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PALM SPRINGS, Calif.-Employers shouldn't wait until Dec. 31, 1999, to determine whether their benefit administration systems are "millenium compatible."

Costly business disruptions and lawsuits may occur if an employer fails to reprogram the computers it uses to recognize the year 2000, warns Alan R. Parham, administrator of the Laborers District Council Construction Industry Pension Fund in Philadelphia.

"Say a medical claim you received Dec. 20, 1999, isn't paid until after Jan. 1, 2000," he said. "If your claims administration system doesn't recognize the year 2000, it will think the claim is 99 years old."

This is because computers that don't recognize the year 2000 will think a year whose last two digits end in "00" is actually the year 1900, Mr. Parham explained.

Such a mistake could be costly for the employer, especially if the system calculates late-payment charges it owes to health care providers, he pointed out.

"If you send out a bill for late payment, it would include 99 years worth of interest and liquidated damages," Mr. Parham told a group of benefit specialists attending the Administration Automation Institute in Palm Springs, Calif., earlier this month.

The conference, sponsored by the Brookfield, Wis.-based International Foundation of Employee Benefit Plans, also provided information on legal and regulatory aspects of cyberspace, utilizing technology to enhance benefit plan participant services, the Internet and specific technologies regarding benefits processing, communication and document printing.

Employers also must ensure that their systems can properly handle calculation of retirement benefits for employees who retire after the year 2000, according to Mr. Parham. Otherwise, the employer could be setting itself up for problems that could lead to lawsuits, he said.

"At 12 a.m. on Jan. 1, 2000, what's going to be the date on your PC?" Mr. Parham queried. "It might not be 01/01," he cautioned, especially for users of International Business Machine Corp.'s AS 400 systems.

Because the AS 400 platform contains 50 lines of coding that uses only six-digit dates, such as 01/01/00, the dating format does not permit a four-digit year to be input. As a result, such systems could interpret 01/01/00 to mean 01/01.

Programs that automatically calculate dates, such as those that print deadlines for responding to COBRA benefit continuation letters, will likely produce the biggest headaches for employee benefit managers, according to Mr. Parham.

Benefit managers also need to talk with the banks that handle direct payroll deposits to make sure their systems are millenium compatible, Mr. Parham said.

"Make sure you talk to everyone you exchange data with," he said. "Ask them what they are expecting as far as a year 2000 fix is concerned."

The cost of upgrading computer systems to be millenium compatible will likely fall on employers-if not directly, at least indirectly, according to Mr. Parham.

"If you own the software, then you are on the hook to fix it," he said. "But if it's licensed software, your vendor may provide an upgrade."

"But don't expect a free fix. The cost of this fix will be passed on to you in some form," he predicted.

The cost and type of cures that will be available will largely depend on the nature of the problem, and how extensive the solution is, Mr. Parham explained.

"The bigger the change, the more it will cost," he said.

There also will likely be implementation costs in addition to the actual software upgrade costs, he added.

For example, staff will need to be retrained and old data will need to be converted.

"And testing is very important," Mr. Parham stressed. "There may not be a single cure, so you'll have to test your systems over and over to find any dates that were missed" in the conversion process, he said.

In some cases, old systems will need to be replaced entirely. And if that's the case, "then start now," he advised. "It usually takes two years to select and implement it. If you wait any longer, you may have problems."

In some cases, all that may be needed is to download a program upgrade from a disk or perhaps from the Internet.

"There's a huge body of work on the Internet. All you've got to do is type 'the year 2000' on any of the browsers," he said, and a wealth of resources will appear.

An easy way to find out whether a company's existing benefits administration system is "millenium compatible," according to Mr. Parham, is to "try to change the date while in DOS. If it accepts a four-digit year, you're OK. If not, call the vendor."

But don't wait too long to make that call, he warned.

"2000 isn't that far off," he said. "Remember, there's only two years left until this problem becomes a reality."