Research Administration Office

University of California

Memo Operating Guidance

No. 90-6

April 12, 1990

Subject: Salary Limitations in NSF Grants and NIH/ADAMHA Awards

Purpose and Applicability

The purpose of this memo is to relay current University policy and guidance to help campuses and Laboratories implement the salary rate caps in National Science Foundation grants, and grants and contracts from the National Institutes of Health and the Alcohol, Drug Abuse, and Mental Health Administration.

Scope

These rate caps present implementation problems for a number of different functional offices, including academic personnel, payroll, purchasing, accounting, and contracts and grants. This Memo addresses various issues and provides operating guidance for Contract and Grant Officers, Payroll Managers, Accounting Officers, PAR Coordinators, and Materiel Managers. The Associate Vice President -- Academic Affairs will also distribute this memo to Academic Vice Chancellors. The guidance in this memo was coordinated with the following Office of the President Offices: Research Administration, Corporate Accounting, University Payroll, Materiel Management, Information Systems and Computing, and Academic Personnel.

NSF Grants

Background:

The 1988-89 NSF salary cap (as discussed in Contract and Grant Memos 89-7, 3/13/89; Supplement No. 1, 6/21/89; and Supplement No. 2, 7/12/89) was continued by Congress for federal fiscal year 1989-90. Consequently, NSF grants awarded after October 1, 1989, may not be charged salary costs in excess of an annual rate of $95,000 ($7,917 per month). See Enclosure 1.

The rate cap does not apply to NSF contracts.

Proposals:

NSF continues to recommend that proposals be submitted showing salary amounts at regular rates of pay. Campus and Laboratory Contract and Grant offices should continue their current practice in this regard.

Awards:

Regardless of the amount awarded, the University will be subject to audit disallowances if salary rates are charged to NSF grants that exceed, on an annualized basis, the $95,000 cap. Campus and Laboratory accounting offices should have procedures in place to ensure that salary rates charged to NSF grants do not exceed the cap.

Subawards:

The NSF salary rate limitation must be incorporated in subawards for substantive work under NSF grants that are subject to the cap.

NIH and ADAMHA Grants and Contracts

Background:

An Information Letter issued by this office on December 12, 1989, advised campuses and Laboratories that a rate cap was included in the Department of Health and Human Services Appropriation Bill approved November 27, 1989. The January 19, 1990, NIH Guide announced the implementation of a salary limitation on NIH/ADAMHA grants and contracts for federal fiscal year 1989-90. Consequently, NIH and ADAMHA grants and contracts (including supplements to existing awards) made after October 1, 1989, may not be charged salary rates in excess of an annual rate of $120,000 ($10,000 per month). See Enclosure 2.

Proposals:

The NIH Guide notice recommended that proposals be submitted showing salary amounts at regular rates of pay. The notice went on to state that we may not "self-cap" in noncompeting applications and redistribute the difference to other categories. Campuses and Laboratories still have the option of "self-capping" in new and renewal proposals. In any event, we strongly recommend making it clear in proposals what the employees' monthly base salaries are so that NIH/ADAMHA will not be in any doubt as to whether or not the cap applies.

Awards:

NIH and ADAMHA will cut award amounts to stay within the cap. Awards should be reviewed carefully to make sure the agency did not cut too much. Regardless of the amount awarded, the University will still be subject to audit disallowances if salary rates are charged to NIH/ADAMHA grants and contracts that exceed, on an annualized basis, the $120,000 cap. Campus and Laboratory accounting offices should have procedures in place to ensure that salary rates charged to NIH/ADAMHA grants and contracts do not exceed the cap.

Subawards:

The NIH/ADAMHA salary limitation must be incorporated in subawards for substantive work under NIH/ADAMHA grants and contracts that are subject to the cap.

Supplementation of Salaries

University policy on not supplementing the salaries of faculty subject to the caps remains in effect. However, faculty participating in health sciences compensation plans may continue to be paid their agreed-upon total compensation. See Enclosure 4.

Retirement Benefit Allowance

In a March 9, 1990, memo to Academic Vice Chancellors, Associate Vice President Moore relayed advice from NSF concerning charging retirement benefit allowances to NSF grants (see Enclosure 3). The NSF position is that the retirement benefit allowance should be included in an employee's salary for purposes of computing the effect of the cap.

The NIH/ADAMHA salary cap applies to "the amount of direct salary of an individual" charged to the grant. Since the retirement benefit allowance is paid as salary and charged directly to the grant, the retirement benefit allowance is considered by NIH to be included in salary calculations for purposes of figuring the effect of the cap (per telephone conversation with Sonny Kreitman, NIH Grants Policy office, on April 4, 1990).

Accordingly, beginning with the summer of 1990, campus and Laboratory procedures for figuring the effect of both the NSF and NIH/ADAMHA caps on payments of summer salary to 9-month faculty should include the retirement benefit allowance as part of salary. Retirement benefit allowance payments are identified in payroll and financial records through object code 1400. The retirement benefit allowance for 1990 is 4.03% of base salary.

Identifying and Adjusting Records of Employee Salaries that Exceed the Caps

Under separate cover, Associate Vice President Moore will distribute to campus Academic Vice Chancellors a listing of their faculty who may be over or near the NIH/ADAMHA cap for the period October 1, 1989, through March 31, 1990. No corporate data are available for the Laboratories. This list will only provide a starting point for the purpose of identifying potential problems. It will include NIH/ADAMHA grants that began before October 1, 1989, and which consequently are not subject to the cap. Thus campuses will have to rely on their own resources to refine the list. Procedures must then be in place to initiate cost transfers for salary amounts already paid that exceed the cap, and to revise Personnel Action Forms to prevent future above-cap salary payments.

Corporate data for periods after April 1, 1990, may be obtained on request from Marit Marino, Office of the President Office of Information Systems and Computing. The cost of producing additional reports will be recharged to the requesting campus.

In addition to producing the lists for October through March, the Office of the President is considering a mechanism for producing edit reports within the base payroll system to flag apparent violations of the caps. Until such a mechanism is in place, campuses will have to rely on their own resources to flag violations.

The San Francisco campus has already begun this process, and is distributing monthly listing to academic departments for action. Enclosure 5 is a copy of a March 27, 1990, memo distributed by the San Francisco campus accounting office to campus academic department managers and payroll support staff. This memo also provides instructions on how to account for the salary supplementation that the campus has opted to provide for faculty in the health sciences compensation plans who are over the caps.. PLEASE NOTE: This enclosure is for illustrative purposes only and applies only to UCSF faculty within the health sciences compensation plans. Since local campus situations vary considerably, many of the UCSF procedures will not be transferable. The overall outline, however, should give you some idea of the kinds of things you may have to deal with in trying to identify and adjust the salary records of capped employees.

If you have any questions about this enclosure, particularly with respect to the FOCEXEC programs that are at the back of the memo, please contact John Ungaretti at 415-476-5655.

Please note also that retroactive adjustments are not covered in Enclosure 5. The campus accounting office plans to issue follow-up instructions on handling retroactive adjustments.

An added complication that is not addressed in Enclosure 5 relates to the retirement benefit allowance. Since this allowance is to be included in salary for purposes of figuring the effect of the caps, base monthly salary rates will be at the NSF cap, for the summer of 1990, when the monthly salary rate is $7,610 ($7,917/1.0403). The retirement benefit allowance would then be added to the base salary, for a monthly total not exceeding $7,917. A similar adjustment would have to be made for any 9-month faculty member being paid from NIH/ADAMHA sources during the summer; for these employees the rate cap, excluding the retirement benefit allowance, is $9,613 ($10,000/1.0403). NOTE: This adjustment only applies during the summer months of 1990 and only to salary paid during the summer to 9-month appointees.

The process of identifying and adjusting above-cap salary charges, both prospectively and retroactively, is extremely complicated. It may be necessary to have several points of control for monitoring. Campuses and Laboratories should carefully consider which control points should be used to maximize both accuracy and efficiency. This will entail the coordination of many different people: departmental administrators, deans, academic personnel coordinators, payroll managers, PAR coordinators, extramural funds accounting supervisors, materiel managers, and so on. Which office takes the lead in this effort is, of course, a local option.

Documentation of Effort in the PAR System

PAR reports generated on the basis of salary amounts paid by NSF, NIH and ADAMHA awards will impute an incorrect amount of effort for employees subject to the caps. This is because in these instances the amount of effort devoted to the project is more than the corresponding amount of salary that was charged to that project. Campus and Laboratory PAR coordinators should make sure completed PAR reports reflect effort actually devoted to the project, based on the amount of salary that could have been charged to the award if the cap had not been in effect.

Reviewing PAR reports may have to be done manually. Be careful, however, not to make change in PARs or in the PAR system before the caps are implemented in your local payroll and personnel systems.

A subcommittee of the Federal Systems Committee is examining the feasibility of replacing the current PAR system with a "Plan-Confirmation" system, as allowed under A-21 Section J.6. One of the potential benefits of such a system is that it would be based on planned effort and not on actual salary charges. Thus the PAR problem may be resolved by this new alternative.

Summary

The points in this memo may be grouped together under the headings of "things to do to correct past mistakes" and "things to do to ensure compliance in the future":

Correcting Past Mistakes

--Identify faculty who were paid from NSF grants and NIH/ADAMHA awards at rates exceeding the caps.

--Prepare cost transfers as needed.

Ensuring Future Compliance

--Identify faculty who have been appointed at rates exceeding the caps and adjust PAFs as needed.

--Institute procedures to ensure that future PAFs do not appoint people to NSF grants or NIH/ADAMHA awards at salary rates in excess of the appropriate rate of pay.

--Decide whether the campus will supplement the capped salaries of faculty in the health sciences compensation plans, and, if so, institute procedures to effect such supplementation.

--Decide what campus practice will be with respect to requesting full or capped salaries in proposals.

--Make sure the agency is made aware in proposals of monthly base salary rates so the cap will be applied correctly if and when the agency cuts back on an award.

--Review awards to make sure the agency did not cut an award more than it should have.

--Make sure subagreements incorporate the caps as necessary.

--Have systems in place so that salary charges to NSF grants and NIH/ADAMHA awards do not exceed the caps.

--Make sure PAR reports do not understate effort on a capped project.

--Make sure the retirement benefit allowance is included in salary for purposes of calculating the effect of the caps.

--Identify control points in your systems where errors can be caught.

Refer: Bill Sellers (415) 642-1638 ATSS 8-582-1638

Subject Index: 02, 06, 07

Organization Index: U-115, F-375,

Joseph A. Pastrone

University Controller

cc:

David Mears

Don Alter

Wayne Ove

Ellen Switkes

Margo Dowen

Bob Tuffnell

Campus and Lab Accounting Officers

Federal Systems Committee

Internal Auditors

Enclosures:

1. Message on NSF Bulletin Board from Ann Messier, 1/19/90.

2. NIH Guide notice, 1/19/90.

3. Memo from AVP Moore to Acad. Vice Chancellors, 3/9/90.

4. Memo from AVP Moore to Acad. Vice Chancellors, 3/14/90.

5. Memo from UCSF Accounting Office to UCSF Academic Department Managers and Payroll Support Staff, 3/27/90.


Enclosure 3

OFFICE OF THE PRESIDENT

BERKELEY. CALIFORNIA 9475

March 9, 1990

ACADEMIC VICE CHANCELLORS

Dear Colleagues:

RE: NSF Salary Cap and Summer Research Salary "Benefits Allowance"

As of December 1988, the University ceased employer contributions to faculty 403(b) plans on behalf of additional summer research compensation. To alleviate the loss of retirement planning on this portion of UC income, we created a benefits allowance listed as an additional component of compensation in extramural funding proposals and on University payroll forms.

The National Science Foundation has now informed us that the benefits allowance amount for an individual will be included toward the salary cap imposed on NSF grants for Federal Fiscal Year 1988-89 which has been continued for Federal Fiscal Year 1989-90. All future proposals to NSF should take account of this ruling.

Questions on this issue should be directed to Principal Analyst Nancy Capell at (415) 643-8354.

Sincerely,

Calvin C. Moore

Associate Vice President

Academic Affairs

cc:

Senior Vice President Frazer

Vice President Baker

Chancellors

Director Mears

Director Switkes

Contracts and Grants Officer Sellers

Principal Analyst Capell


Division of Grants and Contracts

NATIONAL SCIENCE FOUNDATION WASHINGTON, D.C. 20550

DEC 20, 1989

Mr. William Sellers

Contract and Grant Officer

University of California

300 Lakeside Drive

Oakland, California 94612-3550

Dear Mr. Sellers:

This is in response to your letter addressed to Joanna Rom concerning the apparent hardship caused by the Foundation in subjecting to the salary cap the retirement benefit allowance for a 9-month faculty member. The retirement benefit allowance. appears on the grant proposal budget as salary for the two summer months that the faculty member will be working on the grant-supported project. Your letter states that the retirement benefit allowance will be reported as additional income on the employee's W-2 form on which the employee is responsible to pay applicable income taxes.

It appears from the facts cited in your letter that the retirement benefit allowance is properly treated on the award budget as salary and, as such, it is subject to the salary cap.

Sincerely yours,

Richard E. Hastings Chief, Award Management

and Oversight Branch


C& G Memo 90-6

April 12, 1990

Enclosure 4

OFFICE OF THE PRESIDENT

March 14, 1990

ACADEMIC VICE CHANCELLORS

Dear Colleagues:

RE: National Science Foundation, and National Institutes of Health/Alcohol, Drug Abuse and Mental Health Administration Limitation on Reimbursement of Salaries Under Grants, Federal Fiscal Year 1990

As you know, Congress has followed the precedent it set for the National Science Foundation last year and has instituted an NIH/ADAMHA salary "cap" of $120,000, retroactive to October 1, 1989. Scientists participating in Federal Fiscal Year 1990 NIH or ADAMHA-funded research can earn no more than $120,000/year for full-time effort, prorated to their actual percentage of effort.

Last year, when the NSF limit was announced, we took the position that such limits could not be supplemented by other institutional funds if the participating scientists' UC salaries/compensation were actually greater than the cap amount. We were disappointed that Congress renewed the NSF salary cap this year and imposed a similar cap for NIH-supported salaries.

The policy of not permitting supplementation will remain in place for those faculty on regular fiscal year and academic year appointments, both with regard to the NIH/ADAMHA salary cap and the NSF salary cap, with the following exception. Departments are permitted to pay the agreed-upon total compensation to faculty who are members of the University's health sciences compensation plans. Only unrestricted non-State funds available to the compensation plan may be used to make up the difference between total compensation and the Federal reimbursement for faculty effort. Further details on implementing these caps with respect to Federal contracts and grants will be forthcoming from the Offices of Research Administration and Corporate Accounting, Office of the President.

Questions about the NSF and NIH/ADAMHA cap and allowable supplementation should be directed to Director Ellen Switkes at (415) 643-6512.

We will continue to work with the Washington office and with higher education organizations to convince our legislators that such caps are counterproductive to the expressed intent of furthering U.S. research and technological development.

Sincerely,

Calvin C. Moore

Associate Vice President

Academic Affairs

Attachments:

January 19, 1990 NIH Guide for Contracts and Grants

cc:

President Gardner

Chancellors

Senior Vice President Frazer

Senior Vice President Brady

Vice President Hopper

Vice President Farrell

Associate Vice President Hershman

Special Assistant Shaw

Director Switkes

Director Sweet

Director Mears

Coordinator Dowen

Principal Analyst Capell