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A look back at legislation in 2007

By Rob Smith, Ceridian manager of Government Relations

The year 2007 brought many changes to Washington, D.C. For the first time in 15 years, the Democratic party was in control of both the House and Senate (albeit by razor thin margins) and both political parties promised that a new era of bipartisan cooperation had dawned.

These were short-lived promises. The atmosphere that began the year soon dissolved into bickering between Democrats and Republicans in Congress and, for the first time in the Bush Administration, between Congress and the White House. By the end of 2007, the legislative process had stalled on a host of key issues. These included immigration reform, health care, Social Security, the Iraq war and education. President Bush vetoed seven bills -- up from the one veto he issued over the previous six years of his time in office.

At first glance, 2007 appeared to be a rather unproductive year in Congress. However, among the disagreements and rancor, the federal government had some real success. It moved forward on several pieces of bipartisan legislation from Congress and long-awaited federal regulatory issues that will be of great importance to businesses and employees.

A decade in the making
Congress and the White House succeeded in providing the first increase in the federal minimum wage in over a decade. This phased increase will boost the wage by $2.10 -- from $5.15 to $7.25 -- by 2009 for the approximate 2 million workers who are paid the federal minimum wage.

The minimum wage bill also carried a $4.8 billion small business tax relief package. Most significantly, it included an extension of higher Section 179 expensing limits for capital investments through 2010. This allows small businesses to expense the purchase of new equipment in the year it is purchased rather than writing its cost off over several years.

The minimum wage bill also extended the work opportunity tax credit to 44 months for qualified individuals who begin work after December 31, 2007, and before September 1, 2011. Employers will now be able to take the tax credit for hiring veterans and individuals who live in counties where the population has decreased.

Married couples who own a business and file jointly now will be able to report each of their shares of income. As a result, both individuals will be able to receive full credit for Social Security benefits. Under previous law, these couples had to report their business income in only one name or go through the complicated process of forming a partnership.

Children's health program tied to employer reporting
Congress also passed two bipartisan bills to increase funding for the State Children's Health Insurance Program (SCHIP). This federal program provides grants to states to fund programs that provide children's health coverage.

These bills included several provisions to require companies to report health plan cost and quality and coverage information to health agencies in states that sponsor premium sharing plans that provide beneficiaries with subsidies to help them purchase private coverage.

President Bush ultimately vetoed the SCHIP measures, but Congress and the president were able to agree on legislation to extend program funding through 2009. The employer reporting requirements are off the table until 2009 when Congress takes up the SCHIP debate again. However, premium assistance programs have gained widespread bipartisan support. These programs bridge the gap between Democrats who want to expand government programs to improve health coverage and Republicans who want to use the existing private health care system to accomplish this goal. Employer health benefits cost and quality reporting is shaping up to be the key to the success of these programs and we can expect this issue to move forward in 2009.

Long-awaited guidance will allow benefits to evolve
The Bush Administration also came through on some long-awaited guidance from the IRS regarding cafeteria plans.

Prior to the new proposed rules, the fundamental cafeteria plan guidance was issued as proposed regulations in the 1980s that were never finalized, and the IRS added to them sporadically. Once the 2007 rules are finalized, the IRS plans to replace the previous unclear guidance with the new consolidated, organized set of rules that takes into account changes made in the intervening years. It also provides definitions and examples of how cafeteria plans should be administered.

As health care costs continue to dramatically increase across the board, more employers are using cafeteria plans to help cut down on expenses and maintain their employees' health benefits. The new regulations will allow employers to more easily adopt new plans and manage existing ones as the American health care system continues to evolve. The regulations have not been finalized, but the IRS stated that employers may begin relying on them immediately if they so choose.

Pension Protection Act guidance
In late 2007, the IRS and the Treasury Department released guidance to allow employers to implement the Pension Protection Act (PPA). This is probably the most significant retirement legislation since ERISA.

As a country, we now have about the same savings rate as we did during the Depression. This is a disaster in the making as millions of baby boomers approach retirement age. It is projected that a large percentage of future retirees will have no savings at all. To get workers on track to taking greater responsibility for their post-work lives, the PPA regulations give companies the freedom to automatically enroll eligible workers in a retirement plan. The companies, however, have to set forth the requirements these plans must meet to qualify for a safe harbor from fiduciary liability for investment losses. Refer to last month's issue of Ceridian Connection for a complete overview of this important new development.

Immigration solution elusive -- but path forward takes shape
Although Congress and the White House's immigration reform legislation collapsed in late June, the 2007 effort will undoubtedly shape future efforts at reform. Furthermore, members from both parties were heavily invested in the bill and showed that it is possible to bring Democrats and Republicans together on the issue.

The 2007 immigration debate did make one thing clear. Congress must first improve immigration law enforcement before it considers measures to increase the number of visas available or establish a process to grant citizenship to illegal immigrants who have worked in the United States for years.

There is talk in the House of Representatives of taking up legislation in 2008 to:

• Increase border protections.


• Mandate that all employers use the E-Verify electronic screening system to check new hire's Form I-9 information against government databases.

These provisions were included in what proved to be an overly broad bill in 2007 that also included a controversial pathway to citizenship for certain illegal immigrants.

Congress's gridlock on immigration legislation also cleared the way for state and local governments to take up their own bills to address illegal immigration. As a result, the Arizona and Oklahoma state legislatures passed extremely tough measures that will place some very significant compliance and legal burdens on employers in their states. The federal government also finalized some tough new rules that will require employers to follow a procedure to correct Social Security no-match letters. These regulations are currently on hold pending a court challenge but are expected to go into effect as planned in early 2008.

These somewhat painful enforcement-only approaches to immigration reform may have the effect of making employers, the government and other interested parties more likely to compromise on a comprehensive bill. The immigration reform battle is far from over, but 2007 may have been the year that began to shape policy change.

Expansion for military families popular, inevitable
Democrats and Republicans also came together to pass a significant expansion of the Family Medical Leave Act (FMLA) in two separate bills: the SCHIP legislation and legislation to fund the Iraq war. Under these measures, FMLA would be amended to require employers to provide up to 26 weeks of leave for an employee to care for a family member injured in the armed services. Family members of servicemen and women called to active duty would qualify for up to 12 weeks of FMLA. Both of the measures were vetoed by the president for reasons unrelated to the FMLA provisions. However, the clear bipartisan support for the issue in 2007 will make it part of Congress's early 2008 agenda when it takes up the Iraq spending bill.

Military pay clarified
The House and Senate also approved legislation to clarify federal regulations regarding differential military pay. Under this legislation, employers would be authorized to treat such payments as "wages," as well as withhold federal income taxes and report payments on the W-2.

This language would overturn IRS regulations dating to 1969 and the Vietnam era that specified employees called to active duty military service were no longer "employees." Any payments made to such individuals were not "wages;" employers must not withhold FIT or FICA taxes on such payments. The pending measure would define differential military pay as wages and authorize employers to withhold FIT and possibly FICA taxes -- although the effort to authorize employers to withhold FICA taxes remains unclear.

The House passed a slightly different version of the bill than the Senate, but Congress is expected to reconcile the bills in early January and put to rest a long-standing issue with military pay.

Progress isn't measured in numbers
Congress and the White House did not come through on a host of big ticket items last year, but the number of bills approved does not necessarily mean they weren't productive. 2007 brought some of the most significant changes employers have seen over the past decade and foreshadowed many more to come. While much is made in the media of how slowly the legislative process moves, much actually does get done -- and 2007 proved to be no exception.