Voluntary and Involuntary Termination Benefits

1
Voluntary and Involuntary Termination Benefits

• Governmental Accounting Standards Board 47

2
New Process/New DOS codes

• GASB 47 went into effect July 1, 2005
• Campus required to begin using new DOS codes
  effective with FY 06/07 (July 1, 2006)
• In order to comply with GASB requirements, new
  reporting standards were accomplished as a manual
  effort for FY 05/06

3
Why?

• Governmental Accounting Standards Board (GASB)
  Statement 47 requires two classification types
  of termination benefits
• Voluntary Voluntary termination benefits include
  inducements to hasten separation from employment
  or as a result of voluntary termination.
• Involuntary Involuntary termination benefits
  include benefits provided as a direct result of
  an involuntary termination.

4
Change to DOS codes

• DOS Codes no longer available for use
• PLN (Pay in Lieu of Notice)
• SEV (Severance Pay)

• Users will be prevented from adding PLN and
  SEV to the EDB or paying terminal benefits using
  these DOS codes for
• One-time payments
• AP, FT
• Adjustments
• LX, RX
• Timesheets
• TE and TX

5
Retro Processing

• Users will still have the ability to process the
  PLN (Pay in Lieu of Notice) and SEV (Severance
  Pay) DOS codes in the Distribution of Payroll
  Expense process that is, Payroll Expense
  Transfers containing these DOS codes will not be
  rejected.

6
Pay-in-Lieu

• As noted in an earlier slide, the PLN DOS
  code has been replaced as a result of GASB47
  regulations and must no longer be used. Payment
  in lieu of notice must now reflect involuntary
  termination. The new DOS code ITP has been
  established to comply with GASB47 regulations.

7
Pay-in-Lieu, cont.

• Pay in-lieu-of notice is considered to be
  wages. A claimant is not eligible to receive
  unemployment compensation for the particular
  period following the termination of employment
  for which payments were intended. A pay-in-lieu
  of notice (ITP) payment is subject to the same
  terms and conditions as regular pay. Benefits
  will be based on the ITP pay period end date, not
  the pay period end date representing when the
  employee actually left. Likewise, vacation and
  sick leave accrue based on the projected
  separation date.
• When to use ITP
• Employee does not have the option of Preferential
  Rehire rights or Severance pay. Layoff is
  involuntary.
• A Payment in-lieu-of notice is used at the HR
  Control Units1 discretion. It is not a
  mandated type of payment.
• How to use ITP
• Separation date must be a projected date based on
  the agreement made with the HR Control Unit.
• Appointment/Distribution end dates and last day
  on pay status must be the last day the employee
  actually worked.
• AB2410 must be generated and distributed to
  employee for total owed (including projected
  wages) on employees last working day.
• 1 NOTE the term HR Control Unit is being used
  to encompass both staff (HR Team) and academic
  (Division) HR Payroll Personnel who might process
  severance pay.

8
ITP Example

• HR Control Unit offers a one month Pay-in-lieu of
  notice. Employees last working day is July 15,
  2006.
• HR Control Unit updates PPS with
• Separation date of 08/15/06
• Last day on pay status date of 07/15/06.
• Appointment end date of 07/15/06.

9

• HR Control Unit prepares AB2410 with three
  distribution lines

10
Result

• Employee is paid as regular time (REG) for the
  appropriate percentage through the actual last
  day worked (line 1)
• The remainder of July hours are paid as projected
  pay-in-lieu (ITP) at the appropriate percentage
  for the balance of the month (line 2)
• The projected August hours are paid as
  pay-in-lieu (ITP) at the appropriate percentage
  through the projected date of 8/15. (line 3)
• Terminal vacation paid must have an 08/31/06 pay
  period end date. (line 3) Vacation and sick leave
  accrue based on the projected separation date.
• In this example, John Doe would have benefit
  coverage through September 30, 2006 (August
  earnings, September 1 premium).
• AB2410 check for all pay due is given to John Doe
  on July 15, 2006.

11
Distribution Of Payroll Expense

• Two new object codes have been assigned for the
  salaries, wages, and payouts related to Voluntary
  Termination Benefits and Involuntary Termination
  Benefits, 1610 and 1620 respectively.
• The health and welfare benefits associated with
  the wages and payouts will use the existing
  object codes. The payroll system cannot directly
  charge benefits to Object Code 8770 (Voluntary)
  or 8775 (Involuntary). Thus, OP - General
  Accounting has distributed instructions to
  Controllers that the health and welfare benefits
  must be reclassified to the new object codes.
  Campuses can use the month-end report that
  details the benefit costs related to Termination
  Benefits.

12
New DOS Codes Paytran only!

• New voluntary and involuntary termination DOS
  codes established per GASB 47 requirements cannot
  be used in the distribution line (ie they cannot
  be set up in PPS as part of the employees EDB
  record via the EAPP function)
• The new DOS codes are only for processing as pay
  input DOS codes into a particular payroll compute
  (ie Payroll transactions (Paytran) only)

13
New DOS Codes, cont.

• Some of the new Voluntary and Involuntary DOS
  codes are BYA DOS codes, while others require pay
  rates with percentages or hours.

14
New BYA DOS codes
DOS DESCRIPTION USAGE
VTL Voluntary Termination Lump Sum Settlement Payments
VTS Voluntary Termination Severance By Agreement Payments
ITL Involuntary Termination Lump Sum Settlement Payments
ITS Involuntary Termination Severance By Agreement Payments for example, one month pay for each year worked.
15
New Rated DOS codes
DOS DESCRIPTION USAGE
VTR Voluntary Termination Regular Pay Pay in monthly increments
ITR Involuntary Termination Regular Pay Pay in monthly increments
ITP Involuntary Termination Pay In Lieu of Notice Regular Pay In Lieu of Notice
16
What about TRM??

• GASB 47 does not affect the payment of terminal
  vacation hours (TRM).
• Units should continue to process TRM hours on
  AB2410 final payments, as usual.

17
Functional Guidelines

• When an employee receives termination benefits,
  the Distribution of payroll Expense and General
  Ledger must records the cash-out payments
  separately from other salaries and wages and
  their associated fringe benefits. Fringe
  benefits should include Retirement, OASDI,
  Medicare, health insurance (medical, vision,
  dental, life, and disability insurance), Workers
  Compensation, and Unemployment Insurance.

18
Definitions Voluntary Termination Benefits

• Benefits provided to employees as
• an inducement to hasten the termination of
  services
• a result of a voluntary early termination plan
  (including early-retirement incentives)

• The liability associated with voluntary
  terminations becomes recognized when both of the
  following have been completed
• The employee(s) accepts the offer, and
• The amount of the liability can be estimated.

19
Voluntary Termination Benefits, cont.
Expanded Health Care CoverageIf a terminated
employee receives health care coverage beyond the
health care coverage described above, and the
cost of the expanded coverage is paid by the
University, it would qualify as a termination
benefit as defined in GASB Statement No. 47 for
which a liability and expense should be
recognized at each individual location. However,
if this benefit is being provided to an annuitant
as part of the defined benefit OPEB plan through
the OPEB Trust, it does not qualify as a
termination benefit under GASB Statement No. 47.
That situation is recognized as a liability and
expense at UCOP through the application of GASB
Statement No. 45. COBRA Benefits Paid By The
UniversityIf a terminated employee receives
COBRA coverage beyond what is offered under
University policy, and the cost is paid by the
University, it would qualify as a termination
benefit as defined in GASB Statement No. 47 for
which a liability and expense should be
recognized at each individual location. However,
if this benefit is being provided to an annuitant
as part of the defined benefit OPEB plan through
the OPEB Trust, it does not qualify as a
termination benefit under GASB Statement No. 47.
That situation is recognized as a liability and
expense at UCOP through the application of GASB
Statement No. 45. Expanded Annuitant Health Care
Coverage Not Provided by the OPEB PlanIf the
University provides and pays for enhancements to
the annuitant health benefits for an employee who
voluntarily terminates service, and for some
reason (including occurrences prior to the
implementation of GASB Statement No. 45 in
20072008) the enhancements are not being
provided as part of the defined benefit OPEB plan
through the OPEB Trust, it would qualify as a
termination benefit as defined in GASB Statement
No. 47 for which a liability and expense should
be recognized at each individual location.

• In general, the applicable benefits discussed in
  GASB Statement No. 47 are those over and above
  the normal benefits provided upon termination
  that are not provided through the UCRP or the
  OPEB Trust and are effectively an inducement for
  the employee to terminate their services.

• These include
• Health
• Expanded Health Care Coverage
• COBRA Benefits paid by UC
• Expanded Annuitant Health Care Coverage Not
  Provided by the OPEB Plan
• Other
• Career Counseling or Job Placement Services
• Cash Payouts at or Following Termination

Career Counseling or Job Placement
ServicesManagers and senior professionals may be
assisted with outplacement services and career
counseling, at the discretion of the department.
If a terminated employee receives career
counseling or job placement services paid by the
University, it would qualify as a termination
benefit as defined in GASB Statement No. 47 for
which a liability and expense should be
recognized at each individual location. Cash
Payouts at or Following TerminationIf a
terminated employee receives cash payouts
associated with an inducement to voluntarily
terminate, either a lump-sum or over a period of
time, including payments made in lieu of notice,
they would qualify as a termination benefit as
defined in GASB Statement No. 47 for which a
liability and expense should be recognized at
each individual location. These payments must be
distinguished from payments that may be made for
employee services already provided, such as cash
out for the SMSPP, accrued vacation.
20
Voluntary, cont Benefits not applicable to GASB
47
An eligible employee who voluntarily resigns from
University employment normally receives
healthcare benefits (for purposes of this
document, healthcare benefits include medical,
dental and vision coverage) for the entire month
in which he or she terminated employment and for
an additional month after the month of
termination. This benefit is provided in part
because the University pays benefits premiums on
an advance basis. University employees do not
view this arrangement as a termination benefit,
therefore it does not meet the definition of a
termination benefit. The benefit relates to a)
the billing arrangement the University has with
its carriers as part of its ongoing benefit
program for employees providing services to the
University and b) is related to their active
service.
COBRA/continuation health coverage is provided to
employees as a result of either a voluntary or
involuntary termination of employment or layoff.
The University, however, does not contribute
toward the cost of group health coverage under
COBRA. The employee must pay the full monthly
COBRA premium. This benefit does not meet the
definition of a termination benefit since the
University has no liability in connection with
the continued coverage.

• Certain benefit situations at the University
  either
• do not fit the definition of a termination
  benefit as used in GASB Statement No. 47
• OR
• are addressed through the UCRP or OPEB Plan

• Health Coverage
• COBRA
• Senior Management Severance Pay Plan (SMSPP)
• Enhancements to the Pension Benefits Provided by
  the UCRP
• Expanded Annuitant Health Care Coverage Provided
  by the OPEB Plan

Senior Managers who voluntarily separate from the
University receive their accumulated SMSPP
accruals, plus interest. However, the nature of
the plan is more related to a deferred benefit
compensation arrangement that provides a benefit
in exchange for employee services, rather than to
provide a benefit in exchange for the early
termination of services. Therefore, the SMSPP is
not a termination benefit as defined in GASB
Statement No. 47. While the SMSPP benefit is not
a termination benefit, under University policy
these SMSPP costs are accrued on an ongoing basis
and the appropriate liability currently exists.
Therefore, other than determining there is an
adequate accrual for the SMSPP under existing
University policy, there are no additional
adjustments that need to be considered as a
result of GASB Statement No. 47.
If enhancements to the UCRP benefits, such as
additional credit for years of service, an
increase in the benefit calculation multiplier,
etc., are provided to an employee who voluntarily
terminates their services, they are being
provided as part of the defined benefit pension
plan through the UCRP, therefore they are
obligations of the UCRP and do not qualify as a
termination benefit that campuses would record
under GASB Statement No. 47. This situation is
recognized as a liability and expense of the
University by UCOP through the application of
GASB Statement No. 27.
If enhancements to the annuitant health benefits
provided under the OPEB Plan are provided to an
employee who voluntarily terminates their
services, they are being provided as part of the
defined benefit OPEB plan through the OPEB Trust
(anticipated to be effective July 1, 2007),
therefore they are obligations of the OPEB plan
and do not qualify as a termination benefit under
GASB Statement No. 47 that campuses would record.
This situation is recognized as a liability and
expense to the University by UCOP through the
application of GASB Statement No. 45.
21
Involuntary Termination Benefits

• Involuntary termination benefits are those
  provided as a consequence of the involuntary
  termination of services. As stated in GASB
  Statement No. 47, Paragraph 50
• In contrast to voluntary terminations,
  involuntary terminations result from a unilateral
  decision by the employer

22
Involuntary Termination Benefits, cont.

• For involuntary termination benefits, a
  liability and expense is recognized when all of
  the following have been completed
• A plan of termination has been approved by those
  with the authority to commit the University to
  the plan, and
• That plan has been communicated to the employees,
  and
• The amounts can be estimated (reference FASB
  Statement No. 5).

23
Involuntary approval

• Recognition of those in a position to approve a
  plan requires the judgment of the Controller. For
  University-wide plans, the President or The
  Regents may be recognized as the appropriate
  authority. For plans that involve a few
  individuals or departments, the Academic and
  Staff Human Resource Department (or other
  departments depending on the situation) may be
  recognized as the appropriate authority.

24
Involuntary Plan defined

• A plan of involuntary termination is one that
• Identifies, at a minimum, the number of employees
  to be terminated, the job classifications or
  functions that will be affected and their
  locations, and the dates that terminations are
  expected to occur, and
• Establishes the terms of the termination benefits
  in sufficient detail to enable employees to
  determine the type and amount of benefits they
  will receive if they are involuntarily
  terminated.
• However, if a plan of involuntary termination
  requires the employee to render future service in
  order to receive termination benefits, the
  University must recognize a liability and expense
  for the portion of involuntary termination
  benefits that will be provided after completion
  of the future service ratably over the future
  service period, beginning when the plan otherwise
  meets the recognition criteria discussed above.

25
Involuntary Termination Benefits
Expanded Annuitant Health Care Coverage Not
Provided by the OPEB PlanIf the University
provides and pays for enhancements to the
annuitant health benefits for an employee who
involuntarily terminates service, and for some
reason (including occurrences prior to the
implementation of GASB Statement No. 45 in
20072008) they are not being provided as part of
the defined benefit OPEB plan through the OPEB
Trust, it would qualify as a termination benefit
as defined in GASB Statement No. 47 for which a
liability and expense should be recognized at
each individual location. COBRA Benefits Paid By
The UniversityIf a terminated employee receives
COBRA coverage beyond what is offered under
University policy, and the cost is paid by the
University, it would qualify as a termination
benefit as defined in GASB Statement No. 47 for
which a liability and expense should be
recognized at each individual location. However,
if this benefit is being provided to an annuitant
as part of the defined benefit OPEB plan through
the OPEB Trust, it does not qualify as a
termination benefit under GASB Statement No. 47.
That situation is recognized as a liability and
expense at UCOP through the application of GASB
Statement No. 45.
Health CoverageAn employee separated through
temporary lay-off may continue to participate in
the Universitys group health plan by paying his
or her health premiums for up to four (4) months
beginning on the first day of the employees
temporary layoff. The University will pay up to
three (3) months of premiums. For an employee
terminated through temporary lay-off and not
rehired, the three months of coverage would be
subject to the requirements of Statement No. 47.
However, if the employee is rehired before the
end of the three month period, then the benefits
would be treated as benefits provided to an
employee while on leave without salary. Expanded
Health Care CoverageIf a terminated employee
receives health care coverage beyond what is
offered under University policy, and the cost of
the expanded coverage is paid by the University,
it would qualify as a termination benefit as
defined in Statement No. 47 for which a liability
and expense should be recognized at each
individual location. However, if this benefit is
being provided to an annuitant as part of the
defined benefit OPEB plan through the OPEB Trust,
it does not qualify as a termination benefit
under GASB Statement No. 47. That situation is
recognized as a liability and expense at UCOP
through the application of GASB Statement No. 45.

• Health Care
• Health Care Coverage
• Expanded Health Coverage
• Expanded Annuitant Health Care Coverage Not
  Provided by the OPEB Plan
• COBRA Benefits Paid By The University

• Other
• Severance Pay
• Cash Payouts at or Following Termination
• Career Counseling or Job Placement Services

Severance PayManagers, senior professionals or
others may receive severance pay, at the
discretion of the Chancellor, in the amount of
one month of pay, or less, for each completed
year of continuous University service up to a
maximum of six months of severance pay. Senior
Managers who have been terminated may receive
financial assistance, subject to approval by the
Chancellor, the President, or The Regents as
required. Severance compensation may also be
approved in the case of a faculty member with
tenure or security of employment whose
resignation is deemed to be in the interest of
the University the authority in such cases rests
with the President following consultation with
the respective Chancellor, who must consult with
the appropriate advisory committee(s) of the
Academic Senate. Severance payments in this
regard does not include payments under the SMSPP
Cash Payouts at or Following TerminationIf a
terminated employee receives cash payouts
associated with an inducement to terminate,
either a lump-sum or over a period of time,
including payments made in lieu of notice, they
would qualify as a termination benefit as defined
in GASB Statement No. 47 for which a liability
and expense should be recognized at each
individual location. These payments must be
distinguished from payments that may be made for
employee services already provided, such as cash
out for the SMSPP, accrued vacation, etc. Career
Counseling or Job Placement ServicesManagers and
senior professionals may be assisted with
outplacement services and career counseling, at
the discretion of the department. If a terminated
employee receives career counseling or job
placement services paid by the University, it
would qualify as a termination benefit as defined
in GASB Statement No. 47 for which a liability
and expense should be recognized at each
individual location.