SUBJECT:

Implementation of the Pretax Transportation Program

This Notice is provided to announce that after consideration of comments
received regarding the Pretax Parking Program, the University has decided
to implement this program effective with paychecks issued on September 1,
1998. Thus, all eligible employees' payroll deductions for parking will be
taken on a pretax basis, up to the IRS limit of $175 a month (at UCSD,
basic permit fees do not exceed the $175 IRS limit).

This program, which is based on recent changes in the Federal tax laws,
will result in tax savings. Eligible staff employees include both
non-exclusively represented employees and exclusively represented employees
currently covered by collective bargaining agreements. Application of the
program to exclusively represented employees not currently covered by
collective bargaining agreements would be subject to notice, meeting and
discussing, consulting or conferring, as appropriate.

Under the proposed pretax program, payroll deductions would not be subject
to withholding for Federal income taxes and FICA taxes (i.e., Social
Security and Medicare). The exact amount of savings realized will depend
on the employee's Federal tax bracket and whether the employee is subject
to full or partial FICA coverage.

California has not adopted the Federal law changes governing transportation
benefits. As a consequence, these deductions will still be subject to
State income tax withholding.

Reducing current taxable income for the proposed pretax program may impact
the maximum an employee can contribute annually to the Tax-Deferred 403(b)
Plan and the Defined Contribution Plan After-Tax Account. Any possible
impact would depend on the employee's individual circumstances.

Pretax deductions do not affect the salary used in calculating benefits
under the University of California Retirement Plan (UCRP).

The proposed pretax deduction process and impact are similar to those tax
savings programs currently in place, such as medical insurance premiums for
Prudential High Option, UC Care, and Health Net.

Eligible employees wishing these deductions to be taken on an after-tax
basis must complete and submit the University of California Pretax
Transportation Deductions Enrollment or Cancellation Form, UPAY 884 (8/98),
to Payroll Office at mail code 0952. This form is accessible on the web at
http://www.ucop.edu/payroll/forms.htm.

If or when the University decides to make vanpool and transit passes
available on a pretax basis, an announcement will be issued.

General inquiries regarding the content of this Notice should be directed
to Jonnie Craig-Winston, Director of Policy Development and Quality of
Work/Life, at (619) 534-9659 or jcraig@ucsd.edu.

Frequently Asked Questions (FAQs) have been attached to this Notice.
However, specific inquiries regarding the pre-tax parking deductions for
Tax-Deferred 403(b) Plans and the Defined Contribution Plan After-Tax
Account should be directed to the Benefits Representative designated for
each vice chancellor's area at (619)534-2816. Specific parking fee
inquiries (Campus and Medical Center) may be directed to the Parking and
Transportation Office at (619)534-4223. Specific inquiries regarding
payroll issues should be directed to Eric Holmes, Campus Payroll Office, at
(619)534-3249.

Rogers Davis Assistant Vice Chancellor - Human Resources

Procedures Governing Implementation
of Pretax Transportation Program

Frequently Asked Questions and Answers:
The following questions and answers address the establishment of pretax
payroll deductions for employee parking authorized under the University's
Pretax Transportation Program.

Definitions:

Q1. What types of parking expenses qualify for pretax deductions?

A1. Parking expenses eligible for pretax deduction include expenses paid
through payroll deduction by an employee to park on the University's
premises.

Q2. Do these pretax deductions apply to all employees?

A2. As of this writing, employees in the CX (Clerical) and HX (Health Care)
bargaining units are not eligible for pretax parking deductions, pending
further negotiations with the exclusive representatives of those units.

Q3 - Who may participate in the Parking Pre-Tax Program?

A3 - Annual parking permit holders who are eligible for payroll deduction
may participate in the program.

Effective Date:

Q4. When will these deductions be made available on a pretax basis?

A4. Parking deductions will be taken on a pretax basis effective with
paychecks issued September 1, 1998. Campuses electing to establish transit
pass deductions also may take these deductions. Vanpool deductions will be
taken on a pretax basis at a later date, pending the completion and
installation of required programming changes. Because some campuses have
existing vanpool deductions that exceed the IRS monthly limit, the
Payroll/Personnel System will require programming changes to ensure that
these deductions are taxed correctly.

Tax Limits:

Q5. Is there a limit on the pretax deduction amount an employee may request
for parking?

A5. Yes. Under IRS regulations, the amount of parking expenses an employee
may exclude from his income is limited to $175 per month.

Q6. If or when available, what is the limit on the pretax deduction amount
an employee can request for vanpooling and transit passes?

A6. The IRS limit for vanpooling and transit passes is $65 per month. One
limit applies whether an employee has pretax deductions for one or both
types of expenses. There is no exclusion limit for State income tax
withholding for either vanpooling or transit pass deductions.

Q7. If the value of an employee's pretax deduction does not exceed the
limit in any month, may the unused portion of the exclusion be carried over
to subsequent months?

A7. No. The limit is applied on a monthly basis. Any unused portion of
the exclusion cannot be carried over to another month. The pretax deduction
established for an employee must reflect actual expenses, up to the IRS
limit. Thus, for example, if an employee pays $50 a month for parking,
that employee is entitled to a pretax deduction of only $50.

Withholding Rules:

Q8. What are the withholding rules related to these pretax deductions?

A8. Pretax deductions for parking will not be subject to withholding for
Federal income taxes and FICA taxes (i.e., Social Security and Medicare).
However, parking deductions are subject to withholding for State income
taxes.

Q9. Why are parking deductions subject to withholding for State income
taxes?

A9. Since the State of California has not adopted the Federal tax code
changes that allow pretax parking, these deductions are still subject to
withholding for State income taxes.

Q10. What action should an employee take if he does not want his parking
deductions taken on a pretax basis?

A10. The employee should obtain and complete the Pretax Transportation
Deduction Enrollment/Cancellation (UPAY 884) form. The completed form
should be forwarded to the Payroll Office at Mail Code 0952. This form will
be processed on a prospective basis, subject to normal payroll deadlines.
The form is available at http://www.ucop.edu/payroll/forms.htm or at the
Payroll Office.

Q11. If an employee elects to have deductions taken on an after-tax basis,
can the employee change the deductions back to pretax at a later date?

A11. Under the IRS regulations governing these deductions, employees can
change their pretax election at any time. However, campuses may impose
limits on the frequency of such changes, if desired.

Retirement Benefits:

Q12. Will these pretax deductions affect an employee's Maximum Annual
Contribution (MAC) amount?

A12. The 403(b) Plan MAC amounts, calculated earlier this year, will not be
systematically adjusted based on the implementation of the pretax parking
deductions. However, for the 1999 MAC calculation, these pretax deductions
will be included as a reduction to an employee's gross income, which may
impact his 1999 MAC amount.

Q13. Will employees' participation in the pretax program affect their HAPC
(Highest Average Plan Compensation)?

A13. No. Participation in these pretax deductions will not affect the
salary used in calculating an employee's benefits under the University of
California Retirement Plan.

Q14. Will participation in the pretax program affect an employee's Social
Security benefits?

A14. Because pretax deductions lower the eligible earnings on which Social
Security benefits are based, there could be an effect on an employee's
Social Security benefits. If the deductions cause an employee's earnings to
fall below the Social Security wage base, then any Social Security benefits
received by the employee or family could be reduced if these earnings are
used to calculate those benefits.

Other:

Q15. If an employee pays for her parking by cash, check, or credit card, is
the employee entitled to any tax benefits?

A15. No. Only employees who pay for these transportation expenses through
payroll deduction qualify for pretax benefits.

Q16. How can an employee establish payroll deductions if he parks off-campus
in a private lot?

A16. Campuses have two options for establishing pretax parking deductions
for employees who park off-campus:

A campus could contract with specified parking vendors to set up payroll
deductions for the employees using those vendors, or a campus could
establish a parking reimbursement account for each employee (similar to the
UC DepCare arrangement) that would be funded by pretax payroll deductions.
An employee would then need to submit parking receipts to be reimbursed
from the account. This issue will need to be addressed by each campus
locally, depending on the volume of off-campus parking.

Q17. - Am I eligible to participate in the Parking Pre-Tax Program if I have
purchased my annual parking permit in advance and paid by cash or check?

A17. - Yes. However, you will be required to enroll in the payroll
deduction process. You will receive a full refund for the unused portion of
your parking permit. The Parking and Transportation Services Office will
assist you with this transition process.