Author: Site Staff

This special monthly section gives you everything you need to know about important HR topics.

This month, learn about pension Best Practices; Policies; Legal Compliance; Budget Implications, and Technology.

Below is a list of questions the DOL says it uses to review companies’ computer operations, as well as service providers.

Plan’s Internal Computer Operations

1. Provide the name, position, title and telephone number of the person in your organization responsible for addressing the year 2000 compliance of the plan’s computer system.


2. If applicable, provide the name and telephone number of the person or entity hired to address the year 2000 compliance of the plan’s computer system. Provide a copy of the service contract.


3. If applicable, describe how the plan’s year 2000 service provider was selected and what information was reviewed in the course of the selection process.


4. What stages have been completed in addressing the year 2000 problem (e.g., inventory development, assessment, remedial action, testing, contingency planning)?


5. If applicable, provide a copy of the strategy or planning document addressing how year 2000 compliance will be ensured with respect to plan operations.


6. Has an inventory of plan-related computer information systems been developed for purposes of assessing year 2000 compliance? Please provide a copy.


7. Has a year 2000-compliance assessment been conducted? Please provide a copy.


8. What information has been reviewed by the plan fiduciaries regarding the plan’s year 2000 compliance?


9. What corrective measures have been identified to date? What remedial action, if any, has been taken? By whom? How much did it cost?


10. Who determined the remedial actions to be taken by the plan? What information provided the basis for the decision?


11. Has the plan been “certified” as year 2000 compliant? If so, please explain and provide a copy of the certification.


12. Has a testing schedule been devised for the plan’s computer systems? Who will perform the test?


13. Has a contingency plan been devised in the event critical computer operations are disrupted? If so, provide a copy.


14. What information has been provided, or will be provided, to plan participants regarding the year 2000 problem?


15. Who is responsible for paying the costs of addressing the year 2000 problem?

External Computer Operations of Plan Service Providers

1. Has the plan compiled a list of service providers for purposes of determining Year 2000 compliance? Has the plan determined which of these providers renders essential or critical services? Provide a copy of the list.


2. Provide the name and telephone number of the plan fiduciary responsible for hiring the plan service providers.


3. Has the plan notified service providers of its expectations regarding Year 2000 compliance? If so, provide a copy of the notification.


4. Have contracts between the plan and its service providers been amended to address the plan’s expectations regarding Year 2000 compliance? If so, provide copies of the contract amendments.


5. Has each plan service provider been contacted to determine their Year 2000 compliance? If so, please provide copies of the information requested and obtained from the service providers.


6. Has the plan fiduciary reviewed documentation from plan service providers regarding their Year 2000 compliance? If so, what information was reviewed and what action was taken by the plan fiduciary to ensure the plan’s interests, and those of participants and beneficiaries, were protected?


7. Were any concerns expressed by the plan regarding the service provider’s Year 2000 compliance? If so, what were those concerns and what actions were taken to address them?


8. What action has the plan taken to ensure that the remedial measures required to bring the service provider’s computer system into Year 2000 compliance have been or will be implemented?


9. Has the plan determined that the service provider has scheduled or conducted testing of its computer systems for purposes of determining Year 2000 compliance?


10. Has the plan obtained documentation describing the service provider’s contingency plan or the measures the service provider intends to implement in the event essential plan operations are disrupted due to a Year 2000 problem?

Plan sponsor’s computer system

1. Has the plan obtained appropriate and timely information from the plan’s sponsor regarding the Year 2000 compliance of its computer system?


2. Has the plan’s fiduciary considered the potential impact of a Year 2000 problem in the plan sponsor’s computer system in developing the plan’s contingency plan?

Investigations focused on financial institutions (banks, insurance companies, brokers, investment managers, etc.)

1. Identify the types of services provided to ERISA-covered employee benefit plans (e.g., trustee services, banking, brokerage, investment management, record keeping). Describe the measures that have been taken to ensure that all such services have been evaluated for Year 2000 compliance.


2. If the financial institution is subject to regulation by a federal, state or other regulatory agency, what actions were taken to comply with that agency’s requirements?


3. Has any governmental agency (state or federal) or other independent organization reviewed the company’s computer operations for Year 2000 compliance? If so, identify the agency or agencies. If any report was produced and provided to the institution, please provide a copy.


4. What actions have been taken by the financial institution to ensure that its service providers and vendors are Year 2000 compliant (e.g., have investment managers checked on the Year 2000 compliance of their brokers)?

Investment-related issues

1. If the fiduciary makes investment decisions on behalf of the plan, what specific procedures are followed to determine that the investments are Year 2000 compliant?


2. If the plan offers investment options in connection with individually directed accounts under section 404(c) of ERISA, has the plan fiduciary taken appropriate steps to ensure that the investment options and related information systems are Year 2000 compliant?


3. If a plan has delegated investment responsibility or authority, in whole or in part, to an investment manager or other fiduciary, what procedures has the fiduciary implemented to monitor that fiduciary’s investment decisions in connection with the Year 2000 problem?


4. In selecting, hiring, and retaining an investment adviser or manager, has the plan fiduciary obtained and reviewed appropriate information aimed at determining that investment decisions are made with consideration of Year 2000 compliance?

Source: U.S. Department of Labor, Pension and Welfare Benefits Administration, Washington D.C.

Here are some of the authors who contribute their opinions to Workforce Online.

	Jac Fitz-enz: Human Capital Jac Fitz-enz of the Saratoga Institute is shaping the future of human capital management and pioneering research on the productivity, cost, and profitability of the American workforce. He’ll show you ways to leverage your employees capabilities to make a powerful impact on your organization.
	Tom Terez: The Meaningful Workplace Balance … challenge … direction … dialogue … equality … fit … These and 16 other concepts hold the key to providing “meaning at work.” Each month, Tom Terez will unlock another key for you, helping you create a workplace with more than just jobs.
	Allan Halcrow: Putting it Together Few people have their pulse on the workplace today like Workforce publisher Allan Halcrow. He’ll help you make sense of events in the news and trends in management, and help you put them together to be more proactive in your job.
Your Turn Do you have an opinion you’d like to share with tens of thousands of other leaders in the management profession? No need to keep it to yourself. E-mail Online Editor Todd Raphael any ideas you have for a column you’d like to write.

Dilemma:

You are HR director for a large furniture store. One of your dockworkers, Tim, loads furniture into people’s cars and trucks from the back of the shop. Tim has a small cubicle near the dock, and on his bulletin board has a sticker which reads “Abortion: The Ultimate Child Abuse.”

Two employees have complained about the sticker at different times. You’ve told them that you felt that the sign could stay. Your reasoning was that employees should have the right to express most of their opinions in their own spaces, so long as they don’t make personal attacks on someone else, or break other boundaries.

However, you’re aware that Tim’s sticker is offending customers on occasion, who respond with scowls and side comments as they notice the sticker. Do you insist the employee (a solid employee for several years) remove the sign?

Responses:

“Just as HR directors have to monitor and enforce laws regarding harassment, discrimination, and other widely-known legal issues, employees should keep issues unrelated to work to themselves. We shouldn’t allow discussion of things that can lead to workplace violence and uncomfort in their environment. These things should be left to off-work discussions and opinions.

“Part of being an HR Director is to ensure that the employer is protected from legal violations, which includes ensuring that employees are being treated fairly, consistently, and working in satisfactory conditions. Customers, aside, I believe that the primary issue is that everyone who steps into your workplace (including customers) is content when they leave. Is that possible if you allow controversial subjects to take part in the workplace if they are non-work issues?”
—Candace Stark
HR Director
The Armadillo Club (restaurant chain)
Denver

“I would have asked the employee to remove the sign. It could be taken as sexual harassment. And any time the public can see then it’s a problem. You should not allow signs or personal items around that may upset others. You should have good taste when displaying things.”
—Sandra Smith
Office of the Secretary of State
State of California
Sacramento

“As much as I agree fully with Tim’s sign and believe he has the right to post his opinions in his personal space, the fact that his space—and, therefore, his opinion—is open to customer view violates the usual business precept that personal opinions are kept just that.

I would have to explain to Tim why his sign must be moved: not because of its content, but because it offers a controversial opinion to public view. If there is a place in his cubicle which is not visible from the customer areas of the loading dock, I’d suggest he place the sign there. Otherwise, it should be removed.

If similar visual situations are currently present, I would request that any personal material be placed where it is viewed by insiders only.”
—David Millson
President
CopyRIGHT Word Merchants
New Haven, VT

“I think, as a manager, that it would be wise to pull Tim aside and explain to him the offensiveness of the sticker, what it is causing, and what may lead to a possible lawsuit. I would still support Tim and his comment but I think that Tim would understand if I, as a manager, could communicate the possible circumstances of leaving the sticker where it is visible to others who may take offense.”
—Jean Rorex
Allied Signal
Tuscon

“The sticker has to go. First, other employees are offended or angered by this inflammatory statement. Imagine the discomfort around a workplace where an employee had a sticker that read “Christianity is Stupid.” Assuming your organization allows a certain degree of freedom of self-expression in the workplace, a good idea in my opinion, as it helps morale and makes people feel comfortable, you have to draw the line when even one employee is offended. Your right to self-expression in the workplace ends where people get offended. When it begins to become a customer service issue, then it becomes even more cut-and-dry.

A loyal employee of seven years surely must understand that while, yes, he/she does have the freedom to express themselves, the limit on that begins when coworkers feel uncomfortable working with someone who displays offensive material at work. The potential for lost business is there, because people may decide that the company tacitly supports a given view if employees are allowed to display material that can generate complaints. This employee is allowed to have their viewpoint. If they want to be public about it, they can get display anything they want on their property. The organization has an obligation to protect its employees and their business.”
—Tadish Durbin
Engineer
Concur Technologies
Oakland

Issue: A company is experiencing financial difficulties and stops meeting its employment tax withholding obligations. Both the company’s president (who is also the owner) as well as the CFO are aware of the company’s failure to pay over withholding taxes to the IRS. Throughout this period, the company’s president has been addicted to cocaine and alcohol. The IRS eventually files suit against both the president and the CFO seeking payment of the unpaid taxes and imposes the 100% “responsible person” penalty under IRC §6672 on both individuals. Does the company president’s drug and alcohol addiction absolve him of liability for the 100% “responsible person” penalty?

Answer: The company president is still liable. In order to be liable for the penalty, the individual must be a “responsible person”—someone with significant control over an entity’s finances—and must willfully fail to pay over the taxes. Voluntary intoxication, including drug or alcohol addiction, may never serve as a defense to the “responsible person” penalty.

When this case was appealed to the U.S. Court of Appeals, the court rejected the president’s argument that his drug addiction prevented him from acting willfully when he failed to pay over the taxes. The court noted evidence suggesting that the president was aware of the company’s failure to pay over the taxes and that the president maintained ultimate authority over the company’s financial affairs during the course of his addiction. Factors that indicate significant control over finances include:

1. supervisory authority over an employer’s financial affairs,
2. authority to determine the order in which creditors are paid, and
3. control over payment of wages.

However, the CFO might be off the hook. He argued that despite the existence of corporate documents clearly giving him the authority to pay over the taxes, he had no actual authority to do so given the instructions he received from the company president to pay trade creditors before the employment taxes. The court agreed that, in theory, such a situation could exist, but the CFO would be required to prove that reality did not match the documentary evidence.

Cite: U.S. v. Landau, CA-2, 155 F.3d 93 (1998), cert. denied 119 S.Ct. 1803 (1999).

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.

Are managers practicing what they’re preaching?

Just sit right back and you’ll hear a tale
Of the doom that is our fate.
That started when programmers used
Two digits for a date
Two digits for a date

RAM memory was smaller then;
Hard drives were tiny, too.
“Four digits are extravagant,
So let’s get by with two.
So let’s get by with two.”

“This works through 1999,”
The programmers did say.
“Unless we write new code by then
The data goes away.
The data goes away.”

But management had not a clue;
“It works fine now, you bet!
Rewriting code costs money,
We won’t do it just yet.
We won’t do it just yet.”

Now when 2000 rolls around
It all goes straight to hell,
For zero’s less then ninety-nine,
As anyone can tell.
As anyone can tell.

The mail won’t bring your pension check;
It won’t be sent to you
When you’re no longer sixty-eight
But minus thirty-two.
But minus thirty-two.

The problems we’re about to face
Are frightening, for sure.
And reading every line of code’s
The only certain cure.
The only certain cure

[key change, the big finish is coming]

There’s not much time, there’s too much code,
And COBOL-coders, few.
When the century is finished,
We may be finished, too.
We may be finished, too.

[majestic finale, full orchestra ]

Eight thousand years from now, I hope
That things weren’t left too late;
And people aren’t then lamenting,
“Four digits for a date.
Four digits for a date.”

Source: Posted on http://www.jokesandhumor.com; reprinted with their permission.

Here is a selected chronology of pension legislation beginning with the Revenue Act of 1921.

Revenue Act of 1921
Exempted interest income on trusts for stock bonus or profit-sharing plans from current taxation. Trust income was taxed as it was distributed to employees only to the extent that it exceeded employees’ own contributions. Did not authorize deductions for past service contributions.

Revenue Act of 1926
Income of pension trusts exempted from current taxation.

Revenue Act of 1928
Allowed employers to take tax deductions for reasonable amounts paid into a qualified trust in excess of the amount required to fund current liabilities. Changed the taxation of trust distribution so that individuals are taxed only on distributions that are attributable to employer contributions and earnings.

Social Security Act of 1935
Enacted Social Security.

Revenue Act of 1938
Enacted nondiversion rule. Made pension trusts irrevocable.

Investment Advisers Act of 1940
Required delegation of investment responsibilities only to an adviser registered under the act or to a bank or an insurance company (qualified under the laws of two or more states).

Revenue Act of 1942
Tightened coverage standard qualification, limited allowable deductions, and allowed integration with Social Security.

Labor-Management Relations Act of 1947
Sec. 302 provided fundamental guidelines for the establishment and operation of pension plans administered jointly by an employer and a union.

Revenue Act of 1950
Restricted stock options.

Social Security Amendments of 1950, 1952, 1954, 1958 and 1967
Affected pension integration provisions.

Welfare and Pension Plans Disclosure Act of 1958
Established disclosure requirements to limit fiduciary abuse.

Revenue Act of 1961
Amended sec. 403(b) to extend tax deferral for annuity purchases to employees of public school systems.

Welfare and Pension Plans Disclosure Act Amendments of 1962
Revised the 1958 act; shifted responsibility for protection of plan assets form participants to federal government to prevent fraud and poor administration.

Self-Employed Individual Retirement Act of 1962
Also known as the Keogh Act—adopted and subsequently liberalized by amendment. Made available qualified pension plans for self-employed persons, unincorporated small businesses, farmers, professionals and their employees.

Tax Reform Act of 1969
Sec. 302 provided fundamental guidelines for the establishment and operation of pension plans administered jointly by an employer and a union. Provided that part of a lump-sum distribution received from a qualified employee trust within one taxable year (on account of death or other separation from service) was to be given ordinary income treatment instead of the capital gains treatment it had been given under prior law. Under this act, the bargain element on the exercise of statutory options is a tax preference item, unless the stock option is disposed of in the same year the option is exercised.

Employee Retirement Income Security Act of 1974 (ERISA)
Signed into law September 2, 1974, ERISA was designed to secure the benefits of participants in private pension plans through participation, vesting, funding, reporting, and disclosure rules, and established the Pension Benefit Guaranty Corporation. Provided added pension incentives for the self-employed (through changes in Keoghs) and to persons not covered by pensions (through individual retirement accounts (IRAs)). Established legal status of employee stock-ownership plans (ESOPs) as an employee benefit; codified stock bonus plan under Internal Revenue Code. Established requirements for plan implementation and operation.

Tax Reduction Act of 1975
Established the Tax Reduction Act stock-ownership plan (TRASOP) as employee benefit. Provided additional 1 percent of investment tax credit for acquisitions, construction, and other capital expenditures made between February 1975 and January 1977, if employer sets up a TRASOP.

Tax Reform Act of 1976
Extended availability of TRASOP credit from February 1977 to January 1981 and added another 0.5 percent credit for employer-employee matching contributions.

Revenue Act of 1978
Extended TRASOP tax credit provisions through December 31, 1983, and required all TRASOPs to be tax-qualified if employee contributions were made for plan years beginning after December 11, 1978.

Established qualified deferred compensation plans (sec. 401(k)) under which employees are not taxed on the portion of income they elect to receive as deferred compensation rather than direct cash payments.

Created simplified employee pensions (SEPs). Changed IRA rules. Established nondiscrimination rules for cafeteria plans.

Miscellaneous Revenue Act of 1980
Permitted tax-qualified ESOPs to provide cash distribution to participants.

Economic Recovery Tax Act of 1981 (ERTA)
Raised contribution limits on IRAs and Keogh plans and extended IRA eligibility to persons covered by employer pension plans. Also authorized qualified voluntary, employee contributions. Permitted payroll-based tax credit instead of investment-based TRASOPs, Repealed qualified stock options. Established incentive stock options (ISOs) subject to taxation, modification, and reporting,

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
TEFRA changed Keogh plan contribution limitations, established a new category of plans known as top-heavy plans, and imposed more stringent sec. 415 funding and benefit limitations. Altered provisions allowing loans to plan participants. Changed rules governing integration with Social Security. Reduced estate tax exclusion for proceeds of qualified retirement plans, set age limits for plan distributions, and established various rules aimed at personal service corporations.

Social Security Amendments of 1983
Prohibited further pullouts of state and local government employer associations after effective date of law. Included amounts in salary reduction plans as taxable compensation for payroll tax purposes. Increased payroll taxes for self-employed persons. Required gradual increase of Social Security normal retirement age.

Tax Reform Act of 1984 (also see DEFRA)
Made substantial changes to rules governing IRAs, SEPs, ESOFs. ISOs. top-heavy plans, and golden parachutes.

Deficit Reduction Act of 1984 (DEFRA)
(included in Tax Reform Act of 1984)
Froze TEFRA’s maximum annual pension benefit and contribution limits through 1987. Modified TEFRA’s top-heavy provisions and definition of key employees, and exempted government plans from top-heavy requirements. Made changes affecting 401(k) plans, including the nondiscrimination test, Substantially changed TEFRA’s rules on distribution limits from qualified plans. Established additional tax incentives to encourage the formation of ESOPs.

Retirement Equity Act of 1984 (REA)
Changed the age requirements for purposes of enrollment and vesting in pension plans. Permitted certain breaks in service without loss of pension credits. Changed treatment of pension benefits for widowed and divorced spouses.

Consolidated Omnibus Budsmt Reconciliation Act of 1985 (COBRA)
(included in Single-Employer Pension Plan Amendments Act of 1986)
Significantly restricted the definition of insured termination for purposes of Pension Benefit Guaranty Corporation (PBGC) coverage. Raised the employer’s annual PBGC premium rare.

Tax Reform Act of 1986
Established faster minimum vesting schedules, changed rules for integration of private pension plans with Social Security, and mandated broader and more comparable minimum coverage of rank- and file-employees. Restricted 401(k) salary reduction contributions, tightened nondiscrimination rules, required inclusion of all after-tax contributions to defined contribution plans as annual additions under sec. 415 limits. Extended the limit on amount of compensation that may be taken into account under all qualified plans, imposed new excess benefit tax on distributions over a certain amount, and reduced maximum benefits payable to early retirees under defined benefit plans. Restricted the allowable tax-deductible contributions to IRAs for individuals who participate in employer-sponsored pension plans and whose income exceeds a specified threshold. Imposed excise tax on lump-sum distributions received before age 59 1/2. Created SEP salary reduction option for firms with 25 or fewer employees. Subjected loans above a certain amount to current income tax.

Omnibus Budget Reconciliation Act of 1986 (OBRA ’86)
Required that employers with pension plans provide pension accruals or allocations for employees working beyond age 64 and for newly hired employees who are within five years of normal retirement age.

Omnibus Budget Reconciliation Act of 1987 (OBRA ’87)
Changed funding rules governing underfunded and overfunded pension plans and PBGC premium levels and structure. Increased per-participant premiums for single-employer defined benefit plans, and established variable rate surcharge for underfunded plans. Established maximum funding limit of 150 percent of current liability, beyond which employer contributions are not deductible. Tightened minimum funding requirements for underfunded plans: required quarterly premium payment for single-employer plans. Amended Age Discrimination in Employment Act (ADEA) and the Employee Retirement Income Security Act (ERISA) to require full pension service credits for participants employed beyond normal retirement age.

Technical and Miscellaneous Revenue Act of 1988 (TAMRA)
Increased excise tax on excess pension assets upon termination of qualified plans.

Omnibus Budget Reconciliation Act of 1989 (OBRA ’89)
Partially repealed the interest exclusion on ESOP loans, Imposed mandatory Labor Department civil penalties on violations by qualified plan fiduciaries and created a tax penalty for substantial overstatement of pension liabilities in determining deductibility. Required that various forms of deferred compensation be included in determination of average compensation and, in turn, the Social Security taxable wage base.

Omnibus Budiget Reconciliation Act of 1990 (OBRA ’90)
Increased the excise tax on asset reversions from 15 percent to 20 percent in certain cases. Increased the excise tax to 50 percent if the employer does not maintain a qualified replacement plan or provide certain pro rata increases. Allowed the limited use of qualified transfers of excess pension assets to a 401(h) account to fund current retiree health benefits. Raised the PBGC flat premium and increased the variable premium Extended Social Security coverage to states and local government employees who are not participating tn a state or local public employee retirement system.

Older Workers Benefit Protection Act of 1990
Amended the Age Discrimination in Employment Act (ADEA) to apply to employee benefits. Restored and codified the equal-benefit-for-equal-cost principle. Set a series of minimum standards for waivers of rights under ADEA in early retirement situations.

The Comprehensive Deposit Insurance Reform and Taxpayer Protection Act of 1991
Enacted to reform the banking industry. Included provisions to eliminate pass-through coverage for benefit-responsive bank investment contracts (BICs) and to limit federal deposit insurance to $100,000 per individual per institution.

Unemployment Compensation Amendments of 1992
Imposed a 20 percent mandatory withholding tax on lump-sum distributions that are not rolled over into qualified retirement accounts. Liberalized rollover rules, and required plan sponsors to transfer eligible distributions directly to an eligible plan if requested by the participant.

Pension Benefit Guaranty Corporation (PBGC) Lease Settlements Act of 1993
Solidified a settlement made by PBGC and Continental Airlines clarifying that PBGC will be protected in the event of a future Continental Airlines bankruptcy

Omnibus Budget Reconciliation Act of 1993
Reduced the compensation limit for qualified plans (sec. 401(a)(17)) from $235,840 to $150,000. Increased the amount of Social Security benefits subject to taxation from 50 percent to 85 percent for single individuals with incomes above $34,000 ($44,000 for married individuals filing jointly). Placed a cap on the deduction of executive compensation in excess of $1 million that is not tied to performance.

Social Security Administrative Reform Act of 1994
Established the Social Security Administration as an independent federal agency effective March 31, 1995.

Pension Annuitants Protection Act of 1993
Clarified that, in cases where a pension plan fiduciary purchases insurance annuities in violation of ERISA rules, a court may award appropriate relief, including the purchase of backup annuities, to remedy the breach.

Uniformed Services Employment and Reemployment Rights Act of 1993
Guaranteed a veteran’s right to pension benefits that would have accrued during military service. Pension plans would nor have to pay earnings or forfeitures on make-up contributions. Repayment of employee contributions can be made over a period of three times the period of military service, not to exceed five years. If the service member elects not to be re-employed, no pension rights accrue for the period of military service, but the person’s vested interest prior to entering military service would remain intact.

Bankruptcy Reform Act of 1994
Gave the PBGC and state and local government pension plans seats on creditors’ committees in corporate bankruptcies.

Social Security Act Amendments of 1994
Simplified employment taxes for domestic services. Reallocated a portion of the Social Security tax to the Disability Insurance trust fund.

Uruguay Round Agreements Act of 1994
Included provisions from the Retirement Protection Act of 1993 to require greater contributions to underfunded plans. Limited the range of interest rate and mortality assumptions used to establish funding targets, phased out the variable rate premium cap, modified certain rules relating to participant protections, and required private companies with underfunded pension plans to notify the PBGC before engaging in a large corporate transaction. Slowed pension cost-of-living adjustments. Extended through the year 2000 a tax provision that allows excess pension assets in certain defined benefit plans to be transferred into a 401(h) retiree health benefits account.

The Small Business Job Protection Act of 1996
Created the savings incentive match plan for employees (SIMPLE) for small establishments. Created a new nondiscrimination safe harbor, repealed sec. 415(e) limits, created a new definition of highly compensated employees, modified plan distribution rules, repealed family aggregation rules, made USERRA technical changes, and required that sec. 457 plan assets be held in trust. Additionally, allowed nonworking spouses to contribute up to $2,000 to an individual retirement account (IRA) if the working spouse is eligible, clarified employment tax status for independent contractors, and temporarily reinstated the sec. 127 education deduction.

“Source Tax” Repeal of 1996
Amended the Internal Revenue Code to eliminate state taxation of pension income received by individuals who no longer reside in the state where they earned their pensions.

SOURCE: Employee Benefit Research Institute, Washington, DC.

Issue: When payday arrives for one of your new employees, your payroll department hits the panic button. Court-ordered child support payments, student loan payments, and federal and state tax levies must all be deducted from Mr. Worker’s pay. Your payroll administrator asks, with so many entities jockeying for position for their portion of the employee’s pay, which has dibs on the dough?

Answer: Employers may face a situation in which an employee’s wages are being attached from more than one source. Because the various parties that want a part of the employee’s wages generally do not have knowledge of each other, it is up to the employer to determine which orders must be complied with first. Since federal and state limits exist on the amount of money that may be withheld involuntarily from an employee’s wages, an employer faced with multiple withholding orders against the same employee may not be able to withhold the full amount required by each order.

In what order should pay deductions be made?
In general, the following order should be followed when processing multiple withholding orders against the same employee:

• Tax levies—Federal tax levies should be satisfied before all other orders for deductions of pay, with the exception of child support orders received by the employer prior to the tax levy. (State law should be checked for the treatment of state tax levies.)

• Child support orders—Child support orders should be satisfied before garnishments and student loan collections, but generally do not take precedence over tax levies. Two exceptions to this rule exist. First, if the child support order was received by the employer prior to the tax levy, the child support order takes precedence. Second, with respect to a federal tax levy, the IRS may instruct the employer to satisfy all child support orders first, regardless of when the employer received the order.
  
  What happens if an employee has more than one child support order issued against him? State rules govern how the different orders must be satisfied. In general, the states provide that each order should be satisfied at least in part.

• Garnishments—Garnishments should be satisfied only after tax levies and child support orders have been satisfied.

• Student loan and other federal government agency garnishments—No official guidance exists on what priority to give student loan and other federal government agency garnishments. However, it is likely that tax levies and child support orders will take priority. Employers processing student loan and other federal agency garnishments should contact the issuing agency if questions regarding priority arise.

Cite: .15 U.S.C. §1673(b).

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.

Sometimes we forget how helpful it can be to someone when we offer them advice. This funny little story will remind you that when you help someone by giving them advice, you are truly giving something of yourself.

While working on a sermon, a pastor heard a knock at his office door.

“Come in,” he invited. A contrite-looking man in threadbare clothes came in, pulling a large pig on a rope.

“Can I talk to you for a minute?” asked the man with his hat in his hand. The pastor showed him to a chair and the man sat down in it gingerly. The pig proceeded to sniff around the office. With one eye on the animal and one eye on the man, the pastor folded his hands on his desk and leaned forward, curious to hear the fellow’s story.

“What can I do for you?” asked the pastor.

“My family is hungry,” started the poor man. “So I stole this pig. But I feel that I have sinned. Would you please take it?”

“Certainly not,” said the pastor.

“Then what should I do with it?” asked the man.

“Give it back to the man you stole it from, of course!” the pastor explained.

“I offered it to him, but he refused to take it. Now what should I do?”

“In that case,” the pastor said, “It would be all right for you to keep it and feed your family.”

That seemed to settle things as far as the man was concerned. “Thank you for your help, sir,” he said. He walked out of the office, leading the pig on the rope behind him.

Later that afternoon the pastor returned home. When he arrived, he had a little surprise in store—somebody had stolen his prize pig.

SOURCE: Hamel Lutheran Jokes and Christian Humor, August 13, 1999.