401 sign-ups, health absences, leave accruals

HR Magazine, Sept, 2004 by John Sweeney, Diane Lacy, Linda K. Anguish

Q We sponsor an excellent 401(k) plan, but our participation rate is not as high as we would like it to be. What can we do to enhance participation?

A Since the primary purpose of a 401(k) plan is to give employees incentives to accumulate assets toward long-term goals--most important, retirement--employers should consider options to ensure that their employees are making the most of these tax-advantaged savings opportunities.

[ILLUSTRATION OMITTED]

One way to encourage employees to save is to implement automatic enrollment in the company-sponsored 401(k) plan. This lets the employer make a default election on behalf of employees to contribute at a predetermined participation level unless the employee elects not to participate or elects to participate at a different contribution level.

Automatic enrollment not only helps to ensure that employees are taking advantage of the value of a 401(k) savings tool, but also helps to maximize benefits to all classes of employees eligible to participate.

In many companies, lower-paid employees have a low rate of 401(k) participation, which ultimately can cause 401(k) discrimination test problems for the employer, resulting in reduced contribution maximums for highly compensated employees.

Under Internal Revenue Service (IRS) Revenue Ruling 2000-8, an employer can institute automatic 401(k) enrollment of employees at a rate of 3 percent of eligible compensation, and automatic contributions begin unless and until the employee alters his or her level of contribution or cancels the enrollment.

Earlier this year the IRS said employers can, with advance notice, automatically enroll employees at a contribution rate lower or higher than 3 percent and can escalate contribution percentages annually.

--JS

Q Can you suggest ways that I can handle employees' frequent and often lengthy absences for their own illnesses or to take care of sick family members?

A Handling health-related absences can be challenging. There may be times when you wish you had an employment attorney on one side of you and a medical doctor on the other. A more practical approach is to divide all the medical leave considerations into two groups--one consisting of your employer's voluntary policies, practices and plans, and the other made up of mandatory federal and state benefits.

The first group--the employer's policies and practices--includes sick leave, paid time off and leaves of absence not related to the Family and Medical Leave Act (FMLA). It would also include, if applicable, any wage-replacement benefit--such as a short- or long-term disability plan--for extended health-related absences or temporary disabilities that preclude the employee from working.

The second group--federal and state mandated benefits--includes FMLA as well as state family and medical leave provisions that may be more generous than the federal legislation. It also includes workers' compensation for on-the-job injuries; the Pregnancy Discrimination Act, which covers pregnancy as a temporary medical condition; the Americans with Disabilities Act (ADA); and, if applicable, state temporary disability programs. Such programs are in place in California, Hawaii, New Jersey, New York, Rhode Island and Puerto Rico.

In addressing an employee's health-related absences, consider the voluntary and mandatory benefits specific to your workplace along with any medical documentation the employee submits.

And bear in mind that there may be interplay between your voluntary benefits and the requirements of federal and state laws. For example, a longtime employee who has a serious work-related injury may be eligible for sick or paid-time-off leave from the employer, workers' compensation, state and federal FMLA, short-term disability or state temporary disability wage replacement, and a reasonable accommodation under the ADA that does not create an undue hardship for the employer.

[ILLUSTRATION OMITTED]

--DL

Q Does an employee on leave under the Family and Medical Leave Act accrue paid leave during that time off?

A An employee is not automatically entitled to continue accruing paid leave while off the job under the Family and Medical Leave Act (FMLA). The Department of Labor's Compliance Guide states, "Certain types of earned benefits, such as seniority or paid leave, need not continue to accrue during periods of unpaid FMLA leave provided that such benefits do not accrue for employees on other types of unpaid leave."

However, what if the employee is substituting paid leave for part or all of the unpaid FMLA? Under Section 825.209(h) of the regulations, "An employee's entitlement to benefits other than group health benefits during a period of FMLA leave (e.g., holiday pay) is to be determined by the employer's established policy for providing such benefits when the employee is on other forms of leave (paid or unpaid, as appropriate)."

Thus, if an employee is using accrued vacation during FMLA leave, and if employees would ordinarily continue to accrue paid leave while on vacation, the employee on FMLA leave would continue to accrue paid leave during the time that he or she is using vacation time.