Title
Report regarding a resolution approving an amendment to the Executive Management Compensation Plan regarding employee contributions to the Medical After Retirement Account. (Leah Lockhart, Human Resources Director)
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RECOMMENDATION
Recommendation
Adopt a resolution approving an amendment to the Executive Management Compensation Plan regarding employee contributions to the Medical After Retirement Account (“MARA”)
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BACKGROUND/DISCUSSION
The City of South San Francisco maintains a Health Reimbursement Arrangement “HRA” plan, also known as a Medical After Retirement Account (“MARA”), for all full-time and regular part-time employees. This plan allows employees to accumulate earnings on a tax-free basis in a trust during their working years to pay for qualified post-retirement health benefits as allowed under the Internal Revenue Code. The City contributes one and one-half percent (1.5%) of salary to this plan for employees who were hired after April 24, 2010, as such employees are not eligible for the defined benefit retiree health plan offered to employees hired before this date. The plan also allows the City to establish mandatory employee contributions. Unlike other deferred compensation plans such as a 457(b), employees may not elect to make voluntary contributions to an HRA plan on an individual basis. Mandatory employee contributions must be consistent among employees or a defined group or class of employees (such as an employee bargaining unit.) Contributions may also be tiered by date of hire so long as a logical grouping of employees is established. The mandatory employee contributions for each of the City’s employee bargaining units vary and are memorialized within the applicable memorandum of understanding (“MOU”) or compensation plan.
On August 13, 2025, the City Council approved the Executive Management Compensation Plan for the period of July 1, 2025, through June 30, 2027, which covers compensation and benefit provisions for department directors, the Assistant City Manager, and Deputy City Managers. In addition, the individual employment agreements for the City Manager and City Clerk provide for the same benefits as listed in the Executive Management Compensation Plan, unless expressly stated otherwise in the employment agreement. Appendix C of the plan contains the following provision related to changes to mandatory employee contributions during the term of the plan:
“During the first year of the compensation plan, the City will meet with unit members
regarding proposed changes to mandatory employee contributions to the Medical After
Retirement Account (MARA) pursuant to Articles 4.12.2 and 4.12.3. Any plan amendment
shall take effect no sooner than July 1, 2026, and upon approval of City Council.”
Under the current plan, employees hired after April 24, 2010 are required to contribute accumulated leave payouts upon separation to the MARA plan. Following consultation with the executive management team, staff recommends that the mandatory contribution of leave payouts to the MARA plan be applied to all employees covered by the plan, regardless of hire date. This would benefit employees by setting aside leave payout earnings to help cover future health care expenses on a tax-free basis, and would incur no additional cost to the City.
FISCAL IMPACT
The proposed resolution modifies only the mandatory employee contributions to the MARA plan. It does not change the City’s contribution levels or impose any additional financial obligations on City.
RELATIONSHIP TO CITY COUNCIL PRIORITIES ACTION PLAN
This action supports the City Council’s major focus area of Modern and Sustainable Organization by ensuring employee compensation and benefit programs remain responsive to workforce needs in a fiscally responsible manner, thereby supporting employee recruitment and retention.
ASSOCIATED DOCUMENTS
1. Resolution 26-2434