excess amount and/or make sufficient indemnification, the Plan Administrator may: (i) to the extent permitted by applicable law, offset the Claimant's salary or wages, and/or (ii) offset other benefits payable hereunder. (i) Debit, Credit or Other Stored Value Cards. To the extent provided in the Adoption Agreement, the Company may enter into an agreement with a financial institution to provide a Participant with a debit, credit or other stored value card to provide immediate payment of reimbursements available under Section 4.02 and/or Section 4.03 provided that the use of such card complies with IRS Notice 2006-69 and IRS Revenue Ruling 200343 (to the extent not superseded by IRS Notice 2006-69). A Participant may obtain benefits under Sections 4.02 and 4.03 without the use of the card. 0) HSA Coordination. Except as otherwise provided in the Adoption Agreement, benefits under this Plan shall not be coordinated with coverage in a high deductible health plan to facilitate participation in Health Savings Accounts. (k) Plan Administrator Procedures. The Plan Administrator may establish procedures regarding the documentation to be submitted in a claim for reimbursement and/or payment and may also establish any other procedures regarding claims for reimbursement and/or payment provided that the procedures do not violate ERISA section 503. Such procedures may include, without limitation, requirements to submit claims periodically throughout the Plan Year. Section 6.02 CLAIMS PROCEDURE FOR HEALTH CARE REIMBURSEMENT ACCOUNT (a) This Section 6.02 shall apply for any claim for benefits under the Health Care Reimbursement Account. (b) Timing of Notice of Denied Claim. The Plan Administrator shall notify the Claimant of any adverse benefit determination within a reasonable period of time, but not later than 30 days after receipt of the claim. This period may be extended one time by the Plan for up to 15 days, provided that the Plan Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 30-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If such an extension is necessary due to a failure of the Claimant to submit the information necessary to decide the claim, the notice of extension shall specifically describe the required information, and the Claimant shall be afforded at least 45 days from receipt of the notice within which to provide the specified information. (c) Content of Notice of Denied Claim. If a claim is wholly or partially denied, the Plan Administrator shall provide the Claimant with a notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) any material or information needed to grant the claim and an explanation of why the additional information is necessary, (4) an explanation of the steps that the Claimant must take if he wishes to appeal the denial including a statement that the Claimant may bring a civil action under ERISA, and (5): (A) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such a rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of such rule, guideline, protocol, or other criterion will be provided free of charge to the Claimant upon request; or (B) if the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant's medical circumstances, or a statement that such explanation will be provided free of charge upon request. (d) Appeal of Denied Claim. If a Claimant wishes to appeal the denial of a claim, he shall file an appeal with the Plan Administrator on or before the 180th day after he receives the Plan Administrator's notice that the claim has been wholly or partially denied The appeal shall identify both the grounds and specific Plan provisions upon which the appeal is based. The Claimant shall be provided, upon request and free of charge, documents and other information relevant to his claim. An appeal may also include any comments, statements or 14 documents that the Claimant may desire to provide. The Plan Administrator shall consider the merits of the Claimant's presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Plan Administrator may deem relevant. In considering the appeal, the Plan Administrator shall: (1) Provide for a review that does not afford deference to the initial adverse benefit determination and that is conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual; (2) Provide that, in deciding an appeal of any adverse benefit determination that is based in whole or in part on a medical judgment, including determinations with regard to whether a particular treatment, drug, or other item is experimental, investigational, or not medically necessary or appropriate, the appropriate named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment; (3) Provide for the identification of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with a Claimant's adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and (4) Provide that the health care professional engaged for purposes of a consultation under Subsection (2) shall be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual. The Plan Administrator shall notify the Claimant of the Plan's benefit determination on review within 60 days after receipt by the Plan of the Claimant's request for review of an adverse benefit determination. The Claimant shall lose the right to appeal if the appeal is not timely made. (e) Denial of Appeal. If an appeal is wholly or partially denied, the Plan Administrator shall provide the Claimant with a notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits, and (4) a statement describing the Claimant's right to bring an action under section 502(a) of ERISA. The determination rendered by the Plan Administrator shall be binding upon all parties. Section 6.03 CLAIMS PROCEDURES FOR NON -HEALTH BENEFITS (a) This Section 6.03 shall apply for any claim for benefits under Accounts other than the Health Care Reimbursement Account. (b) Timing of Notice of Denied Claim. The Plan Administrator shall notify the Claimant of any adverse benefit determination within a reasonable period of time, but not later than 90 days after receipt of the claim. This period may be extended one time by the Plan for up to 90 days, provided that the Plan Administrator both detemvnes that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 90-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. (c) Content of Notice of Denied Claim. If a claim is wholly or partially denied, the Plan Administrator shall provide the Claimant with a written notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) any material or information needed to grant the claim and an explanation of why the additional information is necessary, and (4) an explanation of the steps that the Claimant must take if he wishes to appeal the denial including a statement that the Claimant may bring a civil action under ERISA. (d) Appeal of Denied Claim. If a Claimant wishes to appeal the denial of a claim, he shall file a written appeal with the Plan Administrator on or before the 60th day after he receives the Plan Administrator's written notice that the claim has been wholly or partially denied. The written appeal shall identify both the grounds 15 and specific Plan provisions upon which the appeal is based. The Claimant shall be provided, upon request and free of charge, documents and other information relevant to his claim. A written appeal may also include any comments, statements or documents that the Claimant may desire to provide. The Plan Administrator shall consider the merits of the Claimant's written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Plan Administrator may deem relevant. The Claimant shall lose the right to appeal if the appeal is not timely made. The Plan Administrator shall ordinarily rule on an appeal within 60 days. However, if special circumstances require an extension and the Plan Administrator furnishes the Claimant with a written extension notice during the initial period, the Plan Administrator may take up to 120 days to rule on an appeal. (e) Denial of Appeal If an appeal is wholly or partially denied, the Plan Administrator shall provide the Claimant with a notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits, and (4) a statement describing the Claimant's right to bring an action under section 502(a) of ERISA. The determination rendered by the Plan Administrator shall be binding upon all parties. Section 6.04 MINOR OR LEGALLY INCOMPETENT PAYEE If a distribution is to be made to an individual who is either a minor or legally incompetent, the Plan Administrator may direct that such distribution be paid to the legal guardian. If a distribution is to be made to a minor and there is no legal guardian, payment may be made to a parent of such minor or a responsible adult with whom the minor maintains his residence, or to the custodian for such minor under the Uniform Transfer to Minors Act, if such is permitted by the laws of the state in which such minor resides. Such payment shall fully discharge the Plan Administrator and the Company from further liability on account thereof. Section 6.05 MISSING PAYEE If the Plan Administrator is unable to make payment to any Participant or other person to whom a payment is due under the Plan because it cannot ascertain the identity or whereabouts of such Participants or other person after reasonable efforts have been made to identify or locate such person, such payment and all subsequent payments otherwise due to such Participant or other person shall be forfeited one year after the date any such payment first became due. 16 ARTICLE 7 PLAN ADMINISTRATION Section 7.01 PLAN ADMINISTRATOR (a) Designation. The Plan Administrator shall be specified in the Adoption Agreement. In the absence of a designation in the Adoption Agreement, the Plan Sponsor shall be the Plan Administrator. If a Committee is designated as the Plan Administrator, the Committee shall consist of one or more individuals who may be Employees appointed by the Plan Sponsor and the Committee shall elect a chairman and may adopt such rules and procedures as it deems desirable. The Committee may also take action with or without formal meetings and may authorize one or more individuals, who may or may not be members of the Committee, to execute documents in its behalf. (b) Authority and Responsibility of the Plan Administrator. The Plan Administrator shall be the Plan "administrator" as such term is defined in section 3(16) of ERISA, and as such shall have total and complete discretionary power and authority: (i) to make factual determinations, to construe and interpret the provisions of the Plan, to correct defects and resolve ambiguities and inconsistencies therein and to supply omissions thereto. Any construction, interpretation or application of the Plan by the Plan Administrator shall be final, conclusive and binding; (ii) to determine the amount, form or timing of benefits payable hereunder and the recipient thereof and to resolve any claim for benefits in accordance with Article 6; (iii) to determine the amount and manner of any allocations hereunder; (iv) to maintain and preserve records relating to the Plan; (v) to prepare and furnish all information and notices required under applicable law or the provisions of this Plan; (vi) to prepare and file or publish with the Secretary of Labor, the Secretary of the Treasury, their delegates and all other appropriate government officials all reports and other information required under law to be so filed or published; (vii) to hire such professional assistants and consultants as it, in its sole discretion, deems necessary or advisable; and shall be entitled, to the extent permitted by law, to rely conclusively on all tables, valuations, certificates, opinions and reports which are furnished by same; (viii) to determine all questions of the eligibility of Employees and of the status of rights of Participants; (ix) to adjust Accounts in order to correct errors or omissions; (x) to determine the validity of any judicial order; (xi) to retain records on elections and waivers by Participants; (xii) to supply such information to any person as may be required; (xiii) to perform such other functions and duties as are set forth in the Plan that are not specifically given to any other fiduciary or other person. 17 (c) Procedures. The Plan Administrator may adopt such rules and procedures as it deems necessary, desirable, or appropriate for the administration of the Plan. When making a determination or calculation, the Plan Administrator shall be entitled to rely upon information furnished to it. The Plan Administrator's decisions shall be binding and conclusive as to all parties. (d) Allocation of Duties and Responsibilities. The Plan Administrator may designate other persons to carry out any of his duties and responsibilities under the Plan. (e) Compensation. The Plan Administrator shall serve without compensation for its services. (f) Expenses. All direct expenses of the Plan, the Plan Administrator and any other person in furtherance of their duties hereunder shall be paid or reimbursed by the Company. (g) Allocation of Fiduciary Duties. A Plan fiduciary shall have only those specific powers, duties, responsibilities and obligations as are explicitly given him under the Plan. It is intended that each fiduciary shall not be responsible for any act or failure to act of another fiduciary. A fiduciary may serve in more than one fiduciary capacity with respect to the Plan. Section 7.02 INDEMNIFICATION Unless otherwise provided in the Adoption Agreement, the Company shall indemnify and hold harmless any person serving as the Plan Administrator (and its delegate) from all claims, liabilities, losses, damages and expenses, including reasonable attorneys' fees and expenses, incurred by such persons in connection with their duties hereunder to the extent not covered by insurance, except when the same is due to such person's own gross negligence, willful misconduct, lack of good faith, or breach of its fiduciary duties under this Plan or ERISA. Section 7.03 HIPAA PRIVACY RULES (a) Application. This Section 7.03 shall only apply in the event that this Plan constitutes a group health plan as defined in section 2791(a)(2) of the Public Health Service Act or if the Adoption Agreement provides that the Plan is subject to the HIPAA privacy rules. (b) Privacy Policy. The Plan shall adopt a HIPAA privacy policy, the terms of which are incorporated herein by reference. (c) Business Associate Agreement. The Plan will enter into a business associate agreement with any persons as may be required by applicable law as determined by the Plan Administrator. (d) Notice of Privacy Practices. The Plan will provide each Participant with a notice of privacy practices to the extent required by applicable law. (e) Disclosure to the Company. (1) In General. This Subsection permits the Plan to disclose protected health information ("PHI"), as defined in the HIPAA privacy rules, to the Company to the extent that such PHI is necessary for the Company to carry out its administrative functions related to the Plan. (2) Permitted Disclosure. The Plan may disclose the PHI to the Company that is necessary for the Company to carry out the following administrative functions related to the Plan: eligibility determinations, enrollrnent and disenrollment activities, and Plan amendments or termination. The Company may use and disclose the PHI provided to it from the Plan only for the administrative purposes described in this Subsection. (3) Limitations. The Company agrees to the following limitations and requirements related to its use and disclosure of PHI received from the Plan: 18 (A) Use and Further Disclosure. The Company shall not use or further disclose PHI other than as permitted or required by the Plan document or as required by all applicable law, including but not limited to the HIPAA privacy rules. When using or disclosing PHI or when requesting PHI from the Plan, the Company shall make reasonable efforts to limit the PHI to the minimum amount necessary to accomplish the intended purpose of the use, disclosure or request. (B) Agents and Subcontractors. The Company shall require any agents, including subcontractors, to whom it provides PHI received from the Plan to agree to the same restrictions and conditions that apply to the Company with respect to such information. (C) Employment -Related Actions. Except as permitted by the HIPAA privacy rules and other applicable federal and state privacy laws, the Company shall not use PHI for employment -related actions and decisions, or in connection with any other employee benefit plan of the Company. (D) Reporting of Improper Use or Disclosure. The Company shall promptly report to the Plan any improper use or disclosure of PHI of which it becomes aware. (E) Adequate Protection. The Company shall provide adequate protection of PHI and separation between the Plan and the Company by: (i) ensuring that only those employees who work in the human resources department of the Company on issues related to the healthcare components of the Plan will have access to the PHI provided by the Plan; (ii) restricting access to and use of PHI to only the employees identified in clause (i) above and only for the administrative functions performed by the Company on behalf of the Plan that are described herein; (iii) requiring any agents of the Plan who receive PHI to abide by the Plan's privacy rules; and (iv) using the Company's established disciplinary procedures to resolve issues of noncompliance by the employees identified in clause (i) above. (F) Return or Destruction of PHI. If feasible, the Company shall return or destroy all PHI received from the Plan that the Company maintains in any form, and retain no copies of such information when no longer needed for the purpose for which disclosure was made. If such return or destruction is not feasible, the Company shall limit further uses and disclosures to those purposes that make the return or destruction of the information infeasible. (G) Participant Rights. The Company shall provide Participants with the following rights: (i) the right to access to their PHI in accordance with 45 C.F.R. §164.524; (ii) the right to amend their PHI upon request (or the Company will explain to the Participant in writing why the requested amendment was denied) and incorporate any such amendment into a Participant's PHI in accordance with 45 C.F.R. §164.526; and (iii) the right to an accounting of all disclosures of their PHI in accordance with 45 C.F.R. §164.528. (H) Cooperation with HHS. The Company shall make its books, records, and internal practices relating to the use and disclosure of PHI received from the Plan available to HHS for verification of the Plan's compliance with the HIPAA privacy rules. (4) Certification. By executing the accompanying Adoption Agreement, the Company hereby certifies that the Plan documents have been amended in accordance with 45 C.F.R. § I64.504(f), and that the Company shall protect the PHI as described in Subsection 3 herein. (5) Security Standards Requirement. To comply with the Security Standards regulations that were published on February 21, 2003, the Company must: (A) implement administrative, physical and technical safeguards that reasonably and appropriately protect the confidentiality, integrity and availability of the electronic PHI that it creates, receives, maintains or transmits on behalf of the Plan; (B) ensure that the adequate separation required by 45 C.F.R. 164.504(f)(2)(iii) is supported by reasonable and appropriate security measures; 19 (C) ensure that any agent, including a subcontractor, to whom it provides this information agrees to implement reasonable and appropriate security measures to protect the information; and (D) report to the Plan any security incident of which it becomes aware. (6) Amendment. Notwithstanding any other provision of the Plan, this Section may be amended in any way and at any time by the Privacy Officer. (7) Effective Dates. Subsections (1) — (4) and Subsection (6) apply to the Plan no later than April 14, 2003, or such other date that the HIPAA Privacy Regulations apply to the Plan. Section (5) applies to the Plan no later than April 20, 2005, or such other date that the HIPAA Security Regulations apply to the Plan. Section 7.04 MEDICAL CHILD SUPPORT ORDERS In the event the Plan Administrator receives a medical child support order (within the meaning of ERISA section 609(a)(2)(B)), the Plan Administrator shall notify the affected Participant and any alternate recipient identified in the order of the receipt of the order and the Plan's procedures for determining whether such an order is a qualified medical child support order (within the meaning of ERISA section 609(a)(2)(A)). Within a reasonable period the Plan Administrator shall determine whether the order is a qualified medical child support order and shall notify the Participant and alternate recipient of such determination. 20 ARTICLE 8 AMENDMENT AND TERMINATION Section 8.01 AMENDMENT The provisions of the Plan may be amended in writing at any time and from time to time by the Plan Sponsor. Section 8.02 TERMINATION (a) It is the intention of the Plan Sponsor that this Plan will be permanent. However, the Plan Sponsor reserves the right to terminate the Plan at any time for any reason. (b) Each entity constituting the Company reserves the right to terminate its participation in this Plan. Each such entity constituting the Company shall be deemed to terminate its participation in the Plan if. (i) it is a party to a merger in which it is not the surviving entity and the surviving entity is not an affiliate of another entity constituting the Company, or (ii) it sells all or substantially all of its assets to an entity that is not an affiliate of another entity constituting the Company. 21 ARTICLE 9 MISCELLANEOUS Section 9.01 NONALIENATION OF BENEFITS No Participant or Beneficiary shall have the right to alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which he may expect to receive, contingently or otherwise, under the Plan. Section 9.02 NO RIGHT TO EMPLOYMENT Nothing contained in this Plan shall be construed as a contract of employment between the Company and the Participant, or as a right of any Employee to continue in the employment of the Company, or as a limitation of the right of the Company to discharge any of its Employees, with or without cause. Section 9.03 NO FUNDING REQUIRED Except as otherwise required by law: (a) Any amount contributed by a Participant and/or the Company to provide benefits hereunder shall remain part of the general assets of the Company and all payments of benefits under the Plan shall be made solely out of the general assets of the Company. (b) The Company shall have no obligation to set aside any funds, establish a trust, or segregate any amounts for the purpose of making any benefit payments under this Plan. However, the Company may in its sole discretion, set aside funds, establish a trust, or segregate amounts for the purpose of making any benefit payments under this Plan. (c) No person shall have any rights to, or interest in, any Account other than as expressly authorized in the Plan. Section 9.04 GOVERNING LAW The Plan shall be construed in accordance with and governed by the laws of the state or commonwealth of organization of the Plan Sponsor to the extent not preempted by Federal law. Section 9.05 TAX EFFECT The Company does not represent or guarantee that any particular federal, state or local income, payroll, personal property or other tax consequence will result from participation in this Plan. A Participant should consult with professional tax advisors to determine the tax consequences of his or her participation. Section 9.06 SEVERABILTTY OF PROVISIONS If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included. Section 9.07 HEADINGS AND CAPTIONS . The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. Section 9.08 GENDER AND NUMBER Except where otherwise clearly indicated by context, the masculine and the neuter shall include the feminine and the neuter, the singular shall include the plural, and vice -versa. 22 IRS AUDIT GUIDELINES The IRS has prepared preliminary draft guidelines for IRS agents conducting a cafeteria plans audit, the IRS expects to publish final examination guidelines later this year. These guidelines provide a comprehensive roadmap of documents and operational issues that maybe reviewed in an IRS audit. A. Documents to be Requested The documents the IRS may request include: • Form 5500's for the cafeteria plan and the underlying component plans; • The plan document and amendments for the cafeteria plan and the component plans (Health FSAs, DCAPs, etc.); • The summary plan descriptions (or other summary books) forthe cafeteria plan and component plans; • Election forms, • Administrative committee minutes, • Flowchart of the procedure for claim payments; • Worksheet of eligible and ineligible employees forthe cafeteria plan and each component plan; • Nondiscrimination test results for the cafeteria plan and component plans, • W-2 reconciliation's for employees reflecting pretax reductions, • Claims register for FSA benefits, • Annual claims denial report, • Plan bank account information; • Copies of insurance policies, and • Reconciliation of Schedule F information B. Review of Plan Operations The operational issues the IRS may review include: (i) Section 125 Qualification Issues Generally • Requirements for a written plan document (benefit descriptions, eligibility rules, plan year, etc.) • Existence of plan prior to beginning of operation: • SPDs for welfare benefit plans; • Qualified status of benefits offered under plan (e.g., dependent life and 403 (b) do not qualify); • Benefits cannot defer compensation (e.g., cannot use contributions from one period to pay for benefits in another period; benefit cannot have a cash build up feature or return of premium feature or rider). (ii) Section 129 Qualification Issues • Written plan requirement (can be part of cafeteria plan); • Nondiscrimination requirements (including eligibility, top heavy and 55% average benefits tests); • Satisfaction of reasonable notification requirement, Eligibility and Discrimination Requirements • Review of Nondiscrimination requirements of cafeteria plan and component plans; • Reconcile with Schedule F. (iv) Premium Only Features • Confirm qualified status of benefits; • Imputed income for group life coverage in excess of $50,000; • Confirm dependent life is treated properly, • Confirm no insurance coverage provided by spouse's employer. (v) Participant Elections • Review sample election form; • Inspect participant election forms from sample; • Confirm elections made before effective date, • Confirm elections irrevocable; • Confirm election changes are consistent with regulations, • Determine whether rehired employees are let back in plan. (vi) Health Spending Account Issues • Review all claim forms for sample participants, • Confirm 213 status of reimbursed claims; • Confirm that no insurance premiums reimbursed; • Confirm that expenses incurred during period of coverage; • Confirm uniform coverage requirement complied with; • Confirm substantiation requirements satisfied. (vii) Dependent Care Spending Account Issues • Review all claim forms for sample participants, • Confirm that expenses are for eligible child care expenses, • Confirm that expenses incurred during period of coverage; • Confirm substantiation requirements satisfied. (viii) Treatment of Forfeitures • Review plan provisions • Confirm consistent with plan and Section 125. (ix) Payment of Contributions • Obtain wire transfers • Verify deposits made consistent with ERISA. (x) Confirm Form 5500s Filed (xi) Employment Taxes • Confirm DCAP limits not exceeded; • Confirm contributions for retirees from pension not made on a pre-tax basis. CITY OF VERNON CAFETERIA PLAN SUMMARY PLAN DESCRIPTION May 1, 2007 Copyright 2002-2007 Fort William LLC CITY OF VERNON CAFETERIA PLAN SUMMARY PLAN DESCRIPTION TABLE OF CONTENTS INTRODUCTION.......................................................................................................................... I ELIGIBILITY FOR PARTICIPATION......................................................................................... 1 EligibleEmployee....................................................................................................................... 1 Dateof Participation................................................................................................................... 1 ELECTIONS................................................................................................................................... 2 InGeneral.................................................................................................................................... 2 ElectionProcedures.................................................................................................................... 2 Modificationof Elections........................................................................................................... 3 BENEFITS...................................................................................................................................... 3 PremiumConversion Account.................................................................................................... 3 Health Care Reimbursement Account ...................................................... ............................. 4 Dependent Care Assistance Account.......................................................................................... 4 Coordination with Other Plans.................................................................................................... 5 Limitson Certain Employees...................................................................................................... 5 FORFEITURES.............................................................................................................................. 6 PlanYear/Termination................................................................................................................ 6 CLAIMS......................................................................................................................................... 6 Deadlines..................................................................................................................................... 6 Documentationof Claims........................................................................................................... 6 Methodand Timing of Payment................................................................................................. 6 Whereto Submit Claims............................................................................................................. 6 Refunds/Indemnification............................................................................................................. 6 Beneficiary.................................................................................................................................. 7 Claim Procedures for Health Benefits........................................................................................ 7 Claim Procedures for Non -Health Benefits................................................................................ 9 CONTINUATIONRIGHTS......................................................................................................... 10 MilitaryService........................................................................................................................ 10 COBRA..................................................................................................................................... 10 FMLA....................................................................................................................................... 10 NonFMLA Leave..................................................................................................................... 10 Information............................................................................................................................... 10 YOUR RIGHTS UNDER ERISA................................................................................................ 10 MISCELLANEOUS..................................................................................................................... 12 Qualified Medical Child Support Orders.................................................................................. 12 Lossof Benefit.......................................................................................................................... 12 Amendmentand Termination................................................................................................... 12 Fees........................................................................................................................................... 13 AdministratorDiscretion.......................................................................................................... 13 Taxation.................................................................................................................................... 13 Privacy...................................................................................................................................... 13 ADMINISTRATIVE INFORMATION....................................................................................... 15 ii INTRODUCTION City of Vernon (the "Company") established the City of Vernon Cafeteria Plan (the "Plan") effective May 1, 2007. Although the purpose of this document is to summarize the more significant provisions of the Plan, the Plan document will prevail in the event of any inconsistency. ELIGIBILITY FOR PARTICIPATION Eligible Employee You are an "Eligible Employee" if you are employed by City of Vernon or any affiliate who has adopted the Plan. However, you are not an "Eligible Employee" if you are any of the following: A self-employed individual (including a partner), or a person who owns (or is deemed to own) more than 2 percent of the outstanding stock of an S corporation. Covered by a collective bargaining agreement. A leased employee. A non-resident alien who received no U.S. earned income. A part-time employee who is expected to work less than N/A hours per week The term 'Eligible Employee" is further modified as follows: An Eligible Employee is further defined as being classified as a full-time employee. However, you are an "Eligible Employee" for purposes of the Premium Conversion Account on the date you become eligible to receive benefits from the insurance policies described for Premium Conversion Accounts in the Section titled 'BENEFITS" below; but only if you are not a self-employed individual (including a partner) and you are not a person who owns (or is deemed to own) more than 2 percent of the outstanding stock of an S corporation. Date of Participation You will become a Participant eligible to receive benefits from the Plan on the first day of the calendar month coincident with or next following the date you first perform an hour of service as an Eligible Employee. However, you will become a Participant eligible to make contributions and receive benefits from the Premium Conversion Account on the date you become eligible to receive benefits from the insurance policies described for Premium Conversion Accounts in the Section titled "BENEFITS" below. You will stop being a participant eligible to receive benefits from the Plan on the date you are no longer an Eligible Employee or the date you terminate employment with the Company. ELECTIONS In General When you become eligible to participate in the Plan, you may begin contributing to the Plan. All contributions will be credited to an account established in your behalf. Your contributions to the Plan are not subject to federal income tax or social security taxes. Please note that while you may enjoy certain tax benefits, there may be some drawbacks to participation in the Plan. For instance, participation in the Plan may lower your social security benefits. You should consult with your professional tax/financial advisor to determine the consequences of your participation in this Plan. Election Procedures When you are first eligible to participate in the Plan, you must return a completed election form to the Plan Administrator on or before the date specified by the Plan Administrator. After you are first eligible to participate in the Plan you will generally only be able to change you elections as of the beginning of each Plan Year. Prior to the start of each Plan Year, the Plan Administrator will provide an election form to you. In order to participate in the Plan for the next Plan Year, you must return the completed election form to the Plan Administrator on or before the date specified by the Plan Administrator. However, see "Modification of Elections" below for situations where you may modify elections at a time other than the beginning of a Plan Year. If as of the start of a Plan Year you have not returned an election form by its due date, you will be deemed to have elected not to participate in the Plan for that Plan Year. As of the start of every Plan Year, you are deemed to elect to contribute the entire amount of any participant -paid insurance premiums for the Premium Conversion Account unless you otherwise elect in writing. 2 Modification of Elections Generally speaking, you may only revise your elections as of the start of a Plan Year. However, in certain situations you may modify your elections upon a "change in status". A brief listing of events that constitute a change in status follows. Please note that there are several conditions and/or limitations that apply to the events listed below. Please contact the Plan Administrator if you have any questions or believe that you may qualify for an election change. A change in status includes: Change in your marital status. Change in the number of your dependents. Change in employment status. A dependent satisfies or ceases to satisfy eligibility requirements. Change in your place of residence. Commencement or termination of an adoption proceeding. Court judgment, decree, or order. Entitlement to Medicare or Medicaid. Significant cost or other coverage changes. You take leave under the FMLA In addition, your election for your insurance premiums will be automatically adjusted for any change in the cost of insurance pursuant as permitted by applicable law. BENEFITS Premium Conversion Account When you become eligible to participate in the Plan, the Plan will establish a Premium Conversion Account in your name. This Account will be credited with your contributions and will be reduced by any payments made on your behalf. You will be entitled to receive reimbursement from this account for premiums you would pay on the insurance contracts listed below: Employer Group Medical Employer Dental 3 The maximum amount of contributions/reimbursement in the Premium Conversion Account may not exceed the employee -paid portion of premiums payable under the insurance contracts listed above. However, you will not be reimbursed to the extent a payment would exceed the balance in your Premium Conversion Account. You may receive reimbursement for eligible expenses listed above incurred at a time when you are actively participating on the Plan. If an insurance contract is offered in conjunction with a Company -sponsored benefit plan, you will be eligible to make contributions to the Premium Conversion Account only if you are also eligible to participate in the applicable Company -sponsored plan. In the event of a conflict between the terms of this Plan and the terms of an insurance contract, the terms of the contract (or the benefit plan under which it is established) will control. Health Care Reimbursement Account When you become eligible to participate in the Plan, the Plan will establish a Health Care Reimbursement Account in your name. This Account will be credited with your contributions and will be reduced by any payments made on your behalf. You will be entitled to receive reimbursement from this account for eligible expenses incurred by you, your spouse and dependents, if any. A dependent is generally someone who you may claim as a dependent on your federal tax return. You may receive reimbursement for eligible expenses incurred at a time when you are actively participating on the Plan. The entire annual amount you elect to contribute for the Plan Year for the Health Care Reimbursement Account less any reimbursements already disbursed will be available for reimbursement. The maximum amount you may contribute each year is $2,000.00 ($76.92 per pay period maximum contribution allowable). Eligible expenses generally include all medical expenses that you may deduct on federal income tax return, but you may also seek reimbursement for certain over-the-counter drugs. You will not be reimbursed for any expenses that are (i) not incurred in the Plan Year, (ii) incurred before or after you are eligible to participate in the Plan, (iii) attributable to a tax deduction you take in a prior taxable year, or (iv) covered, paid or reimbursed from any other source. Dependent Care Assistance Account When you become eligible to participate in the Plan, the Plan will establish a Dependent Care Assistance Account in your name. This Account will be credited with your contributions and will be reduced by any payments made on your behalf. You will be entitled to receive reimbursement from this account for dependent care assistance. Dependent care assistance is defined as expenses you incur for the care of a qualifying individual. A qualifying individual is a dependent who is under age 13 or a spouse or dependent who lives with you and is physically or mentally incapable of caring for himself/herself. However, these expenses only qualify only if they allow you to be gainfully employed. Not all expenses qualify as dependent care assistance. Only expenses that are excludable from income under federal tax may qualify as dependent care assistance. Some examples of expenses that qualify are: Before and after school programs Care in your home or someone else's home (as long as the care giver is not your spouse or dependent and is age 19 or older) Licensed child care center Nursery school or pre-school Summer day care (not overnight) Please contact the Plan Administrator before enrolling in the Plan to confirm that the expenses for which you will seek reimbursement will qualify as dependent care assistance. You will not be reimbursed for any expenses that are (i) not incurred in the Plan Year, (ii) incurred before or after you are eligible to participate in the Plan, (iii) attributable to a tax credit you take for the same expenses, or (iv) covered, paid or reimbursed from any other source. The maximum amount of expense that may be contributed/reimbursed in any Plan Year is $5,000 ($2,500 if you are married and filing a separate return). The amount payable may also not be greater than the amount of your earned income or the earned income of your spouse. Special rules apply in the case of a spouse who is a student or incapable of caring for himself/herself. Please note that participation in the Plan may prevent you from taking a tax credit for the same expenses. You should consult with your professional tax/financial advisor to determine the consequences of your participation in this Plan. Coordination with Other Plans All claims for benefits that are covered by an insurance policy must be made to the insurance company issuing such insurance policy. Limits on Certain Employees If you are a highly paid employee or an owner of the Company, federal law may impose limits on your eligibility to participate in the Plan and/or the benefits you may receive from the Plan. 5 FORFEITURES Plan Year/Termination Any amounts remaining in your account at the end of the Plan Year will be forfeited after all claims are paid. In addition, any balance remaining in your account on the date you terminate employment with the Company will be forfeited after all claims are paid. CLAIMS Deadlines You must submit claims for reimbursement by the last day of February following the close of the Plan Year. However, if you terminate employment you must submit claims for reimbursement within 60 days after your date of termination (Refer to the Custom Language Addendum for the termination submission filing period for the Dependent Care Assistance Account). Documentation of Claims Any claim for benefits must include all information and evidence that the Plan Administrator deems necessary to properly evaluate the merits of the claim. The Plan Administrator may request any additional information necessary to evaluate the claim. Method and Timing of Payment To the extent that the Plan Administrator approves a claim, the Company may either (i) reimburse you, or (ii) pay the service provider directly. The Plan Administrator will pay claims at least once per year. The Plan Administrator may provide that payments/reimbursements of less than certain amount will be carried forward and aggregated with future claims until the reimbursable amount is greater than a minimum amount. In any event, the entire amount of payments/reimbursements outstanding at the end of the Plan Year will be reimbursed without regard to the minimum payment amount. Where to Submit Claims All claims must be submitted to Igoe & Company Incorporated dba Igoe Administrative Services at 16769 Bernardo Center Dr. #21, San Diego, CA 92128; via email at flex@goigoe.com or fax at 1-888-357-6307. The telephone number is 1-800-633-8818. Refunds/Indemnification You must immediately repay any excess payments/reimbursements or any payments/reimbursements that are taxable to you. You must reimburse the Company for any liability the Company may incur for making such payments, including but not limited to, failure to withhold or pay payroll or withholding taxes from such payments or reimbursements. If you on fail to timely repay an excess amount and/or make adequate indemnification, the Plan Administrator may: (i) to the extent permitted by applicable law, offset your salary or wages, and/or (ii) offset other benefits payable under this Plan. Beneficiary If you die, your beneficiaries or your estate may submit claims for Eligible Expenses for the portion of the Plan Year preceding the date of your death. You may designate a specific beneficiary for this purpose. If you do not name a beneficiary, the Plan Administrator may pay any amount to your spouse, one or more of your dependents or a representative of your estate. Claim Procedures for Health Benefits Application for Benefits. You or any other person entitled to benefits from the Plan (a "Claimant") may apply for such benefits by completing and filing a claim with the Plan Administrator. Any such claim must be in writing and must include all information and evidence that the Plan Administrator deems necessary to properly evaluate the merit of and to make any necessary determinations on a claim for benefits. The Plan Administrator may request any additional information necessary to evaluate the claim. Timing of Notice of Denied Claim. The Plan Administrator shall notify the Claimant of any adverse benefit determination within a reasonable period of time, but not later than 30 days after receipt of the claim. This period may be extended one time by the Plan for up to 15 days, provided that the Plan Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 30-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. If such an extension is necessary due to a failure of the Claimant to submit the information necessary to decide the claim, the notice of extension shall specifically describe the required information, and the Claimant shall be afforded at least 45 days from receipt of the notice within which to provide the specified information. Content of Notice of Denied Claim. If a claim is wholly or partially denied, the Plan Administrator shall provide the Claimant with a notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) any material or information needed to grant the claim and an explanation of why the additional information is necessary, (4) an explanation of the steps that the Claimant must take if he wishes to appeal the denial including a statement that the Claimant may bring a civil action under ERISA, and (5): (A) If an internal rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination, either the specific rule, guideline, protocol, or other similar criterion; or a statement that such a rule, guideline, protocol, or other similar criterion was relied upon in making the adverse determination and that a copy of such rule, guideline, protocol, or other criterion will be provided free of charge to the Claimant upon request, or (B) if the adverse benefit determination is based on a medical necessity or experimental treatment or similar exclusion or limit, either an explanation of the scientific or clinical judgment for the determination, applying the terms of the Plan to the Claimant's medical circumstances, or a statement that such explanation will be provided free of charge upon request. 7 Appeal of Denied Claim. If a Claimant wishes to appeal the denial of a claim, he shall file an appeal with the Plan Administrator on or before the 180th day after he receives the Plan Administrator's notice that the claim has been wholly or partially denied. The appeal shall identify both the grounds and specific Plan provisions upon which the appeal is based. The Claimant shall be provided, upon request and free of charge, documents and other information relevant to his claim. An appeal may also include any comments, statements or documents that the Claimant may desire to provide. The Plan Administrator shall consider the merits of the Claimant's presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Plan Administrator may deem relevant. In considering the appeal, the Plan Administrator shall: (1) Provide for a review that does not afford deference to the initial adverse benefit determination and that is conducted by an appropriate named fiduciary of the Plan who is neither the individual who made the adverse benefit determination that is the subject of the appeal, nor the subordinate of such individual; (2) Provide that, in deciding an appeal of any adverse benefit determination that is based in whole or in part on a medical judgment, including determinations with regard to whether a particular treatment, drug, or other item is experimental, investigational, or not medically necessary or appropriate, the appropriate named fiduciary shall consult with a health care professional who has appropriate training and experience in the field of medicine involved in the medical judgment; (3) Provide for the identification of medical or vocational experts whose advice was obtained on behalf of the Plan in connection with a Claimant's adverse benefit determination, without regard to whether the advice was relied upon in making the benefit determination; and (4) Provide that the health care professional engaged for purposes of a consultation under Subsection (2) shall be an individual who is neither an individual who was consulted in connection with the adverse benefit determination that is the subject of the appeal, nor the subordinate of any such individual. The Plan Administrator shall notify the Claimant of the Plan's benefit determination on review within 60 days after receipt by the Plan of the Claimant's request for review of an adverse benefit determination. The Claimant shall lose the right to appeal if the appeal is not timely made. Denial of Appeal. If an appeal is wholly or partially denied, the Plan Administrator shall provide the Claimant with a notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits, and (4) a statement describing the Claimant's right to bring an action under section 502(a) of ERISA. The determination rendered by the Plan Administrator shall be binding upon all parties. Claim Procedures for Non -Health Benefits Application for Benefits. You or any other person entitled to benefits from the Plan (a "Claimant") may apply for such benefits by completing and filing a claim with the Plan Administrator. Any such claim must be in writing and must include all information and evidence that the Plan Administrator deems necessary to properly evaluate the merit of and to make any necessary determinations on a claim for benefits. The Plan Administrator may request any additional information necessary to evaluate the claim. Timing of Notice of Denied Claim. The Plan Administrator shall notify the Claimant of any adverse benefit determination within a reasonable period of time, but not later than 90 days after receipt of the claim. This period may be extended one time by the Plan for up to 90 days, provided that the Plan Administrator both determines that such an extension is necessary due to matters beyond the control of the Plan and notifies the Claimant, prior to the expiration of the initial 90-day period, of the circumstances requiring the extension of time and the date by which the Plan expects to render a decision. Content of Notice of Denied Claim. If a claim is wholly or partially denied, the Plan Administrator shall provide the Claimant with a written notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) any material or information needed to grant the claim and an explanation of why the additional information is necessary, and (4) an explanation of the steps that the Claimant must take if he wishes to appeal the denial including a statement that the Claimant may bring a civil action under ERISA. Appeal of Denied Claim. If a Claimant wishes to appeal the denial of a claim, he shall file a written appeal with the Plan Administrator on or before the 60th day after he receives the Plan Administrator's written notice that the claim has been wholly or partially denied. The written appeal shall identify both the grounds and specific Plan provisions upon which the appeal is based. The Claimant shall be provided, upon request and free of charge, documents and other information relevant to his claim. A written appeal may also include any comments, statements or documents that the Claimant may desire to provide. The Plan Administrator shall consider the merits of the Claimant's written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Plan Administrator may deem relevant. The Claimant shall lose the right to appeal if the appeal is not timely made. The Plan Administrator shall ordinarily rule on an appeal within 60 days. However, if special circumstances require an extension and the Plan Administrator furnishes the Claimant with a written extension notice during the initial period, the Plan Administrator may take up to 120 days to rule on an appeal. Denial of Appeal. If an appeal is wholly or partially denied, the Plan Administrator shall provide the Claimant with a notice identifying (1) the reason or reasons for such denial, (2) the pertinent Plan provisions on which the denial is based, (3) a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the Claimant's claim for benefits, and (4) a 4 statement describing the Claimant's right to bring an action under section 502(a) of ERISA. The determination rendered by the Plan Administrator shall be binding upon all parties. CONTINUATION RIGHTS Military Service If you serve in the United States armed forces and must miss work as a result of such service, you may be eligible to continue to receive benefits with respect to any qualified military service. Under Federal law, you, your spouse, and your dependents may be entitled COBRA continuation coverage in certain circumstances. Please see the "COBRA NOTICE" that is attached to the end of this Summary Plan Description for important information about your right to COBRA continuation coverage, which is a temporary extension of coverage under the Plan. The COBRA NOTICE generally explains COBRA continuation coverage and when it may become available to you. The Plan Administrator will inform you of these rights, if any, when you terminate employment. FMLA If you go on unpaid leave that qualifies as family leave under the Family and Medical Leave Act you may be able to continue receiving health care benefits. You may elect to continue coverage on a pre-tax or after tax basis for non medical benefits when on leave of absence under the FMLA. Non FMLA Leave In addition, you may elect to continue coverage on a pre-tax or after tax basis when on leave of absence other than the FMLA. Information More information about continuation coverage can be obtained by contacting the party to whom claims must be submitted who is identified in the section entitled "Where to Submit Claims" above. YOUR RIGHTS UNDER ERISA As a participant, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). This federal law provides that you have the right to: 10 Examine, without charge, at the Plan Administrator's office and at other specified locations, such as worksites and union halls, all documents governing the Plan, including insurance contracts and collective bargaining agreements, and a copy of the latest annual report (Form 5500 Series) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration. Obtain, upon written request to the Plan Administrator, copies of documents governing the operation of the Plan, including insurance contracts and collective bargaining agreements, and copies of the latest annual report (Form 5500 Series) and updated summary plan description. The Plan Administrator may make a reasonable charge for the copies. Receive a summary of the Plan's annual financial report. The Plan Administrator is required by law to furnish each participant with a copy of this summary annual report. Continue health care coverage for yourself, spouse or dependents if there is a loss of coverage under the plan as a result of a qualifying event. You or your dependents may have to pay for such coverage. Review this Summary Plan Description and the documents governing the plan on the rules governing your COBRA continuation coverage rights. Reduction or elimination of exclusionary periods of coverage for preexisting conditions under your group health plan, if you have creditable coverage from another plan. You should be provided a certificate of creditable coverage, free of charge, from your group health plan or health insurance issuer when you lose coverage under the plan, when you become entitled to elect COBRA continuation coverage, when your COBRA continuation coverage ceases, if you request it before losing coverage, or if you request it up to 24 months after losing coverage. Without evidence of creditable coverage, you may be subject to a preexisting condition exclusion for 12 months (18 months for late enrollees) after your enrollment date in your coverage. In addition, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer, your union, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining your benefits or exercising your rights under ERISA. If your claim for a benefit is denied or ignored, in whole or in part, you have a right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all within certain time schedules. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request a copy of Plan documents or the latest annual report 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 require the Plan Administrator to provide the materials and pay you up to $110 a day until you 11 receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan 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. In addition, if you disagree with the Plan's decision or lack thereof concerning the qualified status of a medical child support order, you may file suit in 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. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from the Plan Administrator, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration. MISCELLANEOUS Oualified Medical Child Support Orders In certain circumstances you may be able to enroll a child in the Plan if the Plan receives a Qualified Medical Child Support Order. Loss of Benefit You may lose all or part of your account if the unused balance is forfeited at the end of a Plan Year and if we cannot locate you when your benefit becomes payable to you. You may not alienate, anticipate, commute, pledge, encumber or assign any of the benefits or payments which you may expect to receive, contingently or otherwise, under the Plan, except that you may designate a Beneficiary. Amendment and Termination The Company may amend, terminate or merge the Plan at any time. 12 Plan. Fees Your account may be charged for some or all of the costs and expenses of operating the Administrator Discretion The Plan Administrator has the authority to make factual determinations, to construe and interpret the provisions of the Plan, to correct defects and resolve ambiguities in the Plan and to supply omissions to the Plan. Any construction, interpretation or application of the Plan by the Plan Administrator is final, conclusive and binding. Taxation The Company intends that all benefits provided under the Plan will not be taxable to you under federal tax law. However, the Company does not represent or guarantee that any particular federal, state or local income, payroll, personal property or other tax consequence will result from participation in this Plan. You should consult with your professional tax advisor to determine the tax consequences of your participation in this Plan. Privacy NOTICE OF PRIVACY PRACTICES: PROTECTED HEALTH INFORMATION USE AND DISCLOSURE OF PROTECTED HEALTH INFORMATION (PHI) The Flexible Benefit Plan will use protected health information (PHI) to the extent of and in accordance with the uses and disclosures permitted by the Health Insurance Portability and Ac- countability Act of 1996 (HIPAA). Specifically, the Plan will use and disclose PHI for purposes related to health care treatment, payment for health care and health care operations. Payment includes activities undertaken by the Plan to obtain premiums or determine or fulfill its responsibility for coverage and provision of plan benefits that relate to an individual to whom health care is provided. These activities include, but are not limited to, the following: (i) Determination of eligibility, coverage and cost sharing amounts (for example, cost of a benefit, plan maximums and co -payments as determined for an individual's claim); (ii) Coordination of benefits; (iii) Adjudication of health benefit claims (including appeals and other payment disputes); (iv) Subrogation of health benefit claims; (v) Establishing employee contributions; (vi) Risk adjusting amounts due based on enrollee health status and demographic characteristics; (vii) Billing, collection activities and related health care data processing; 13 (viii) Claims management and related health care data processing, including auditing payments, investigating and resolving payment disputes and responding to participant inquiries about payments; (ix) Obtaining payment under a contract for reinsurance (including stop -loss and excess of loss insurance); (x) Medical necessity reviews or reviews of appropriateness of care or justification of charges; (xi) Utilization review, including pre -certification, preauthorization, concurrent review and retrospective review; (xii) Disclosure to consumer reporting agencies related to the collection of premiums or reimbursement (the following PHI may be disclosed for payment purposes: name and address, date of birth, Social Security number, payment history, account number and name and address of the provider and/or health plan); and (xiii) Reimbursement to the plan. Health Care Operations include, but are not limited to, the following activities: (i) Quality assessment; (ii) Population -based activities relating to improving health or reducing health care costs, protocol development, case management and care coordination, disease management, contacting health care providers and patients with information about treatment alternatives and related functions; (iii) Rating provider and plan performance, including accreditation, certification, licensing or credentialing activities; (iv) Underwriting, premium rating and other activities relating to the creation, renewal or replacement of a contract of health insurance or health benefits, and ceding, securing or placing a contract for reinsurance of risk relating to health care claims (including stop -loss insurance and excess of loss insurance); (v) Conducting or arranging for medical review, legal services and auditing functions, including fraud and abuse detection and compliance programs; (vi) Business planning and development, such as conducting cost -management and planning -related analyses related to managing and operating the Plan, including formulary development and administration, development or improvement of payment methods or coverage policies; (vii) Business management and general administrative activities of the Plan, including, but not limited to: (a) Management activities relating to the implementation of and compliance with HIPAA's administrative simplification requirements, or (b) Customer service, including the provision of data analyses for policyholders, plan sponsors or other customers; (viii) Resolution of internal grievances; and (ix) Due diligence in connection with the sale or transfer of assets to a potential successor in interest, if the potential successor in interest is a "covered entity" under HIPAA or, following completion of the sale or transfer, will become a covered entity. The Plan will disclose PHI to the Plan Sponsor only upon receipt of a certification from the Plan 14 Sponsor that the plan documents have been amended to incorporate the following provisions. With Respect to PHI, the Plan Sponsor Agrees to Certain Conditions, as follows: (i) Not use or disclose PHI in connection with any other benefit or employee benefit plan of the Plan Sponsor unless authorized by an individual; Report to the Plan any PHI use or disclosure that is inconsistent with the uses or disclosures provided for of which it becomes aware; Make PHI available to an individual in accordance with HIPAA's access requirements; (iv) Make PHI available for amendment and incorporate any amendments to PHI in accordance with HIPAA; (v► Make available the information required to provide an accounting of disclosures; NO Make internal practices, books and records relating to the use and disclosure of PHI received from Plan available to the HHS Secretary for the purposes of determining the Plan's compliance with HIPAA; and, NO If feasible, return or destroy all PHI received from the Plan that the Plan Sponsor still maintains in any form, and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made (or if return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction infeasible). SEPARATION BETWEEN THE PLAN AND THE PLAN SPONSOR Adequate separation between the Plan and the Plan Sponsor must be maintained. In accordance with HIPAA, only the following employees or classes of employees of the employer may be given access to PHI: (i) The benefits manager; and (ii) The benefits committee LIMITATIONS OF PHI ACCESS AND DISCLOSURE The persons described in this section may only have access to and use and disclose PHI for plan administration functions that the Plan Sponsor performs for the Plan. NON-COMPLL4NCE ISSUES If the persons described in this section do not comply with this plan document, the Plan Sponsor shall provide a mechanism for resolving issues of noncompliance, including disciplinary sanctions. ADMINISTRATIVE INFORMATION The Plan Sponsor is City of Vernon. Its address is 4305 Santa Fe Ave. Vernon, CA 90058. Its telephone number is 323-583-8811. 15 Its Employer Identification Number is 95-6000808. The Plan Administrator is a committee appointed by Plan Sponsor. If no committee has been designated, the Plan Administrator will be the Plan Sponsor. Its address and telephone number is that of the Plan Sponsor listed above. 2. The Plan is a welfare benefit plan which has been designated by the sponsor as its plan number 510. 3. The Plan's designated agent for service of legal process is the President of the corporation named in paragraph 1. Any legal papers should be delivered to him at the address listed in paragraph 1. However, service may also be made upon the Plan Administrator or a Trustee. 4. The Company's fiscal year ends on June 30 and the plan year ends on December 31. 16 Custom Language: Custom Language Addendum for termination filing period for Dependent Care Assistance Account: D. Claims: Should a Participant in the Dependent Care Assistance Account terminate during a Plan Year, such Participant shall be able to incur expenses from the date of termination to the end of the Plan Year. Such expenses must be submitted for reimbursement pursuant to Section D.2.b. 17 COBRA NOTICE In General. This notice contains important information about your right to COBRA continuation coverage, which is a temporary extension of coverage under the Plan. This notice generally explains COBRA continuation coverage, when it may become available to you and your family, and what you need to do to protect the right to receive it. The right to COBRA continuation coverage was created by a federal law, the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). COBRA continuation coverage can become available to you when you would otherwise lose your group health coverage. It can also become available to other members of your family who are covered under the Plan when they would otherwise lose their group health coverage. What is COBRA Continuation Coverage? COBRA continuation coverage is a continuation of Plan coverage when coverage would otherwise end because of a life event known as a "qualifying event." Specific qualifying events are listed later in this notice. After a qualifying event, COBRA continuation coverage must be offered to each person who is a "qualified beneficiary." You, your spouse, and your dependent children could become qualified beneficiaries if coverage under the Plan is lost because of the qualifying event. Under the Plan, qualified beneficiaries who elect COBRA continuation coverage must pay for COBRA continuation coverage. If you are an employee, you will become a qualified beneficiary if you lose your coverage under the Plan because either one of the following qualifying events happens: Your hours of employment are reduced, or Your employment ends for any reason other than your gross misconduct. If you are the spouse of an employee, you will become a qualified beneficiary if you lose your coverage under the Plan because any of the following qualifying events happens: Your spouse dies; Your spouse's hours of employment are reduced; Your spouse's employment ends for any reason other than his or her gross misconduct; Your spouse becomes entitled to Medicare benefits (under Part A, Part B, or both); or You become divorced or legally separated from your spouse. Your dependent children will become qualified beneficiaries if they lose coverage under the Plan because any of the following qualifying events happens: The parent -employee dies; The parent -employee's hours of employment are reduced; The parent -employee's employment ends for any reason other than his or her gross misconduct; The parent -employee becomes entitled to Medicare benefits (Part A, Part B, or both); The parents become divorced or legally separated; or The child stops being eligible for coverage under the plan as a "dependent child." 18 When is COBRA Coverage Available? The Plan will offer COBRA continuation coverage to qualified beneficiaries only after the Plan Administrator has been notified that a qualifying event has occurred. When the qualifying event is the end of employment or reduction of hours of employment, death of the employee, or the employee's becoming entitled to Medicare benefits (under Part A, Part B, or both), the employer must notify the Plan Administrator of the qualifying event. You Must Give Notice of Some Qualifying Events For the other qualifying events (divorce or legal separation of the employee and spouse or a dependent child's losing eligibility for coverage as a dependent child), you must notify the Plan Administrator within 60 days after the qualifying event occurs. You must provide this notice to City of Vernon at 4305 Santa Fe Ave., Vernon, CA 90058. The telephone number is (323) 583-8811 x325. How is COBRA Coverage Provided? Once the Plan Administrator receives notice that a qualifying event has occurred, COBRA continuation coverage will be offered to each of the qualified beneficiaries. Each qualified beneficiary will have an independent right to elect COBRA continuation coverage. Covered employees may elect COBRA continuation coverage on behalf of their spouses, and parents may elect COBRA continuation coverage on behalf of their children. The COBRA continuation coverage lasts only until the end of the plan year in which the qualifying event occurs. COBRA continuation coverage may only be elected under this plan if, as of the date of the qualifying event, the maximum benefit available under the plan for the remainder of the plan year is more than the maximum amount that the Plan could require as payment to maintain coverage for the remainder of that plan year. If You Have Questions Questions concerning your Plan or your COBRA continuation coverage rights should be addressed to the contact or contacts identified below. For more information about your rights under ERISA, including COBRA and other laws affecting group health plans, contact the nearest Regional or District Office of the U.S. Department of Labor's Employee Benefits Security Administration (EBSA) in your area or visit the EBSA website at www.dol.gov/ebsa. (Addresses and phone numbers of Regional and District EBSA Offices are available through EBSA's website.) Keep Your Plan Informed of Address Changes In order to protect your family's rights, you should keep the Plan Administrator informed of any changes in the addresses of family members. You should also keep a copy, for your records, of any notices you send to the Plan Administrator. Plan Contact Information City of Vernon 4305 Santa Fe Ave., Vernon, CA 90058 (323) 583-8811 x325 V2.02-2.02 19 ADOPTION AGREEMENT CAFETERIA PLAN The undersigned adopting employer hereby adopts this Plan. The Plan is intended to qualify as a cafeteria plan under Code section 125. The Plan shall consist of this Adoption Agreement, its related Basic Plan Document and any related Appendix and Addendum to the Adoption Agreement. Unless otherwise indicated, all Section references are to Sections in the Basic Plan Document. COMPANY INFORMATION 1. Name of adopting employer (Plan Sponsor): City of Vernon 2. Address: 4305 Santa Fe Ave. 3. City: Vernon 4.State: CA 5. Zip: 90058 6. Phone number: 323- 83-8811 7. Fax number: 323-826-1439 8. Plan Sponsor EIN: 95-6000808 0. Plan Sponsor fiscal year end: June 30 10a. Plan Sponsor entity type: i. [ ] C Corporation ii. (j S Corporation iii. [ ] Non profit iv. [ ] Partnership v. [ ] Limited Liability Company vi. [ ] Limited Liability Partnership vii. (] Sole Proprietorship viii. [ J Union ix. [ X ] Government agency lob. If 10a.viii (Union) is selected, enter name of the representative of the parties who established or maintain the Plan: 11. State of organization of Plan Sponsor: California 12a. The Plan Sponsor is a member of an affiliated service group: [IYes [X]No 12b. If 12a is "Yes", list all members of the group (other than the Plan Sponsor): 13a. The Plan Sponsor is a member of a controlled group: [IYes [XI No 13b. If 13a is "Yes", list all members of the group (other than the Plan Sponsor): PLAN INFORMATION A. GENERAL INFORMATION 1. Plan Number: 510 2. Plan name: a. City of Vernon b. Cafeteria Plan 3. Effective Date: 3a. Original effective date of Plan: May 1. 2007 3b. Is this a restatement of a previously -adopted plan? [] Yes [XINo 3c. If A.3b is "Yes", effective date of Plan restatement: NOTE: If A.3b is "No", the Effective Date shall be the date specified in A.3a, otherwise the date specified in A.3c; provided, however, that when a provision of the Plan states another effective date, such stated specific effective date shall apply as to that provision. 4a. Plan Year means each 12-consecutive month period ending on December 31 (e.g. December 31). If the Plan Year changes, any special provisions regarding a short Plan Year should be placed in the Addendum to the Adoption Agreement. 4b. The Plan has a short plan year. [XIYes []No 4c. If A.4b is "Yes", the short plan year begins May 1. 2007 and ends on December 31, 2007. Plan Features Copyright 2002-2007 Fort William LLC 10a. I Premium Conversion Account. Contributions to fund a Premium Conversion Account are permitted (Section 4.01) Of "No", questions regarding Premium Conversion Accounts are disregarded.): IXIYes [INo 10b. If A.10a is "Yes", select the types of Insurance Contracts for which a Participant may seek reimbursement under Section 4.01: L ( X ] Employer Group Medical iL ( X ] Employer Dental RL [ ] Employer Disability iv. [ ] Employer Group Term Life v. [ ] Individually - Owned Medical vi. (] Individually - Owned Dental viL [ ] Individually - Owned Disability viiL [ ] Other l oc. If A.10a is "Yes" and A.10b.viii (other contracts) is selected, describe other types of Insurance Contracts: 11 a. Health Care Reimbursement Account. Contributions to fund a Health Care Reimbursement Account are permitted (Section 4.02) (If "No", questions regarding Health Care Reimbursement Accounts are disregarded): [XIYes (]No 11 b. HSA Account. Contributions to fund an HSA Account are permitted (Section 4.08): [ ] Yes ( X ] No 12. Dependent Care Assistance Account. Contributions to fund a Dependent Care Assistance Account are permitted (Section 4.03) (If "No", questions regarding Dependent Care Assistance Accounts are disregarded.): [XIYes []No NOTE: The maximum amount of expense that may be contributed/reimbursed in any Plan Year for the Dependent Care Assistance Account is the maximum amount permitted by federal tax law ($5,000 or $2,500 if the Participant is married and filing a separate federal tax return). 13. Adoption Assistance Account. Contributions to fund an Adoption Assistance Account are permitted. (Section 4.04) (If "No", questions regarding Adoption Assistance Accounts are disregarded): (] Yes IXINo NOTE: The maximum amount of expense that may be contributed/reimbursed for the Adoption Assistance Account is the maximum amount permitted by federal tax law for the prior year ($10,960 for Plan Years beginning in 2006). The annual limit shall be reduced for adoption assistance expenses incurred any prior Plan Year. B. ELIGIBILITY Exclusions/Modifications The term "Eligible Employee" shall not include (Check items B.1 - B.5a as appropriate): 1. [ X ] Union. Any Employee who is included in a unit of Employees covered by a collective bargaining agreement, if benefits were the subject of good faith bargaining, and if the collective bargaining agreement does not provide for participation in this Plan. 2. [ X ] Any leased employee. 3. [ X ] Non -Resident Alien. Any Employee who is a non-resident alien who received no earned income (within the meaning of Code section 911(d)(2)) which constitutes income from services performed within the United States (within the meaning of Code section 861(a)(3)). 4. [ X ] Part-time. Any Employee who is expected to work less than N/A hours per week. Sa. [ ] Other. Other Employees described in B.5b (any exclusion must satisfy Code section 125(g) and the requirements under Section 5.01). 5b. If B.5a is. selected, describe other Employees excluded from definition of Eligible Employee: 6a. Allow immediate participation for all Eligible Employees employed on the date specified in B.6b: [] Yes [X]No 6b. If B.6a is "Yes", all Eligible Employees employed on shall become eligible to participate in the Plan as of such date. 7. If AA0a is "Yes", (Contributions to fund a Premium Conversion Account are permitted), an Employee shall be an Eligible Employee with respect to the Premium Conversion Account if the Employee is eligible to participate in the benefit plans described in A.10b: [X]Yes [INo 8a. Indicate whether the Plan will make any other revisions to the term "Eligible Employee": [X]Yes []No 8b. If B.8a is "Yes", describe any further modifications to the term "Eligible Employee": An Eligible Employee is further defined as being classified as a full-time employee. Service Requirements Copyright 2002-2007 Fort William LLC 10. Minimum age requirement for an Eligible Employee to become eligible to be a Participant in the Plan: None 11. Minimum service requirement for an Eligible Employee to become eligible to be a Participant in the Plan: i. [ X ] None. ii. [) Completion of hours of service iii. [ J Completion of days of service iv. [ ] Completion of months of service v. [ J Completion of years of service 12a. Frequency of entry dates: i. [ ] An Eligible Employee shall become a Participant in the Plan as soon as administratively feasible upon meeting the requirements of B.10 and B.11. ii. [ X I first day of each calendar month iii. ( ) first day of each plan quarter iv. [ ] first day of the first month and seventh month of the Plan Year v. (I first day of the Plan Year 12b. If B.12.a.i (immediate entry) is not selected, an Eligible Employee shall become a Participant in the Plan on the entry date selected in B.12a that is: i. [ X ] coincident with or next following ii. [ ) next following the date the requirements of B.10 and B.11 are met. 13. If A.10a is "Yes", (Contributions to fund a Premium Conversion Account are permitted), an Eligible Employee shall become eligible to become a Participant in the Plan with respect to the Premium Conversion Account at the same date as he or she becomes eligible to participate in the Insurance Contracts(s) described in A.10b: IXIYes [INo 14a. Indicate whether the Plan will make any other revisions to the eligibility rules specified in B.10 - B.13: I I Yes [ X I No 14b. If B.14a is "Yes", describe any further modifications to the eligibility rules specified in B.10 - B.13: Transfers/Rehires 15. Permit Participants who are no longer Eligible Employees (for reasons other than Termination) to continue to participate in the Plan until the end of the Plan Year (Section 3.02): [ ) Yes [ X ] No NOTE: If 'No" is selected, a Participant who has a change in job classification or a transfer that results in the Participant no longer qualifying as an Eligible Employee shall cease to be a Participant as of the effective date of such change of job classification or transfer. 16. Automatically reinstate benefit elections for Terminated Participants who are rehired within 30 days of Termination and permit new benefit elections for Terminated Participants who are rehired more than 30 days after Termination (Section 3.03(a)): [XIYes []No NOTE: If "No" is selected, a Terminated Participant shall not be able to Participate in the Plan until the later of the first day of the subsequent Plan Year or the first entry date following reemployment. C. BENEFITS Premium Conversion la. If A.10a is "Yes" (Contributions to fund a Premium Conversion Account are permitted), provide for automatic enrollment for the Premium Conversion Account: IXIYes []No NOTE: If C.1a is "Yes", a Participant shall be deemed to elect to contribute the entire amount of any premiums payable by the Participant for the benefit plans described in A.10b. lb. If A.10a is "Yes" (Contributions to fund a Premium Conversion Account are permitted), provide for automatic adjustment of Participant elections for changes in the cost of insurance pursuant to the terms of Treas. Reg. 1.125-4: [XIYes IINo Health Care Reimbursement 2. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), enter the maximum amount that can be contributed to a Health Care Reimbursement Account in any Plan Year. 2,000.00 ($76.92per nay period maximum contribution allowable). Copyright 2002-2007 Fort William LLC 3. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), specify whether a Participant shall continue making contributions after Termination of employment for the remainder of the Plan Year: L ( ] Yes - Continue contributions on an after-tax basis and reimbursements will be allowed for the remainder of the Plan Year. ii. ( X ] No - Contributions shall cease upon Termination and reimbursements will be allowed only for expenses incurred prior to Termination. NOTE: Any required COBRA elections described in Section 4.06 shall supersede this C.3. 4a. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), indicate whether a Participant may revise a Health Care Reimbursement Account election upon a change of status: L [ X ] Yes - without limitation iL ( ] Yes - but no decrease to the extent that new annual contribution amount would be less than the amount previously reimbursed at the time of the election change RL (] Yes - a Participant may only increase an election upon a change of status iv. [ ] Yes - with limitations described in C.4b. v. No NOTE: The rules regarding the revision of Health Care Reimbursement Account elections in this CA are also subject to the conditions and limitations provided in C.12. 4b. If A.11 is "Yes" and if C.4a.iv is selected (Yes - with limitations described in C.4b), describe the limitations: 5a. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), exclude coverage for over the counter drugs: [] Yes [x]No 5b. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), exclude coverage for other expenses described in C.5c: I]Yes IXINo 5c. If A.11 is "Yes" and C.5b is "Yes", describe other expenses that are not eligible for reimbursement: NOTE: If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), reimbursements may be made for any expense that°qualifies for exclusion from income under Code section 105(b) (other than certain long term care expenses and insurance premiums), except as provided in C.5a-c. 6a. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), describe method to coordinate coverage in the Plan with Health Savings Accounts (Section 6.010)): L [ X ] None. Coverage in the Plan is not limited or the Plan is not used in conjunction with a Health Savings Account. iL [ ] Permitted Coverage. Coverage in the Plan is only provided for permitted insurance and other specified coverage (e.g., coverage for accidents, disability, dental care, vision care or preventive care within the meaning of Code section 223(c)(1) and Rev. Rul. 2004-45 (but not through insurance or for long-term care services). UL [ ] Post Deductible Coverage. The Plan will not pay or reimburse any medical expense incurred before the minimum annual deductible under Code section 223(c)(2)(A)(i) is satisfied. iv. ( ] Both Permitted and Post Deductible Coverage. Until the minimum annual deductible under Code section 223(c)(2)(A)(i) is satisfied, coverage in the Plan is only provided for permitted insurance and other specified coverage (e.g., coverage for accidents, disability, dental care, vision care or preventive care within the meaning of Code section 223(c)(1) and Rev. Rul. 2004-45 (but not through insurance or for long-term care services). The Plan will pay or reimburse all medical expenses otherwise allowed by the Plan incurred after the minimum annual deductible under Code section 223(cx2)(A)(i) is satisfied. 6b. If A.11 is "Yes", C.6a is not "None" and D.3a is "Yes" (grace period allowed), indicate period when the limitations described in C.6a apply: L [ J Entire Plan Year. iL [ ] Only during the grace period described in D.3. NOTE: If no grace period is allowed in D.3a, the limitations in C.6a shall apply for the entire Plan Year. 6c. If A.11 is "Yes" and C.6a is not "None", the limitations shall apply to: L [ ] All Participants. iL [ ] Only Participants who are also eligible to participate in the high deductible health plan. iiL (] Only Participants who are also enrolled in the high deductible health plan. NOTE: If C.6a is "None" or C.6c is not "All Participants", eligibility for a Health Savings Account may be limited 7. If A.11 is "Yes" (Contributions to fund a Health Care Reimbursement Account are permitted), describe method to coordinate coverage in the Plan with a Company -sponsored health reimbursement arrangement ("HRA") for expenses that are reimbursable under both this Plan and the HRA (Section 6.01(e)): L [ X ] None. Plan is not used in conjunction with a Company -sponsored HRA. iL [ ] HRA first. A Participant shall not be entitled to payment/reimbursement under the Health Care Reimbursement Account until the Participant has received his or her maximum annual reimbursement under the HRA. Copyright 2002-2007 Fort William LLC [ ] Cafeteria plan first. A Participant shall not be entitled to payment/reimbursement under the HRA until the Participant has received his or her maximum annual reimbursement under the Health Care Reimbursement Account. Company Contributions 8a. Indicate whether the Company may contribute to the Plan (Section 4.08): L [ ] Yes - in Company's sole discretion. ii. [ ] Yes - pursuant the method described in C.8b. UL ( X ] No. 8b. If C.8a is "Yes - pursuant the method described in C.8b", describe how the contributions are determined and allocated: 9a. If C.8a is not "No", indicate whether the Plan permits Participants to elect cash in lieu of benefits: L No. iL [ ] Yes -with limitation. iii. [ ] Yes -without limitation. 9b. If C.8a is not "No" and C.9a is "Yes - with limitation", describe any limitations: Elections NOTE: The Plan Administrator may establish a minimum dollar amount or percentage of Compensation for all elections provided that such minimum is non-discriminatory. 10. When may continuing Participants make elections regarding contributions (Section 4.06(b)): L [ ] The day period ending prior to the beginning of the Plan Year & [ X ] Pursuant to Plan Administrator procedures. NOTE: If C.10.i is selected, the Plan Administrator may require that elections be made no later than a certain number of days prior to the beginning of the Plan Year. See Section 4.06(a) for procedures regarding new Participants. 11. The election for a continuing Participant who fails to make an election within the period described in C.10 shall be determined in accordance with the following (Section 4.06(c)-(d)): L (] Election not to participate. The Participant shall be treated as having elected not to participate in the Plan. iL [ ] Continue same election. Elections for the applicable Plan Year shall be the same as the elections made in the prior Plan Year. iii. [ X ] Continue same election for the Premium Conversion Account. Elections for the applicable Plan Year shall be the same as the elections made in the prior Plan Year but only with respect to the Premium Conversion Account. The Participant shall be treated as having elected not to participate in the Plan with respect to any other Accounts. 12. When may Participants modify elections regarding contributions (Section 4.07(a)): L [ X ] At any time permitted under Treas. Reg. section 1.125-4. iL ( ] Pursuant to Plan Administrator procedures. 13a. A Participant may elect to continue coverage on a pre-tax or after tax basis for non medical benefits when on leave of absence under the FMLA (Section 4.06(f)): L [ X ] Yes - A Participant may continue coverage for all benefits to which he is entitled when on FMLA leave. iL [ ] No - A Participant may continue coverage for Premium Conversion Accounts and Health Care Reimbursement Accounts only. 13b. A Participant may elect to continue coverage on a pre-tax or after tax basis pursuant to C.13a when on a leave of absence other than a leave of absence under the FMLA: L [ X ] Yes. iL [ ] Yes - but subject to the conditions and limitations described in C.13c. iii [ ] No. 13c. If C.13b is "Yes - but subject to conditions and limitations", describe the conditions and/or limitations: D. PLAN OPERATIONS Claims 1. Claims for reimbursement for an active Participant must be filed with the Plan Administrator (Section 6.01): L [ ] within days following the last day of each Plan Year. ii. [ X ] by the last day of February following the close of the Plan Year. 2a. The Plan provides for an earlier deadline for claims submission for Terminated Participants: [XI Yes [INo 2b. If D.2a is Yes, claims for reimbursement for a Terminated Participant must be filed with the Plan Administrator (Section 6.01): Copyright 2002-2007 Fort William LLC L [ X ] within 60 (Refer to the Custom Language Addendum for the termination submission riling period for the Dependent Care Assistance Account) days following Termination of employment. iL []by 3a. The Plan provides for a 2-1/2 month grace period described in IRS Notice 2005-42 immediately following the end of each Plan Year (Section 4.05(c)): L [ ] Yes. iL [ ] Yes - but limited to the Accounts described in D.3c. iiL ( X ] No. NOTE: Claims for reimbursement must be filed with the Plan Administrator within the number of days specified in D.1 following the last day the grace period. 3b. If D.3a is not "No", enter the first day of the first Plan Year for which the grace period will apply: 3c. If D.3a is "Yes - but limited to certain Accounts", enter the Accounts that are eligible for the grace period 4. Indicate whether the Company will provide debit, credit, and/or other stored -value cards for Health Care Reimbursement Accounts and/or Dependent Care Assistance Accounts (Section 6.01(i)): [ I Yes [XI No Plan Administrator 5a. Designation of Plan Administrator (Section 7.01): L ( ] Plan Sponsor iL [ X ] Committee appointed by Plan Sponsor iiL [ ] Other 5b. If DSa iii is selected, Name of Plan Administrator: 6a. Type of indemnification for the Plan Administrator (Section 7.02): L [ ] None - the Company will not indemnify the Plan Administrator. L ( X ] Standard as provided in Section 7.02. iiL [ ] Custom 6b. If D.6a.iii (Custom) is selected, indemnification for the Plan Administrator is provided pursuant to an Addendum to the Adoption Agreement. Other Provisions 7a. Claims/notices should be submitted to: L [ ] Plan Sponsor iL [ X ] Other 7b. If D.7a is Other, indicate where claims should be sent: L Name: Igoe & Company Incorporated dba Igoe Administrative Services iL Address: 16769 Bernardo Center Dr. #21, San Diego, CA 92128, via email at flexamoigoe.com or fax at 1- 888-357-6307 iiL Phone:1-800-633-8818 8a. Indicate whether the Health Care Reimbursement Account is subject to COBRA (Section 4.06(g)): [X]Yes I]No 8b. If D.8a is "Yes", the contact person listed in the COBRA Notice is the same person described in D.7 regarding claims: [] Yes [XI No 8c. If D.8a is "Yes' and D.8b is "No", indicate the contact person listed in the COBRA Notice: L Name: City of Vernon L Address: 4305_Santa Fe Ave.. Vernon. CA 90058 KL Phone: (323) 583-8811 z325 8d. If D.8a is "Yes", enter the number of days within which a Participant must notify the Plan Administrator of certain qualifying events such as divorce or legal separation or a dependent child's losing coverage: 60 (60 days minimum). 9. Indicate whether the Health Care Reimbursement Account is subject to the HIPAA privacy rules (Section 7.03): [X]Yes []No 10. Indicate whether the Plan is subject to FMLA (Section 4.06(f)): [XI Yes []No E. EFFECTIVE DATES Use this Section to provide any effective dates for Plan provisions other that the Effective Date specified in A.3. F. EXECUTION PAGE Copyright 2002-2007 Fort William LLC Failure to properly fill out the Adoption Agreement may result in the failure of the Plan to achieve its intended tax consequences. The Plan shall consist of this Adoption Agreement, its related Basic Plan Document #125 and any related Appendix and Addendum to the Adoption Agreement Additional participating employers may be specified in an addendum to the Adoption Agreement The undersigned agree to be bound by the terms of this Adoption Agreement and Basic Plan Document and acknowledge receipt of same. The Plan Sponsor caused this Plan to be executed this day of , 2007. CM OF VERNON: Print Name: Title/Position: Copyright 2002-2007 Fort William LLC ADDENDUM TO THE ADOPTION AGREEMENT The following custom language is provided: Custom Language Addendum for termination filing Period for Dependent Care Assistance Account: D. Claims: Should a Participant in the Dependent Care Assistance Account terminate during a Plan Year, such Participant shall be able to incur expenses from the date of termination to the end of the Plan Year. Such expenses must be submitted for reimbursement pursuant to Section D 2 b V2.02-2.02 Copyright 2002-2007 Fort William LLC SUPPORTING DOCUMENTS CITY CLERK'S OFFICE INTEROFFICE MEMORANDUM DATE: May 29, 2007 TO: Willard Yamaguchi, Chief Deputy City Attorney/Risk Manager FROM: Nelly Giron, City Clerk RE: Resolution No. 9321 - A Resolution of the City Council of the City of Vernon Approving, Ratifying and Adopting Documents Necessary for the Administration of the City of Vernon Flexible Benefit Program the Execution of a City of Vernon Flexible Health and Dependant Care Benefit Program with IGOE & Company Incorporated DBA IGOE Administrative Services Transmitted herewith is a copy of Resolution No. 9321 referenced above, which was approved by City Council on May 21, 2007. Thank you. NG:dr c: Cindy Calzada Sharon Duckworth Agreement File No. 07-053 Resolution No. 9321