(1) Any political subdivision in this state may establish in its accounting system
allowances for employees to dedicate part of their salary to expenses for dependent
care, medical expenses, insurance premiums and any other expenses qualified for tax-free
reimbursement under the federal Internal Revenue Code.
(2) Upon application by a public employee, a political subdivision that has established
allowances described in subsection (1) of this section may allow the employee to participate
in an expense reimbursement plan qualified under the federal Internal Revenue Code
at that place of employment.
(3) Portions of a public employee's salary dedicated to an expense reimbursement plan
under this section shall be included in any computation of benefits under that employee's
public employee retirement program.
(4) The amount by which an eligible employee's compensation is reduced under subsections
(1) to (3) of this section shall continue to be included as regular salary for the
purpose of computing the retirement and pension benefits earned by the employee, but
that amount shall not be considered current taxable income for the purpose of computing
Social Security benefits or federal and state income taxes withheld on behalf of the
(5) All amounts by which compensation is reduced under subsection (4) of this section
shall remain assets of the political subdivision until such time as the amounts are
disbursed to or on behalf of eligible employees in accordance with the terms of compensation
reduction agreements between the employees and the state.
(6) The amount by which an eligible employee's salary is reduced shall be deposited
with the account administrator as designated by the Public Employees' Benefit Board
for disbursement to, or on behalf of, eligible employees in accordance with the terms
of compensation reduction agreements between the employees and the state.
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