July 30, 2007

Benefits legislation to expand | Payroll service provider bill | 401(k) fees under review

DHS finalizes Social Security mismatch regulations: Employers beware
Legislation to expand TAA benefits, and COBRA credit introduced
Bill to regulate payroll service providers introduced
401(k) fees under review
Bill aims to extend Section 127 Educational Assistance


DHS finalizes Social Security mismatch regulations: Employers beware
On August 10, the Department of Homeland Security (DHS) finalized regulations that will require employers to take certain steps if they receive a "mismatch" letter from the Social Security Administration (SSA) or the DHS. If employers follow these guidelines and terminate employees whose information cannot be reconciled with SSA files, they will be granted a "safe harbor" from prosecution for employing illegal workers. This rulemaking reflects the immense pressure the federal government is under to combat illegal immigration and aims to correct unclear guidance the SSA has provided employers regarding these letters in the past.

Under the new regulations, employers must comply with the following guidelines in the event they receive a mismatch letter to qualify for the safe harbor from prosecution. These guidelines will be included in a document from DHS that will be sent along with the mismatch letters employers receive from SSA:

• Within 30 days of receiving a no-match letter from the SSA, the employer must check the notice against the employee's records, make any necessary corrections and verify these changes with the SSA.
• If the employer does not find any errors in the records, the worker must be notified of the discrepancy between the information he provided the employer and the SSA's records. The worker then has 90 days after the employer received the letter to contact SSA to correct the mismatch. If the mismatch is corrected, the employee must inform the employer, and the employer should confirm the correction with the SSA. The worker must be terminated if he does not attempt to resolve the mismatch within this 90 day period.
• If the worker tries to but is unable to resolve the mismatch during that period, he has three days to fill out a new I-9 form. The worker cannot provide the document containing the Social Security number that was the subject of the mismatch letter, and the worker is required to submit a document with a photograph to complete the I-9.
• On the 94th day, if the worker cannot provide this documentation, the employer must terminate the worker. If the employer does not terminate the employee, the employer is now deemed to have constructive knowledge of employing an illegal worker.

Employers should document every step of this process in writing, including the date and time they contacted the SSA, which should be filed with the employee's I-9. We also recommend that employers limit their exposure to mismatch letters by signing up for either the Social Security Number Verification Service (SSNVS) or DHS's Basic Pilot program. Both of these services are fairly easy to use, and businesses can even designate a third party agent to facilitate submitting data, receiving and distributing notices, and communicating with employees.

The SSNVS is accessible by phone at 800-772-6270 or online at: http://www.ssa.gov/employer/ssnvadditional.htm. You can find information about the Basic Pilot program, which has been renamed "E-Verify," at https://vis-dhs.com/employerregistration.

Again, these rules will not go into effect until 30 days after they have been published in the Federal Register. It's also important to note that, as under current policy, a mismatch letter by itself does not give any indication of an employee's immigration status. Employers who take adverse action against an employee based on a mismatch letter alone would probably find themselves in court for violating discrimination and/or labor laws.

If you would like to view the new no-match regulations, they are available on the Department of Homeland Security's Web site at: http://www.dhs.gov/xlibrary/assets/ice_safeharbor_no-match_finalrule_2007-08.pdf.

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Legislation to expand TAA benefits, and COBRA credit introduced
On July 24, Senate Finance Committee chairman Max Baucus (D-MT) and Senator Olympia Snowe (R-ME) introduced bipartisan legislation that would extend Trade Adjustment Assistance (TAA) benefits to workers in the service sector whose jobs have been lost due to global trade. The bill would also increase from 65 percent to 85 percent the Health Care Tax Credit (HCTC) TAA beneficiaries can claim to offset the cost of COBRA health insurance continuation coverage.

In addition to the HCTC, TAA benefits provide eligible workers with job retraining as well as income and relocation allowances to help them to acquire stable jobs. Under current law, these benefits are only available to displaced workers in the manufacturing sector. Expanding the program to cover service sector workers, who make up the vast majority of the U.S. workforce, would more than double the $1 billion program.

Increasing the HCTC to 85 percent would be particularly beneficial to workers who wish to maintain their health care benefits for themselves and their families through COBRA while they search for another job. Under COBRA, individuals who choose to enroll must pay 100 percent of their plan's monthly health insurance premium plus a two percent administrative fee. Because employers usually pay most of the premium for covered workers while they are employed, many COBRA-eligible individuals find paying the full cost to be prohibitively expensive -- especially when they have no income.

This situation is common even with the current HCTC that covers 65 percent of the premium cost for TAA beneficiaries, as only 11 percent of workers who are eligible for the COBRA subsidy choose to enroll.

Sen. Baucus intends to proceed with the legislation once Congress returns from its month long August recess, and a companion bill in the House of Representatives should be introduced soon. As the nation's leading COBRA administrator, including the HCTC, Ceridian will be providing technical assistance to Finance Committee staff regarding the legislation's potential effect on the COBRA program and the HCTC.

The TAA bill could have a major impact on future trade expansion. Congressional Republicans and the White House have been frustrated with the Democratic leadership's delays on several trade deals the president has been negotiating, and the president's fast track trade authority expired in June.

Many Democratic members are wary of trade expansion due to the loss of domestic jobs that can follow as a result. The TAA program expires in September unless Congress takes action to continue it, and Republican members could use its reauthorization to broker an end to the current trade roadblock. Sens. Baucus and Snowe's bill to offer TAA benefits to more workers will undoubtedly play a large role in this debate, so stay tuned.

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Bill to regulate payroll service providers introduced
For the third time, Sen. Olympia Snowe (R-ME) has introduced legislation to regulate payroll service providers (PSPs). This legislation is in response to a few isolated instances of fraud in which a PSP collected tax payments from businesses and failed to transfer the money to tax authorities.

With an annual failure rate of a scant .00097 percent, the payroll service business as a whole is remarkably free of fraud or criminal activity. However, in those few instances where fraud has occurred, these cases are usually fairly high profile.

Under the legislation, payroll tax deposit agents (PTDAs) would be required to register annually with the IRS and elect to either submit a bond between $50,000 and $500,000 or undergo an annual audit to confirm that:

• The escrow account the PTDA holds the employers' taxes in is balanced annually to the total of quarterly reconciliation statements.
• The escrow accounts are not mixed with the agent's operating funds.
• Escrow funds are not used to pay the agent's operating expenses.
• There is receipt evidence that the agent paid the required taxes.

The measure would also require PTDAs to disclose to employers that the employer is liable for any unpaid federal or state taxes and inform them of methods they can use to make sure their taxes have been paid. And the bill would extend 6672 penalties to cover PTDAs who collect, but fail to make tax deposits.

In addition, the IRS would be required to issue a notice of confirmation of any address change relating to an employer making tax payments to both the employer's former and new address.

Although Senator Snowe has introduced this legislation over the past three sessions of Congress, it has received little attention among other Senators and U.S. House members, and the IRS has not been supportive of her efforts. However, Senator Snowe was able to attach the measure to a larger tax bill that the Senate Finance Committee approved last year (which also included a smorgasbord of some 75 tax provisions and various other pet projects), so this issue bears close watching.

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401(k) fees under review
House Education and Labor Committee Chairman George Miller (D-CA) introduced a bill on July 26 that would increase fee disclosure requirements for 401(k) plan administrators.

If enacted, Rep. Miller's bill, the Fair Disclosure for Retirement Security Act, would require plan administrators to provide account holders with a list of every service fee charged against the participant's account. Administrators would also have to disclose to plan sponsors all fees participants will pay, including trading costs, sales commissions and other charges.

The legislation aims to address what Rep. Miller calls "hidden fees" and "conflicts of interest" that can negatively affect 401(k) holders' retirement savings. The Education and Labor Committee has held a series of hearings on 401(k) fees and expects to consider the legislation in the fall.

For an in-depth overview of this topic, you can take a look at the Ceridian Government Relation's article -- Focusing on 401(k) fees -- in the February issue of Ceridian Connection.

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Bill aims to extend Section 127 Educational Assistance
The week of July 29, House Representatives Sander Levin (D-MI) and Philip English (R-PA) will introduce legislation, the Employee Educational Assistance Act, to make permanent tuition assistance benefits employers can make available under Section 127 of the tax code. Section 127 allows employers to offer their employees up to $5,250 annually in tax-excludable educational assistance benefits to cover costs for tuition, books, and other qualified expenses. Unfortunately, this section is set to expire at the end of 2010 unless Congress acts.

The education employees receive makes tuition reimbursement benefits a great value for companies, and they play a big role in worker retention. In fact, a recent SHRM survey shows that employees rank tuition benefits higher in importance than competitive salaries and holiday/vacation benefits for reasons to stay with a company.

SHRM has already expressed its strong support for the legislation. SHRM has also urged its members to contact their representatives in Congress regarding cosponsoring the Employee Educational Assistance Act, and other employer groups are sure to follow suit.