(1) This section may be cited as the "State Employees Pretax Benefits Program Act."

(2) As used in this section, "employee" means any individual filling an authorized and established position in the executive, legislative, or judicial branch of the state, including the employees of the State Board of Administration.

(3) It is found and declared that the maintenance of a system of personnel management which ensures the state the delivery of high-quality performance by employees is facilitated by the state's ability to attract and retain qualified personnel. The Legislature recognizes that the public interest is best served by development of a benefits program which is not only cost-efficient but sufficiently flexible to meet the individual needs of its employees.

(4) The Congress of the United States has, by the enactment of the Internal Revenue Code of 1986, as amended, recognized the increasing cost to all employers and employees of necessary benefits and, in an attempt to help employers and employees meet these increased costs, has found and determined that employee benefits may be administered on a pretax basis. In so doing, Congress has thereby provided a method to assist state government in structuring employee benefit programs which are more cost-efficient for individual employees and state government.

(5) The Department of Management Services shall develop rules for the pretax benefits program, which shall specify the benefits to be offered under the program, the continuing tax-exempt status of the program, and any other matters deemed necessary by the department to implement this section. The rules must be approved by a majority vote of the Administration Commission.

(6) The Department of Management Services is authorized to establish a pretax benefits program for all employees whereby employees would receive benefits which are not includable in gross income under the Internal Revenue Code of 1986. The pretax benefits program shall be implemented in phases. Phase one shall allow employee contributions to premiums for the state health program and state life insurance to be paid on a pretax basis unless an employee elects not to participate. Phase two shall allow employees to voluntarily establish expense reimbursement plans from their salaries on a pretax basis to pay for qualified medical and dependent care expenses, including premiums paid by employees for qualified supplemental insurance. Phase two may also provide for the payment of such premiums through a pretax payroll procedure as used in phase one. The Administration Commission and the Department of Management Services are directed to take all actions necessary to preserve the tax-exempt status of the program.

(7) The Legislature recognizes that a substantial amount of the employer savings realized by the implementation of a pretax benefits program will be the result of diminutions in the state's employer contribution to the Federal Insurance Contributions Act tax. There is hereby created the Pretax Benefits Trust Fund in the Department of Management Services. Each agency shall transfer to the Pretax Benefits Trust Fund the employer FICA contributions saved by the state as a result of the implementation of the pretax benefits program authorized pursuant to this section. Any moneys forfeited pursuant to employees' salary reduction agreements to participate in phase one or phase two of the program must also be deposited in the Pretax Benefits Trust Fund. Moneys in the Pretax Benefits Trust Fund shall be used for the pretax benefits program, including its administration by the Department of Management Services or a third-party administrator.

(8) Any Federal Insurance Contributions Act tax savings and any reimbursement account forfeitures in the Pretax Benefits Trust Fund in excess of the obligations and encumbrances to administer the pretax benefits program shall be calculated as of June 30 each year and transferred to the State Employees' Group Health Self-Insurance Trust Fund prior to July 1 of each year.

(9) For all purposes under any state-administered retirement program, the compensation or gross compensation of any employee participating in any pretax benefits program shall be deemed to have been the compensation or gross compensation which the employee would have received if he or she were not participating in such pretax benefit program.