CC SR 20251104 J - HSA Contribution Limits 2026 Plan Year
CITY COUNCIL MEETING DATE: 11/04/2025
AGENDA REPORT AGENDA HEADING: Consent Calendar
AGENDA TITLE:
Consider increasing the City’s contribution toward eligible employee health savings
accounts (HSA) to align with new IRS HSA contribution limits effective January 1, 2026.
RECOMMENDED COUNCIL ACTION:
1) Authorize increasing the City’s contribution to full-time employee health savings
accounts (HSA) to $4,400 for individuals and $8,750 for family plans under the
High-Deductible PPO+HSA medical plan to align with new IRS 2026 HSA
contribution limits effective January 1, 2026;
2) Approve Resolution No. 2025-__ A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF RANCHO PALOS VERDES, CALIFORNIA, INCREASING THE
CITY’S HEALTH SAVINGS ACCOUNT CONTRIBUTION FOR ALL ELIGIBLE
FULL-TIME EMPLOYEES EFFECTIVE JANUARY 1, 2026; and,
3) Approve Resolution No. 2025-__ A RESOLUTION OF THE CITY COUNCIL OF
THE CITY OF RANCHO PALOS VERDES, CALIFORNIA, APPROVING,
ADOPTING, AND IMPLEMENTING, AND THEREBY AUTHORIZING THE CITY
MANAGER TO SIGN A FIRST AMENDMENT TO THE CITY’S MEMORANDUM
OF UNDERSTANDING WITH THE RANCHO PALOS VERDES EMPLOYEE S’
ASSOCIATION FOR THE PERIOD JULY 1, 2025 THROUGH JUNE 30, 2028,
INCREASING THE CITY’S CONTRIBUTION TO ELIGIBLE EMPLOYEE HEALTH
SAVINGS ACCOUNTS IN 2026.
FISCAL IMPACT: If approved, increasing the City’s HSA contribution for all eligible
employees will result in an estimated increase of approximately
$4,600 (+3%) from the prior year’s budget. The increase is included
in the FY 2025-26 Adopted Budget of $173,000 for the 2026 plan
year. Therefore, if approved, no additional appropriation would be
required. VR
Amount Budgeted: $173,000
Additional Appropriation: None
Account Number(s): XXX-400-XXXX-4206 VR
(General Fund – various HSA contribution accounts)
ORIGINATED BY: Vanessa Godinez, Human Resources and Risk Manager VG
REVIEWED BY: Catherine Jun, Deputy City Manager CJ
APPROVED BY: Ara Mihranian, AICP, City Manager
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ATTACHED SUPPORTING DOCUMENTS:
A. Resolution No. 2025-__ to increase the City’s HSA contribution (page A-1)
B. Resolution No. 2025-__ First Amendment to the City’s MOU with the RPVEA for
the period between July 1, 2025 through June 30, 2028 (page B-1)
BACKGROUND:
The City offers five medical plan options to eligible employees:
- Three health maintenance organization (HMO) plans
- One traditional preferred provider organization (PPO) plan
- One high-deductible PPO plan with a health savings account (HSA)
Currently, the City pays the entire premium for the employee and 50% of the dependent
care premium under any of the medical plan options above.
In 2007, in response to a rise in medical insurance premiums, the City Council introduced
an alternative to the traditional PPO plan, with the higher deductible PPO+HSA that would
reduce the City’s healthcare costs over time while also providing additional benefits to
employees. In general, a PPO plan allows the participant to see any in-network doctor or
specialist without a referral (or out-of-network at a higher cost). However, adding an HSA
plan allows participating employees to set aside pre-tax dollars for medical expenses,
reducing their taxable income. Employees can then use these funds for qualified
expenses to make healthcare costs more affordable. HSAs can also be used as a savings
vehicle for future healthcare costs, including in retirement, since they can accumulate
interest over time and can roll over from year to year with no risk of losing unused funds
even if employees decide to separate from the City in the future.
Furthermore, unlike the City’s traditional PPO plan, the high-deductible PPO+HSA has
lower monthly premiums, which is cost effective for both employees and the City. The
following table illustrates the 2025 cost difference of both the traditional and high-
deductible PPO plans under the Family coverage level, which a majority of HSA
participants currently enroll in.
2025 PPO Insurance Plans Monthly
Premium
Monthly Cost to
the City
Monthly Cost to
the Employee
Blue Shield Silver PPO + HSA
(Family plan)
$2,035.65 $1,409.29 $626.35
Blue Shield Gold PPO (no HSA)
(Family plan)
$3,250.67 $2,290.75 $959.92
Cost Difference per Month per
employee
$1,215.02 $881.46 $333.57
When monthly cost differences are aggregated over a year, the traditional PPO costs the
City and employee an additional $10,578 and $4,003, respectively.
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Due to the lower cost of the high-deductible PPO+HSA, the City is able to contribute
toward an employee’s HSA as an incentive to increase participation in this medical plan,
which would decrease the cost in premiums incurred by the City and employee over time.
The table below summarizes the 2024 and 2025 medical plan selections made by benefit-
eligible employees, as of January 1, 2025. The high-deductible PPO+HSA continues to
have the highest enrollment out of all five medical plans offered by the City.
Medical Plans
Total
Participants
2024
Total
Participants
2025*
Blue Shield: High-Deductible PPO + HSA 23 34
Blue Shield: PPO without HSA 6 7
Blue Shield: Platinum Access HMO 7 14
Blue Shield: Trio HMO 2 2
Kaiser: HMO 13 11
Declined Medical Coverage 12 11
63 79
*Data is based on January 1, 2025 plan effective date.
During the 2025 plan year, the City Council approved an annual contribution to an
employee's HSA plan at the maximum IRS contribution rates of $4,300 for single
employee only coverage (or $358/mo) and $8,550 for employee and dependent coverage
(or $708/mo). Even with the contribution, the City contributed less towards the PPO+HSA
plan, compared to the traditional PPO plan.
DISCUSSION:
The City’s insurance broker, USI, recently provided the 2026 PPO Insurance plan rates,
which are outlined below. USI has indicated that rates for medical plans have increased
by an average of 10.3% due to inflation, tariffs, and general market instability.
Furthermore, the 2026 PPO+HSA plan will increase its deductibles and out-of-pocket
maximums, and while adding new or increased co-pays for surgery services and certain
prescriptions; similarly, the traditional PPO will increase co-pays for surgery services and
certain prescriptions.
2026 PPO Insurance Plans Monthly
Premium
Monthly Cost to
the City
Monthly Cost to
the Employee
Blue Shield Silver PPO + HSA
(Family plan)
$2,259.57 $1,564.32 $695.25
Blue Shield Gold PPO (no HSA)
(Family plan)
$3,608.24 $2,542.73 $1,065.51
Cost Difference per Month per
employee
$1,348.67 $978.41 $370.26
In May 2025, the IRS announced that annual 2026 HSA contribution limits will increase
from $4,300 to $4,400 for single employee only coverage and from $8,550 to $8,750 for
employee and dependent coverage, which are increases of $100 and $200, respectively,
from 2025.
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In an effort to continue to incentivize employees to participate in the lower-cost, high-
deductible PPO+HSA plan and assist employees in keeping up with the rising cost of the
plan’s premiums and medical fees, staff seeks City Council approval to increase the City's
HSA contribution to the full IRS allowed amount of $4,400 for single employee only
coverage and $8,750 for employee and dependent coverage effective January 1, 2026.
This would result in a cost increase of $4,600 or 3% in 2026, which is included in the FY
2025-26 personnel budget for a total of $173,000. Attached for City Council consideration
is a resolution memorializing the increase (Attachment A).
Rancho Palos Verdes Employees Association
The City’s labor representatives offered to meet and confer with R ancho Palos Verdes
Employees Association (RPVEA) regarding increasing the City’s contribution to eligible
employee health savings accounts pursuant to the requirements of the Meyers -Milias-
Brown Act (MMBA). On October 23, 2025, RPVEA’s Board advised that it did not need to
meet and confer and had no objection to the City’s proposal. An MOU Amendment was
then circulated for execution to confirm this tentative agreement, subject to City Council
approval authorizing the City Manager to sign the Amendment to the MOU (Attachment
B.)
As a result, staff requests the City Council approve, adopt and implement the First
Amendment to the City’s MOU with the RPVEA for the period July 1, 2025 through June
30, 2028, increasing the City’s contribution to eligible employee health savings
(Attachment B).
ADDITIONAL INFORMATION:
The City’s MOU with American Federation of State, County and Municipal Employees,
District Council 36 (AFSCME) expired on June 30, 2025, and both parties have been
negotiating in good faith for a successor MOU since April 2025. Given that there is no
active MOU in place or any eligible employees who are enrolled in the PPO+HSA plan,
staff does not recommend adjusting the City’s HSA contribution at this time. If needed,
an adjustment will be brought forward to the City Council with a proposed, successor
MOU, when one is negotiated with AFSCME.
CONCLUSION:
Staff recommends the City Council authorize increasing the City’s contribution to the 2026
Blue Shield high-deductible PPO with HSA medical plan for eligible full-time employees,
in accordance with the IRS 2026 HSA contribution limits effective January 1, 2026. The
total net increase from prior year’s budget is approximately $4,600 or 3%.
ALTERNATIVES:
In addition to the Staff recommendation, the following alternative actions are available for
the City Council’s consideration:
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1. Do not authorize the increase to the Blue Shield high deductible PPO with HSA
medical plan.
2. Identify a different amount to contribute toward an employee’s PPO with HSA
medical plan within the parameters established by the IRS.
3. Take other action, as deemed appropriate.
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RESOLUTION NO. 2025-__
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
RANCHO PALOS VERDES AUTHORIZING THE
INCREASE OF THE CITY’S HEALTH SAVINGS ACCOUNT
CONTRIBUTION FOR ALL ELIGIBLE FULL-TIME
EMPLOYEES EFFECTIVE JANUARY 1, 2026
WHEREAS, Section 36506 of the California Government Code requires that a City
Council fix the compensation of all appointive officers and employees by resolution or
ordinance; and
WHEREAS, the City of Rancho Palos Verdes (“City”), through City Council action,
provided eligible employees with a high-deductible Preferred Provider Organization
(“PPO”) medical plan with a Health Savings Account (“HSA”) feature that was partly
funded by the City starting in 2007; and,
WHEREAS, the City Council has increased its HSA contribution amounts over the
years since 2007; and
WHEREAS, the Internal Revenue Service (“IRS”) administers and enforces U.S.
federal tax laws and announced that eligible HSA contribution limits would be increased
for calendar year 2026 due to the recent inflation surge from $4,300 to $4,400 for
employee-only coverage, and from $8,550 to $8,750 for family coverage; and
WHEREAS, the City’s labor relations representatives met and conferred with the
Rancho Palos Verdes Employees Association (“RPVEA”), as the exclusive employee
organization for those City employees in the bargaining unit defined as non-management,
full-time employees in the classifications listed in Exhibit "A" to the 2025 -2028
Memorandum of Understanding (“MOU”) between the City and the RPVEA, and reached
a tentative agreement to implement an increase to the City’s HSA contributions to the
new limits allowed by the IRS for eligible employees for 2026 subject to City Council
approval by resolution and have prepared, under a separate resolution, a First
Amendment to the 2025-28 RPVEA MOU to reflect that change.
NOW, THEREFORE THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES DOES HEREBY FIND, DETERMINE, AND RESOLVE AS FOLLOWS:
Section 1. The City Council finds the above recitals are true and correct and
incorporated herein by this reference; and,
Section 2. The City Council hereby approves, adopts and implements
increased City contributions to the City’s high deductible PPO medical plan with HSA to
the IRS allowed limits of $4,400 for employee-only coverage and $8,750 for family
coverage for eligible employees commencing January 1, 2026 for all full-time City
employees subject to any required meet and confer with the respective employee
organization for represented employees; and,
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Resolution No. 2025-__
Page 2 of 2
Section 3. The City Council hereby approves, adopts and implements the First
Amendment to the 2025-28 RPVEA MOU which incorporates the increased City
contributions to the City’s high deductible PPO medical plan with HSA to the IRS allowed
limits of $4,400 for employee-only coverage and $8,750 for family coverage for eligible
RPVEA represented employees commencing January 1, 2026; and,
Section 4. This resolution shall be effective upon adoption though
implementation shall occur at a later date as specified herein. The City Clerk shall certify
the adoption of this Resolution.
PASSED, APPROVED AND ADOPTED on this 4th day of November, 2025.
________________________________
David L. Bradley, Mayor
ATTEST:
________________________________
Teresa Takaoka, City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss
CITY OF RANCHO PALOS VERDES )
I, Teresa Takaoka, City Clerk of the City of Rancho Palos Verdes, hereby certify that the
above Resolution No. 2025-__ was duly and regularly passed and adopted by the said City
Council at a regular meeting thereof held on November 4, 2025.
________________________________
Teresa Takaoka, City Clerk
A-2
RESOLUTION NO. 2025-__
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
RANCHO PALOS VERDES AUTHORIZING THE CITY
MANAGER TO SIGN A FIRST AMENDMENT TO THE
CITY’S MEMORANDUM OF UNDERSTANDING WITH THE
RANCHO PALOS VERDES EMPLOYEES ASSOCIATION
FOR THE PERIOD JULY 1, 2025 THROUGH JUNE 30,
2028, INCREASING THE CITY’S CONTRIBUTION TO
ELIGIBLE EMPLOYEE HEALTH SAVINGS ACCOUNTS IN
2026
WHEREAS, Section 36506 of the California Government Code requires that a City
Council fix the compensation of all appointive officers and employees by resolution or
ordinance; and,
WHEREAS, the City of Rancho Palos Verdes (“City”) continues to recognize the
Rancho Palos Verdes Employees Association (“RPVEA”) as the exclusive employee
organization for those City employees in the bargaining unit defined as non -management,
full-time employees in the classifications listed in Exhibit "A" to the Memorandum of
Understanding between the City and the RPVEA covering the period July 1, 2025 through
June 30, 2028 adopted on June 3, 2025 by City Council Resolution No. 2025-36 (“RPVEA
MOU 2025-28”), a copy of which is attached hereto as Exhibit "1"; and,
WHEREAS, pursuant to the provisions of the Meyers-Milias-Brown Act
(Government Code § 3500 et seq.), the City’s labor representatives and RPVEA have
met and conferred and reached a tentative agreement regarding increasing the City’s
contributions to employee Health Savings Accounts for individual employees and
employee family plans provided under the 2025-28 RPVEA MOU to further incentivize
employees to remain in or join the City’s high deductible medical plan, in return keeping
premium insurance costs lower for the City; and
WHEREAS, the City Council has determined that it desires to further incentivize
employees to remain in or join the City’s high-deductible medical plan by matching the
IRS increases to the contribution amounts for such HSA plans for calendar year 2026;
and
WHEREAS, the City Council and RPVEA desire to amend the current RPVEA
MOU 2025-28 by accepting, adopting and implementing the attached First Amendment
to the 2025-28 RPVEA MOU to reflect the aforementioned changes.
NOW, THEREFORE THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES DOES HEREBY FIND, DETERMINE, AND RESOLVE AS FOLLOWS:
Section 1. The City Council finds the above recitals are true and correct and
incorporated herein by this reference; and,
Section 2. The City Council approves and adopts the attached First
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Resolution No. 2025-__
Page 2 of 2
Amendment to the 2025-28 RPVEA MOU provided herewith as Exhibit “1” thereby
increasing the City's Health Savings Account contribution for individual employees and
employee family plans starting calendar year 2026; and,
Section 3. This resolution shall be effective on January 1, 2026. The City Clerk
shall certify the adoption of this Resolution.
PASSED, APPROVED AND ADOPTED on this 4th day of November, 2025.
________________________________
David L. Bradley, Mayor
ATTEST:
________________________________
Teresa Takaoka, City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES ) ss
CITY OF RANCHO PALOS VERDES )
I, Teresa Takaoka, City Clerk of the City of Rancho Palos Verdes, hereby certify that the
above Resolution No. 2025-__ was duly and regularly passed and adopted by the said City
Council at a regular meeting thereof held on November 4, 2025.
________________________________
Teresa Takaoka, City Clerk
B-2
FIRST AMENDMENT TO
MEMORANDUM OF UNDERSTANDING
City of Rancho Palos Verdes
and
Rancho Palos Verdes Employees Association
July 1, 2025 - June 30, 2028
B-3
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FIRST AMENDMENT TO MEMORANDUM OF UNDERSTANDING
between the City of Rancho Palos Verdes and the
Rancho Palos Verdes Employees Association
for the Period of July 1, 2025 through June 30, 2028
Pursuant to the requirements of the Meyers-Milias-Brown Act (“MMBA,” commencing at
California Government Code § 3500 et seq.), the City of Rancho Palos Verdes (“CITY”) has
recognized the Rancho Palos Verdes Employees Association (“RPVEA”) as the majority or
exclusive representative, as those terms are interchangeably used under the MMBA, for those
CITY employees in the bargaining unit defined as non-management, full-time employees in the
classifications listed on Exhibit “A” to the Memorandum of Understanding between the CITY
and RPVEA for the period July 1, 2025 through June 30, 2028 (“RPVEA MOU 2025-28”), and
adopted by Resolution No. 2025-36 on June 3, 2025.
Thereafter, by and between the CITY and RPVEA, this First Amendment shall only become
effective upon City Council adoption and makes only those changes reflected herein below, all
other terms and conditions of the RPVEA MOU 2025-28 remaining in full force and effect.
RPVEA MOU 2025-28, ARTICLE VII Benefits, Section A, subsection 1, currently provides as
follows:
A. Medical Insurance and Opt-Out
1. Medical Insurance
The City has five (5) medical plans available to employees (3 HMO’s, 1
traditional PPO, and a high deductible PPO).
The high deductible PPO plan comes with a Health Savings Account (HSA) that
is funded by the City. The City’s annual contribution to an employee’s HSA plan
for the 2025 calendar year is Four- Thousand Three Hundred dollars ($4,300.00)
for single coverage or Eight-Thousand Five Hundred Fifty dollars ($8,550.00) for
employee and dependent coverage. Employees can make additional contributions,
on a pre-tax basis, to their HSA account through payroll deductions, up to the IRS
limits, based on their age (50+) and coverage level.
ARTICLE VII Benefits, Section A, subsection 1, shall be superseded and replaced in full with
the following language upon City Council approval of this First Amendment to the RPVEA
MOU 2025-28:
A. Medical Insurance and Opt-Out
1. Medical Insurance
The City has five (5) medical plans available to employees (3 HMO’s, 1
traditional PPO, and a high deductible PPO).
The high deductible PPO plan comes with a Health Savings Account (HSA) that
is funded by the City. The City’s annual contribution to an employee’s HSA plan
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for the 2026 calendar year is Four- Thousand Three Hundred dollars ($4,400.00)
for single coverage or Eight-Thousand Five Hundred Fifty dollars ($8,750.00) for
employee and dependent coverage. Employees can make additional contributions,
on a pre-tax basis, to their HSA account through payroll deductions, up to the IRS
limits, based on their age (50+) and coverage level.
IT IS SO AGREED:
City of Rancho Palos Verdes Rancho Palos Verdes Employee
Association
Ara M. Mihranian – City Manager
Matt Waters - President
Catherine Jun – Deputy City Manager
Robert Nemeth– Vice President
Vanessa Godinez – Human Resources and
Risk Manager
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