Author: Site Staff

Issue: During a clerk’s required attendance at a meeting with human resources and the employer’s legal counsel, the clerk was told that her employer was investigating allegations of sexual harassment made by another employee against a supervisor. The meeting was part of the employer’s internal investigation, conducted in response to an EEOC notice of a separate charge of discrimination. The clerk answered questions regarding the office interactions between the other employee and the supervisor. Four days after attending the meeting, the clerk was terminated, purportedly for giving false information about why she was late to the meeting.

As HR director, you know that reprisals against employees who have filed a charge or testified, assisted, or participated in any manner in an investigation, proceeding, or hearing are prohibited. That part of the retaliation provision relating to this kind of activity is known as the “participation clause.” Does the clerk’s conduct during the meeting qualify as protected conduct under the “participation clause” of Title VII of the Civil Rights Act of 1964?

Answer: Most likely. By participating in her employer’s internal investigation—an investigation that was conducted in response to an EEOC notice of charge of discrimination—the clerk engaged in statutorily protected conduct under Title VII’s participation clause, according to the 11th Circuit Court of Appeals. An employee’s participation in an internal investigation counts as participation in the EEOC investigation, “at least where an employer conducts its investigation in response to a notice of charge of discrimination, and is thus aware that the evidence gathered in that inquiry will be considered by the EEOC as part of its investigation,” reasoned the court.

Cite: Clover v. Total Systems Services (11thCir 1998) 74 EPD 45,606, 157 F3d 824; vac’d (11thCir 1999) 75 EPD 45,802; on petition for reh’g (11thCir 1999) 75 EPD 45,890.

Note: In its 1998 opinion, the 11th Circuit held that the “participation clause” protects an employee from retaliation only in cases where the employee participates in an investigation conducted by the EEOC or its designated representatives. In other words, the court narrowly interpreted the scope of Title VII’s participation clause to hold that the clause does not cover an employee’s involvement in an employer’s internal discrimination investigation. However, on rehearing, the court said its previous opinion was in error because it focused exclusively on whether or not the employee was participating in an EEOC investigation.

What should you do?

• Avoid unequal treatment.
  Employers should take care to treat employees participating in Title VII proceedings on behalf of discrimination claimants the same as individuals who participate in such proceedings on behalf of the employer.
  
  Example: A U.S. Postal Service policy of paying employees who testified on behalf of the government while denying paid leave to employees who testified for the party opposing the government was held to be unlawful because of the “chilling effect” the practice had on those who participated in Title VII proceedings on behalf of charging parties.
  
  Cite: Stup v. Bolger (EDVa 1984) 36 EPD 35,011, 578 FSupp 1394; Davis v. Bolger (DDC 1980) 23 EPD 31,151, 496 FSupp 559.

• Establish an independent basis for discipline.
  The ban on retaliation for participation in Title VII proceedings does not prevent an employer from disciplining an employee when discipline is warranted. However, discipline can never be based on an employee’s participation in protected proceedings. Since unlawful motive is the key, employers must be careful not to create an appearance of unlawful motive.
  
  Example: A male sales representative who involuntarily testified that he had sexually harassed a female receptionist was protected by Title VII’s anti-retaliation provision. Because there was direct evidence that the sales rep’s testimony was the reason he was fired, an appeals court revived the sales rep’s lawsuit for retaliation. In order to determine what action to take against five employees accused of sexually harassing the receptionist, the company president reviewed all deposition testimony, but did not undertake an independent investigation. The company president also told the sales rep that “your deposition was the most damning to [the employer’s] case, and you no longer have a place here.”
  
  The 11^th Circuit stressed that its decision was not intended to prohibit imposing discipline on an employee who sexually harasses other employees. Direct evidence of retaliatory motive made the case a rare exception. Absent such evidence, the appeals court said that summary disposition in the employer’s favor should be the rule.
  
  Cite: Merritt v. Dillard Paper Co (11thCir 1997) 71 EPD 44,977.

• Don’t try to limit participation rights.
  Promises not to file a charge or participate in an EEOC proceeding should not be included in agreements such as contracts requiring the use of alternative dispute resolution procedures, waiver agreements, employee handbooks, employee benefit plans, and noncompete agreements. Such promises are generally not enforceable; they may also amount to separate and discrete violations of the anti-retaliation provisions of the civil rights laws.
  
  Example: Settlement agreements that prohibited individuals who had complained of sexual harassment from aiding the EEOC in its investigation of class-wide improprieties were void as against public policy. However, provisions banning the individuals from filing EEOC charges were upheld; they did not irreparably harm the EEOC’s investigation of existing charges.
  
  Cite: EEOC v. Astra USA Inc. (1stCir 1996) 68 EPD 44,220, 94 F3d 738.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

Issue: You have discovered that in one of your company’s departments, a supervisor has systematically been paying males less than females for the same work. Upon being confronted with this inequity, the supervisor, feeling the budget pinch, suggests that pay rates for females be reduced. How should you respond?

Achieving compliance with equal pay standard. In order to comply with the Equal Pay Act, lower rates paid to females performing the same work as males must be increased to the levels of higher rates paid to males. Similarly, lower rates paid to males who perform the same work as females would have to be raised to the higher rates paid to females. Rates can be equalized only by increases; reducing rates to equalize pay is prohibited by the statute. These rules apply as well to the elimination of unlawful differentials in the draw of employees who work on commission.

Remember, the equal pay directive applies only where both sexes perform equal work in the same establishment. Although the directive alone would appear to permit an employer to assign men and women to different operations within an establishment, or to restrict employees of particular establishments to one sex, such actions would violate the federal sex discrimination ban.

Even under the Equal Pay Act, if a job performed by a man becomes vacant and then is filled by a woman, the employer cannot pay the woman a lower wage rate than was paid for the same job when performed by the man. Similarly, an employer cannot remove all employees of one sex from a particular job and retain employees of only one sex in a job previously performed interchangeably or concurrently by both sexes.

Where wage rate differentials have been or are being paid on the basis of sex to employees performing equal work, rates of higher paid employees may not be “red circled” in order to comply with the statute. The Supreme Court has ruled that an employer does not cure an unlawful wage differential between an all-male and an all-female shift by opening up the men’s shift to women. The same is true with respect to separate job classifications.

Don’t wait for a court to equalize the rates.
In equalizing the rates of male and female employees doing equal work, a court may “incidentally” eliminate any legal differentials in the rates of the same sex when making upward adjustments to eliminate unlawful sex differentials. This will happen if there is no employer plan establishing lawful differentials based on seniority, merit, incentives or any other factor other than sex. Courts don’t have the discretion that employers have to establish these kinds of differentials.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

The change management team needs to have its finger on the pulse of what is and isn’t working so they can intervene where appropriate.

Many companies try to take as much cost as possible out of their change initiatives by developing and conducting their own training, or by short circuiting many of the items mentioned over the last couple days’ tips.

Keep on top of what’s going on, constantly referring back to your original goals and commitments. Be willing to make modifications where necessary, without compromising standards.

SOURCE: Randa A. Wilbur, Dechert-Hame & Company.

Issue: An employee comes to you after being turned down by his supervisor for leave to go to his son’s junior high school orientation meeting. The employee insists that the law requires that your company allow him time off to participate in his children’s school activities and that he has not used any school activity leave in the past 12 months. He states that just as he’s entitled to leave under the federal Family and Medical Leave Act (FMLA), he is entitled to school visitation leave. Is the employee correct?

Answer: Although there is legislation pending in both the House of Representatives and the Senate, no federal law currently requires that employers grant employees leave to participate in the school activities of their children. However, a growing number of states do provide some type of leave for employees to attend school functions.

Note that in one Senate bill addressing leave for school activities, the leave would come out of the time allowed for Family and Medical Leave, rather than being in addition to FMLA leave. The bill would permit employees 24 hours of unpaid leave per year to participate in their children’s educational activities—to attend parent-teacher conferences, participate in classroom activities and research new schools. The 24-hour period for these activities would be deducted from the 12 weeks already available under the FMLA.

In those states that have enacted school visitation provisions (Arkansas, California, Illinois, Louisiana, Massachusetts, Minnesota, Nevada, North Carolina, Oklahoma, Oregon, Rhode Island, Texas and Vermont), the number of hours that may be taken and the leave requirements vary.

The following summaries outline the current state school visitation leave requirements [note that Arkansas’ program has expired and Oklahoma and Oregon’s programs are not mandatory]:

Arkansas:
In Arkansas, a pilot school visitation leave program was established for the 1997-1998 school year for state employees. Under the pilot program, all state agencies had to provide their full-time employees who are parents and have children enrolled in Arkansas public schools unpaid leave to attend parent/teacher conferences or school performances of their children.

School visitation leave could only be taken twice during the 1997-1998 school year and each of the two leave periods could not exceed three hours. However, the requirements of the pilot program did not prevent an agency from allowing employees to use annual leave for parent/teacher conferences or school performances of their children.

No state agency could retaliate against an employee who used school visitation leave (Ark SB 673, Laws 1997).

California:
No one employing 25 or more workers at the same location may discriminate against an employee who is a parent, guardian or custodial grandparent of one or more children who are in kindergarten, in grades one through 12 or attending a licensed child day care facility for taking up to 40 hours each school year (but not exceeding eight hours in any calendar month of the school year) to participate in the school activities of the employee’s child, ward or custodial grandchild. Before taking time off, the employee must give reasonable notice to the employer of the planned absence.

If both parents are employed by the same employer at the same work site, only the parent that gives notice to the employer first is entitled to school visitation leave. In most cases, an employee must use existing vacation, personal leave or compensatory time off for school visitation leave. An employee may also use time off without pay, to the extent made available by the employer. Different rules apply if there is a collective bargaining agreement.

If requested by an employer, an employee must provide documentation from the school as proof that the employee participated in school activities on a specified date and at a particular time.

No employer may discriminate against an employee who is the parent or guardian of a pupil for taking time off to go to school when the pupil has been suspended; however, the employee must give reasonable notice to the employer before taking the time off (Cal LaborCode, Secs 230.7 and 230.8).

Illinois:
An employer must grant an employee up to eight hours total leave during any school year (no more than four of which may be taken on any given day) to attend school conferences or classroom activities related to the employee’s child, if the conference or classroom activities cannot be scheduled during non-work hours.

No school visitation leave may be taken unless the employee has exhausted all accrued vacation leave, personal leave, compensatory leave and any other leave that may be granted to the employee, except for sick leave and disability leave. School visitation leave must be scheduled so as not to unduly disrupt the employer’s operations.

An employee who uses school visitation leave may make up the time taken on a different day or shift as directed by the employer. An employee who takes school visitation leave must not be required to make up the time taken, but if the employee does not make up the time, the employee will not be compensated for the leave. Employees who do make up the time taken for school visitation leave must be paid at the same rate as they are paid for normal working time. Employers must make a good faith effort to permit employees to make up the time taken for school visitation.

No employer is required to grant school visitation leave to an employee if granting leave would result in more than 5% of the employer’s work force or of a particular shift taking school visitation leave at the same time (820 ILCS 147/10, /15, /20, /30, /40 and /49).

Louisiana:
An employer may grant employees leave from work of up to a total of 16 hours during any 12-month period to attend, observe or participate in conferences or classroom activities at a school or day care center related to the employee’s dependent children for whom the employee is the legal guardian. This applies only if the conferences or classroom activities cannot reasonably be scheduled during the employee’s non-work hours. An employee who requests school visitation leave must provide reasonable notice to the employer prior to the leave and make a reasonable effort to schedule the leave so as not to unduly disrupt the employer’s operations.

An employer is not required to pay an employee for any time taken as school visitation leave, but an employee may substitute any accrued vacation time or other appropriate paid leave for school visitation leave (La RevStatAnn, Sec 23:1015.2).

Massachusetts:
Eligible employees in Massachusetts are entitled to a total of 24 hours of family obligation leave during any 12-month period, in addition to leave available under the federal Family and Medical Leave Act of 1993 (FMLA).

Family obligation leave is available, among other reasons, to participate in school activities directly related to the educational advancement of a son or daughter of the employee, such as parent-teacher conferences or interviewing for a new school (public or private elementary or secondary schools, Head Start programs assisted under the Head Start Act and licensed children’s day care facilities).

The terms of the FMLA apply to state family obligation leave. If the need for family obligation leave is foreseeable, the employee must provide the employer with not less than seven days’ notice before the date the leave is to begin. If the need for family obligation leave is not foreseeable, the employee must provide as much notice as is practical.

An employer may require that a request for family obligation leave be supported by a certification of the need for leave (Mass GenL, Ch 149, Sec 52).

Minnesota:
An employer must grant an employee leave of up to a total of 16 hours during any 12-month period to attend school conferences or school activities related to the employee’s child (regardless of the employee’s time on the job), if the conferences or school-related activities cannot be scheduled during non-work hours.

If the employee’s child is in day care or attends a pre-kindergarten, regular or special education program, the employee may use school conference and activities leave time to attend a conference or activity related to the employee’s child, or to observe and monitor the services or program, if the conference, activity or observation cannot be scheduled during non-work hours. When leave cannot be scheduled during non-work hours and the need for leave is foreseeable, the employee must provide reasonable prior notice of the leave and make a reasonable effort to schedule leave so as not to unduly disrupt the employer’s operations.

School conference and activities leave need not be paid leave, but an employee may substitute any accrued paid vacation leave or other appropriate paid leave for any part of school conference and activities leave (Minn Stat, Sec 181.9412).

Nevada:
It is unlawful for an employer to:

1. terminate the employment of a person who, as the parent, guardian or custodian of a child, appears at a conference requested by the administrator of the school the child attends, or is notified during the person’s work by a school employee of an emergency regarding the child; or
2. assert to the person that the person’s appearance or prospective appearance at a conference or receiving notification during work will result in termination of employment (Nev RevStat, Sec 392.490).

North Carolina:
Employers must grant four hours leave per year to any employee who is a parent, guardian or person standing in the place of a parent of a school-aged child so that the employee may attend or otherwise be involved at that child’s school. The leave must be at a mutually agreed-upon time between the employer and the employee. The employer may require that the employee provide a written request for leave at least 48 hours in advance, and may require that the employee furnish written verification from the school that the employee attended or was otherwise involved at the school during the leave time. Leave need not be paid (NC GenStat, Sec 95-28.3).

Oklahoma:
The Oklahoma Board of Education will establish a program for encouraging private employers to give employees who have children in preschool programs, kindergarten or school programs time off to visit the schools for parent-teacher conferences at least once each semester (Okla Stat, Sec 10-105.2).

Oregon:
It is recommended, but not required, that employers recognize the need for parents, guardians and members of the community to participate in the education process not only for their own children but for the educational system. Employers are encouraged to extend appropriate leave to parents and guardians to allow greater participation in the education process of their children and wards during school hours (Ore RevStat, Sec 329.125).

Rhode Island:
Rhode Island provides for School Involvement Leave for employees. An employee who has been employed by the same employer for 12 consecutive months is entitled to a total of 10 hours of leave during any 12-month period to attend school conferences or other school-related activities for the employee’s child, foster child or a child for whom the employee is the guardian. Employees must provide notice 24 hours prior to the leave time and make reasonable efforts to schedule leave so as not to unduly disrupt the employer’s operations. Leave need not be paid leave, but an employee may substitute any accrued paid leave or other appropriate paid leave for any part of School Involvement Leave (RI GenLaws, Sec 28-48-12).

Texas:
State employees who are the parents of a child who is a student in pre-kindergarten through 12th grade, may use up to eight hours of sick leave each calendar year to attend parent-teacher conferences for their children. Before taking leave, an employee must give reasonable advance notice of the intention to use sick leave to attend parent-teacher conferences. Parents include persons standing in a parental relation to a child (Ted GovtCode, Sec 661.151).

Vermont:
In addition to family leave, employees are entitled to take unpaid leave not to exceed four hours in any 30-day period and not to exceed 24 hours in any 12-month period. An employer may require that leave be taken in a minimum of two-hour segments. This additional short-term family leave may be taken, among other reasons, to participate in preschool or school activities directly related to the academic educational advancement of the employee’s child, stepchild, foster child or ward who lives with the employee, such as a parent-teacher conference.

Employees must make reasonable attempts to schedule appointments for which short-term family leave may be taken outside of regular work hours.

In order to take short-term family leave, employees must provide the employer with the earliest possible notice, but in no case less than seven days before leave is to be taken, except in the case of an emergency—circumstances where the required seven-day notice could have a significant adverse impact on the family member of the employee and the employee had no way of knowing in advance. At an employee’s discretion, accrued paid leave, including vacation and personal leave, may be used during short-term family leave (21 VSA 471, 472 and 472a).

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

A benefits Web site may strengthen benefits communication and reduce certain administrative burdens.

What are the advantages of a benefits Web site for employees?
Communicating benefits information via a Web site provides advantages for employees over other methods of communication. Information is immediately accessible at the employee’s convenience, possibly even at home. Sensitive information can be obtained confidentially, and all the benefits information remains organized in a place where it cannot get lost. Finally, the average employee will require little or no training to learn how to navigate the Web site.

What are the advantages for employers and plan administrators?
Using a benefits Web site can reduce costs for employers and plan administrators. For example, the self-service nature of the Web site allows employees to find the answers to their basic questions without having to ask an administrator or employer representative. This should free up time for HR personnel in employers’ offices who typically deal with employees’ benefit questions. Plan administrators also benefit by having more free time to work on other issues.

In addition, the process of disseminating information via a Web site is more efficient and more cost effective. Also, Web site “hits” can be used for quantitative and qualitative analysis.

Cite: Alan Cohen, president of Online Benefits, Inc., speaking at the June 7, 1999 joint meeting of the International Foundation of Employee Benefit Plans’ (IFEBP’s) Benefits Communication and Benefits Technology Institutes in Chicago.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

Some things to keep in mind when communicating a change initiative to employees:

• People need to understand why the organization is changing and need to be sold on the benefits.


• You should decide beforehand on the communication vehicles. Communication should be frequent and ongoing.


• Training should be provided, if necessary.


• If people will lose their jobs, this needs to be communicated to them openly and honestly.


• Rather than slashing jobs, you may want to work with top employees to reengineer their jobs.

SOURCE: Randa A. Wilbur, Dechert-Hame & Company.

You manage payroll for a company that wants to require a large group of non-exempt employees to be “on-call” during their half-hour lunch break. The employees will not be allowed to leave their workstation and will likely be interrupted at least a few times a week to perform work duties. You’ve been asked to determine whether (a) your company can require the employees to be on call during their lunch break; (b) whether they must be paid for their time; and (c) whether the company can provide a meal to the employees in lieu of wages.

 

Can your company require the employees to be on call during their lunch break?
The FLSA does not require employers to give workers a meal period. However, many states have laws or wage orders that require employers to give workers a meal period and possibly additional rest periods during the work day. With respect to meal periods, the requirements usually specify a 30-minute or one-hour meal break somewhere in the middle of the shift. The standards may also declare that requiring or permitting an employee to work during a meal period will lead to counting the time as hours worked. If your state has such a law, your company may be prohibited from requiring the employees to be on-call during lunch.

 

Must the employees be paid?
Unless the following three conditions are satisfied, the non-exempt employees’ meal periods must be counted as hours worked:

1. The meal period usually must be at least 30 minutes, but shorter periods may be justified in special cases; however, coffee and snack breaks cannot be treated as shorter, noncompensable meal periods.
2. The employee must be completely relieved of all duties, even inactive duties.
3. The employee must be free to leave the duty post, although confining the employee to the plant premises is permissible.

The mere possibility that emergency work may have to be performed during lunch periods if machinery breaks down does not give pay rights to employees who choose to remain on the plant premises during those periods. However, “on-call” status during meal times is compensable, as are meal periods taken by night watchmen. Similarly, employees not allowed to leave the business location during the break period must be compensated.

Because your non-exempt employees will be required to remain at their workstations, and will be called on to perform duties, their lunch break must be paid.

 

Can the company provide a meal in lieu of wages?
Your company must pay its employees at the regular rate of pay or provide them with in-kind compensation (such as a meal) equal to or greater than minimum wage. If the value of the meal is less, your employer could face substantial liability.

Another issue may be whether the employees must be given the choice between wages or a meal credit. A Department of Labor regulation concerning acceptance by employees of “facilities” has been interpreted by the Department to mean that employees for whom a meal credit is available must be given the option of choosing whether or not their meals will count toward wages.

However, some federal courts of appeals have disagreed. For example, the Eleventh Circuit has allowed a restaurant employer to take a credit on the cash component of its minimum wage obligation for meals regularly provided, even if employees are not given the continuing option of taking cash instead. In a similar ruling, the Sixth Circuit noted that the FLSA is silent as to whether employees must be given a choice of whether to accept a meal in lieu of a portion of their minimum wage. The court held that a restaurant’s practice of deducting all employees’ wages for the average cost of meals offered through its meal credit plan (based upon the number of hours they work) does not violate the minimum wage provisions of the FLSA—regardless of whether employees actually accept the offered meals.

 

Cite: 29 CFR §531.30; 29 CFR 785.19; Herman v. Collis Foods, Inc (6thCir 1999) 138 LC 33,872, 176 F3d 912; Davis Brothers, Inc v. Donovan (11thCir 1983) 96 LC 34,346, 700 F2d 1368.

 

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

 

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.

 

Here are some questions to determine if your company or non-profit is ready for a large-scale change initiative:

• Have the folks at the top bought off on it?


• Are senior managers willing to continually convey the change message?


• Are they willing to support the change through their own behavior?


• Below senior management, who are the operational leaders who need to be sold and take an active role in driving the change in their departments?


• Are current organizational policies, practices, accountability, feedback mechanisms, etc. in line with the change? If not, they could kill the effort.


• What barriers are in the way? Are there plans to overcome those barriers?


• Are you being realistic about how long the change process will take?

SOURCE: Randa A. Wilbur, Dechert-Hame & Company.

Here are a few tips for employees on how to give proper feedback to your boss. (These are also helpful suggestions for you to pass on to your employees!).

• Change your thought process from just complaining to giving productive and practical solutions. If you were smart enough to get the job, you must be smart enough to help improve it.

• If you encounter an extremely irritating situation, take five minutes and think about how to prevent it from happening again. Always take that critical five minutes to think before running to the boss.

• Keep your voice low and stay calm when bringing your complaint (productive solution) to the boss. An irrational or emotional person is probably not going to be heard or respected for their opinion.

• If you have a complaint about a co-worker, try talking to them first. You will find that most co-worker problems go away without needing to involve the boss. Just be sure to talk calmly and constructively. Try to sleep on it and then approach them the next day. You should also be prepared for some criticism about yourself. A natural reaction to finger pointing is to point back.

SOURCE: Matthew C. Hollingsworth, Techemployment.com, Cincinnati.

Cash balance plans have recently become a hot topic in the press. Critics say that such plans violate pension law by taking away benefits from older workers. This view appeared to receive some support recently with the release of a confidential memo in which the director of an Internal Revenue Service key district office indicated that a cash balance plan may be in violation of the law.

What is a cash balance plan?
Traditional pension plans calculate an employee’s benefits by using the number of years of an employee’s service and the employee’s final average pay. Thus, most of the benefits build up at the end of an employee’s career. Under cash balance plans, an employee’s benefits grow at a steady pace. Thus, such plans offer better benefits to younger, more mobile workers, but offer less, often substantially less, benefits to older workers with many years at one company. Employers can save money by converting traditional pension plans to cash balance plans, and many of them have been doing so.

What does Congress say?
Cash balance plans are the subject of legislative proposals in Congress. One proposal would require such plans to comply with more stringent notice requirements to participants affected by a conversion of a traditional pension plan to a cash balance plan. Some members of Congress have gone further, urging a ban on new cash balance plans. Recently, a congressional opponent of cash balance plans, Rep. Bernard Sanders of Vermont, leaked a confidential IRS memo written in 1998 in which the director of the IRS key district office in Cincinnati expressed the view that a cash balance plan may fail to qualify for tax purposes because the plan’s benefit accruals decrease as a participant ages.

What is the IRS position?
The release of the memo was picked up by the major media and fueled speculation that the IRS was now weighing in against all cash balance plans. However, the IRS has said that the memo was a request from the field office for technical advice from the IRS National Office regarding a specific case and does not reflect the general position of the IRS. In a related matter, the IRS recently took a formal position against a cash balance plan in pending litigation before the U.S. Tax Court and cited grounds for disqualifying the plan. However, this cash balance plan is viewed as “atypical” and not representative of the majority of these types of plans.

The bottom line.
To date, the IRS has made no specific statements indicating that cash balance plans as a whole violate the law. The memo and case referred to above involve specific and unique fact situations. Pending a change in the law coming from Congress or general guidance from the IRS, cash balance plans are likely to continue.

Source: CCH Incorporated is a leading provider of information and software for human resources, legal, accounting, health care and small business professionals. CCH offers human resource management, payroll, employment, benefits, and worker safety products and publications in print, CD, online and via the Internet. For more information and other updates on the latest HR news, check our Web site at http://hr.cch.com.

The information contained in this article is intended to provide useful information on the topic covered, but should not be construed as legal advice or a legal opinion.