Navigating Wage Garnishments Morris Salinas Business Consultant, Added Value Services ADP, Inc.

About ADP Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 2  Revenues of approximately $10 Billion  Market capitalization of >$23 Billion Over 600,000 clients worldwide Top-rated company by Standard & Poor’s & Moody’s Pays 1 out of 6 in the U.S. – 33M worldwide Processing wage garnishments since ,000 Associates In 60+ Countries Electronically moving over $1 Trillion annually One of the world’s leading providers of technology-based SaaS solutions to employers

Agenda  Wage Withholding Basics  Types of Garnishments  Wage Garnishments on the Rise  Regulatory and Compliance Updates  The Future Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 3

Wage Withholding Basics  When a debt is owed, a wage withholding order can be issued, requiring an employer to withhold and pay the wages of the employee  Knowing which laws to apply, rules, regulations is difficult for employers  Employers can be 100% liable if garnishment is processed incorrectly!  Denial or revocation of licenses and passports for delinquent child support obligors – Driver, professional, or hunting licenses 4 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.

Types of Garnishments  Garnishment (most complex to process) – Creditor – Varying state / court requirements – Response / answer requirements  Bankruptcy  Wage Assignments – Voluntary – Governed by state laws – Employers choice to honor 5 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.

More Garnishments  Student loans – Federal Debt Collection Improvement Act – State Higher Education Act  Tax levy – Federal, state, or local – Notification requirements – Voluntary payment plan  Child support (largest volume received) – Medical support – Lump sum payments – Varying state laws 6 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.

Garnishments Processing is Constantly Evolving  All states require “unable to deduct”, “unable to locate” and “EE Term” notification for all creditor, child support and tax levies  Over 90% of states require a response and a final answer for creditor liens  Timing of notification requirements has become stringent  More than 30 states ADOPT electronic income withholding order processing (e-IWO)  16 states MANDATE Electronic Funds Transfer / Electronic Data Interchange (EFT/EDI)  Fines and penalties for incorrect calculations, not paid on time/to the correct party, or deducted based on documents that are not legal  Employers failing to withhold amount specified are liable for the full amount of the support owed, plus a fine  Employers must ensure business continuity, even in the event of a “disaster”  In the U.S., 1 out of 10 employees has a wage garnishment  Employees being garnished are more likely to have multiple orders  Garnishment orders are on the rise some 10% on average year over year Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 7

In Fact... Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 8

Regulatory and Compliance Updates & Trends  Bankruptcy Reform  Child Support Trends – New Federal Income Withholding Order – Electronic Income Withholding Order (e-IWO) – Electronic Payments – Medical Support – Fees  Wage Garnishment Trends Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 9

Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA)  Reform became effective October 17, 2005 – Strict requirements and audit procedures – Increased filing fees – Extended payment plan to five years  The American Bankruptcy Institute reports that 1.2 million bankruptcies filed in FY2012 (ending June 30, 2012) Sources: Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 10

Child Support, You Make a Difference!  Payments disbursed via EFT, check, or direct deposit  Costs $5.9 billion to collect child support  72% of all monies collected by employers  New Hire Reporting helps child support – 52 million employees were reported to new hire agencies in FY12 (55 million in FY13 11 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. Other Source 17% ($5.3 billion) Income Withholding 72% ($22.9 billion) Federal Tax Offset 7% ($2.2 billion) Unemployment Intercept Offset 4% ($1.2 billion) State Tax Offset 1% ($216 million) Source:

Federal Income Withholding Order (IWO)  Applies to all child support IWOs issued on or after 05/31/11 (i.e., new IWOs)  Standard “Remittance Identifier” to use when sending payments  Must direct payments to the SDU as required by Federal law [section 454B of the Act] – Employer should reject the IWO and return it to the sender, effective immediately  Must be on the approved IWO form as required by Federal law (section 466(a)(8) and 466(b)(6)(A)(ii) of the Act) – Employer should reject the document and return it to the sender, effective 05/31/12  There is a new form for 2014 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 12

e-IWO (Electronic Income Withholding Order)  Electronic transmittal of child support orders from participating states/tribes/territories through a central portal to participating employers or service providers  The Office of Child Support Enforcement (OCSE) hosts the central portal  Applies to child support orders filed through the state child support agencies  States are encouraged to participate, however not federally mandated to adopt e-IWO today  Currently 31 states are in production Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 13

e-IWO Process 14 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.

e-IWO State Status Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 15 Developing e-IWOUsing e-IWO Not using e-IWO

With e-IWO, You May Experience… Faster Turnaround Time for Processing Orders Increased Security of Confidential Data Increased Accuracy Payments Disbursed Faster Reduction in Calls for Case / Order Status Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 16

Electronic Funds Transfer Mandates  States are required to allow employers to remit payments via EFT or check  16 states and territories mandated electronic funds transfer (EFT) for child support – CA, FL, IA, IL, IN, MA, NE, ND, NV, OH, OR, PA, TX, VA,WV, Guam  EFT allows for a more efficient payment process Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 17

EFT State Status Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 18 Has passed legislation or regulations requiring employers to remit their child support payments electronically

Garnishment Payments  Agencies are looking to improve processes with electronic payments  EFT Payments are fast and efficient, looking into the following: – Tax Levy Agencies – Trustees – Student Loan Agencies  Effective in late 2013, PR changed their Court Rules to allow them to accept payments at the courts that were not a cashiers check or money order Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 19

Medical Support Orders  National Medical Support Order created due to Deficit Reduction Act (DRA) of 2005  Can be sent to the custodial parents employer or the non custodial parents employer  Can direct employers to enroll the child in health insurance  Calculation may be complex for employers  Requires new medical information “Answers” or “Responses”  Civil penalties may apply for noncompliance Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 20

Employer Fees  Employers can charge a fee for processing wage withholding payments to assist in offsetting the administrative costs  Vary by state and lien type – Child Support – Creditor garnishments Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 21

Additional Changes for Child Support  New form will be published in 2014  Return the order if not on the approved form  Changes to the IWO may result in changes to the E-IWO Continued Focus on Medical Support Establishment Federal Income Withholding Order (IWO) New Legislations and Mandates  Calculation can be complex for employers  Lump Sum  Payments  E-Termination reporting Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 22

Additional Changes on the Horizon Health Care Reform  May cause more changes Verification of Employments (VOE)  Increased volume  Focus on standardization New Hire Reporting  Identifying those employers that are not reporting their newly hired employees Electronic Payments  Child support  Tax levies  Student Loan agencies Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 23

You Want To... Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 24

What Is The True Cost Of Garnishment Processing 25 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. Cost CategoriesDirect & Indirect Costs Capital and Labor Costs Operational Costs Hidden Costs Opportunity Costs  Management / FTE  Training  Servers / storage  Equipment, data centers  Calls (often emotional)  Bank fees (checks, wires, EFT, stop/void)  Mailing / postage  Judicial settlements  Software updates  Legal, counsel  Accounts payable  Focus on core competencies

Risk Has Shifted to the Employer… Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 26

27 Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc.  Utilize technology such as e-IWO (electronic income withholding orders) to increase efficiency and accuracy  Wage garnishment collections risk has shifted to employers  State disbursement units have mandated Automated Clearing House (ACH) payments  Agency fines are on the rise for non-compliance  Leverage human capital / eliminate transactional costs  Catastrophic Backup Why Companies Outsource Wage Garnishments

It is Critical to Stay Up to Date in The Regulatory Environment Participating With State and Federal Agencies on Pilot Programs and Initiatives Helps Employers Communication With Agencies and Courts Legislation Monitoring is Critical Lobbying Efforts Must Have Tools, Resources and Contacts for All the Liens You Process Conference Attendance and Participation Helps Keep Employers Up to Date Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 28

Thank You for Attending Copyright (c) 2014 ADP, Inc. The content may not be reproduced or repurposed without permission from ADP, Inc. 29