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. 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 Change to DOS codes

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 Transferscontaining 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 Unit’s[1] 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 employee’s 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 monthPay-in-lieu of notice. Employee’s 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 employee’s 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

15. New Rated DOS codes

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. 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. Definitions: Voluntary Termination Benefits:

19. 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 Voluntary Termination Benefits, cont. Expanded Health Care Coverage—If 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 University—If 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 Plan—If 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 2007–2008) 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. Career Counseling or Job Placement Services—Managers 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 Termination—If 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. 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 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. 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. 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 Involuntary Termination: Benefits Expanded Annuitant Health Care Coverage Not Provided by the OPEB Plan—If 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 2007–2008) 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 University—If 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 Coverage—An employee separated through temporary lay-off may continue to participate in the University’s group health plan by paying his or her health premiums for up to four (4) months beginning on the first day of the employee’s 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 Coverage—If 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. Severance Pay—Managers, 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 Termination—If 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 Services—Managers 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.