No one knows how bad the Y2K "bug" will bite next January, but prudent companies are working now to minimize the impact of this problem on their businesses. Unfortunately, HR departments may be overlooked if a company focuses its Y2K efforts only on profit centers. This oversight could be extremely costly.
Imagine the legal and practical headaches you might face at the beginning of next year if your company cannot issue paychecks due to Y2K problems with its payroll system software. When was the last time you manually calculated your company's bi-weekly payroll?
Imagine employee health care coverage being discontinued, records of 401(k) contributions and matching funds being lost or inaccurate, or calculations of stock options being incorrectly recorded, all because of computer glitches.
Perhaps the most troubling Y2K issue for HR may concern the administration of employee benefit plans. Employee benefits are highly date sensitive because calculations about eligibility, vesting and distributions are generally based on years of service, age and timing of investments. If Y2K problems are not solved, all these calculations may be wrong when the year 2000 hits. In turn, employers, as plan sponsors or administrators, could be faced with ERISA claims when participants and beneficiaries do not receive the benefits to which they are entitled. Plan sponsors and administrators (i.e., employers) whose Y2K problems put plan assets at risk also could be faced with suits for breach of their fiduciary duty under ERISA to address the Y2K problem.
In an effort to help employers avoid such problems, the U.S. Pension and Welfare Benefits Administration has reminded employers that ERISA allows "reasonable" expenses relating to the administration of an employee benefits plan to be charged to the plan. Some companies therefore may be able to pass along some of their Y2K compliance costs to their retirement and health plans, easing the burden of what might otherwise be a very expensive fix. Employers must examine their plan documents to determine which costs (such as hiring consultants, upgrading hardware and software, etc.) may be passed through.
Human Resource Departments should also take other steps to avert the Y2K bug:
- Identify all computer hardware and software systems on which your benefit plans rely and records are kept.
- Make sure your information technology staff has assessed the Y2K compliance of these systems by contacting vendors, licensors and/or manufacturers. Do not forget about embedded systems with microprocessors with hard-coded date logic that may be found in telephone equipment or other hardware.
- If the company is using software licensed from third parties, contact the licensor to determine if Y2K software updates are needed and how those updates can be obtained.
- Contact outside vendors and service providers such as trustees, pension administrators, COBRA and HIPPA administrators, and companies in which benefit funds are invested and insist that they certify their Y2K compliance.
- Carefully document all Y2K compliance efforts. Without proper documentation it may be difficult or impossible to substantiate the company's compliance efforts if an employee or former employee sues. However, any documentation may be discoverable in litigation, so be sensitive to how documents may be viewed in the courtroom.
- Be careful about making disclosures to third parties concerning your company's Y2K compliance efforts. Any document that discusses such efforts should be labeled "YEAR 2000 READINESS DISCLOSURE."
- Review your D&O and fiduciary liability insurance coverages to determine if you are covered for claims arising from the Y2K problem.
- Develop a contingency plan in case your company suffers a significant Y2K failure.