Introduction
When the Uniformed Services Employment and Reemployment Rights Act (USERRA) was signed by the President on October 13, 1994, most pension practitioners recognized the importance of such an Act. Prior to this Act, there were no clear guidelines on how to treat employees or plan participants when they were called into active military duty.
Our country was in a time of peace. While pension professionals collectively published articles of interpretation, few had to apply these rules to real-life scenarios.
In recent months, America has been placed in a different position and many employers are facing some situations where they must deal with employees leaving to perform military duty as some 50,000 military reservists were recently called back into active military duty. Employers and plan sponsors need to enforce the provisions of USERRA likely for the first time ever.
Under USERRA, an employee who enters military service from a civilian job is entitled to rights of reemployment as well as certain retirement and other benefits that would have accrued during his or her military service absence. USERRA provides protection to the employee who is leaving civilian service and entering military service and provides direction to the affected employers.
This newsletter will itemize the provisions of USERRA, which affect many employers and plan sponsors, in a question/answer format.
Which government agencies are involved in USERRA?
USERRA is governed by the Department of Labor (DOL) and is enforced through the Veterans’ Employment and Training Service (VETS) division.
In this capacity, VETS has the right to investigate all claims and examine documents relevant to any investigation in which it becomes involved. As needed, VETS may submit a complaint to the U.S. Attorney General’s office.
What military service is subject to the provisions of USERRA?
USERRA applies to persons who perform voluntary or involuntary military duty. These services may be rendered in active or reserve components of the Army, Navy, Marine Corps, Air Force, Coast Guard, Army National Guard, Air National Guard or Public Health Service commissioned corps.
What does military service include?
Military service includes active duty (for training or otherwise), inactive duty training, full-time National Guard duty and absence from employment for an examination to determine a person’s fitness for military service.
Which employers are subject to the provisions of USERRA?
USERRA applies to virtually all U.S. employers regardless of size.
Is there a limit to the amount of military leave an employer must permit?
Yes. There is a five-year cumulative military service limit on the amount of voluntary military leave an employee can use and still retain reemployment rights. There are, however, a number of exceptions to the five-year limit, including: service mandated during a period of war or national security, federal service by National Guard members to handle certain situations and service required to complete an initial period of obligation.
How quickly must an employee return to employment after being released from military duty in order to qualify for the benefits under USERRA?
It is dependent upon the amount of military service:
- Less than 31 days: Employees should return to work the first day following completion of military service.
- 31 days to 180 days: Employees must submit reemployment applications within 14 days following completion of military service.
- More than 180 days: Employees must submit reemployment applications within 90 days of completion of military service.
What if an employee is hurt or becomes disabled during military duty?
In these cases, employment reinstatement may be extended for up to two years for persons who are unable to work or unable to work at the same level due to a disability incurred or aggravated during military service. Employers are required to make reasonable accommodations in such situations.
What job position is an employee entitled to after military leave of absence?
Generally, the position into which an employee is reinstated is determined based on the length of military service:
- Service of 1 to 90 days: The employer must provide the position, at minimum, that the person would have held had he or she remained continuously employed. Additionally, the employer may work with the employee to provide an elevated position.
- Service of more than 90 days: The employer must provide the position, at minimum, that the person would have held had he or she remained continuously employed or a position with equivalent seniority, status and pay, when compared to the one held prior to military service. Additionally, the employer may work with the employee to provide an elevated position.
Is an employer required to pay an employee who is on military leave of absence?
No. Some employers offer pay for a certain number of days or other defined period or differential pay (payment making up the difference between military wages and compensation that would have been earned from the employer). However, an employer is not required to pay an employee on military leave of absence.
How is USERRA structured to protect the retirement benefits of participants who enter military service?
USERRA protects the rights of individuals during a period of military service with respect to any benefit or right they would have accrued or obtained had they been employed continuously by the civilian employer.
Which retirement plans are subject to USERRA?
Any employee benefit retirement plan subject to ERISA and federal, state or local government plans are subject to USERRA. Thus, defined benefit, defined contribution, nonqualified deferred compensation and 403(b) plans are covered under USERRA.
When do the provisions of USERRA become effective for retirement plan purposes?
USERRA is effective for reemployments occurring after December 11, 1994.
Do plans have to be amended to comply with the provisions of USERRA?
Yes. Many plans adopted model amendments shortly after the initial enactment of USERRA. Many plans will incorporate the terms of USERRA officially into their terms coincident with the restatement under GUST (GUST is the acronym given to the series of tax acts including GATT, USERRA, SBJPA and TRA).
Regardless of when the provisions are officially adopted into the plan, the changes become effective retroactively to the effective date of USERRA.
Will an employee incur a break-in-service during a period of military service?
No. A retirement plan may not treat a reemployed person as having incurred a break-in-service for a period of military service.
Does the period of military service count for benefit accrual and vesting purposes upon a participant’s reemployment?
Yes. The period of military service will be utilized for purposes of determining accrued benefits and vesting under the provisions of the respective plan.
With respect to a 401(k) plan, may a reemployed participant make up contributions (pre-tax or after-tax) for the period of service during which he or she served in the military?
Yes. A participant has the right to make up any missed contributions that he or she would have had the opportunity to make if not for military service. There is no waiting period for the reemployed employee to begin participation in the company retirement plan. The amount of contributions is contingent upon the terms of the plan.
How long does an employee have to contribute make-up contributions to an employer’s 401(k) plan?
An employee has three times the duration of military service (up to five years) to make up these contributions after becoming reemployed.
If the employee contributes make-up contributions, does an employer need to match such contributions?
The employer must match such contributions at the same rate the employer would have matched the contributions had the employee made the contributions during the period of military service.
Does a plan sponsor need to credit earnings on a make-up contribution?
No. A plan sponsor does not need to credit earnings with respect to make-up contributions.
Does a plan sponsor need to credit forfeitures that would have been contributed to his or her account during a period of military service?
No. A plan sponsor does not need to provide for any forfeitures that an employee, serving in military service, did not share in due to such service.
What compensation is used to determine the amount of any make-up contributions?
Generally, an employer must treat an employee as continuing to receive the same compensation as he or she would have received without regard to the military service. If this method is not reasonable, an employer may utilize the employee’s average compensation from the last 12-month period (or, if such service was shorter, the average of the entire period of employment).
May a plan sponsor suspend the repayment of a participant loan during an employee’s period of military service?
Yes. A plan may suspend the repayment of a participant loan during a period of military service without fear of violating rules regarding plan qualification, including the five-year loan repayment rule. Loan repayments must recommence upon completion of military service.
Will interest accrue on a participant loan during an employee’s period of military service?
Yes, loan interest will continue to accrue.
Does USERRA preempt state or local laws relating to veterans’ rights of reemployment or benefits?
It depends. USERRA does not preempt state or local laws that provide for additional rights, but it does preempt state laws providing lesser rights or imposing extra criteria.
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The information contained in this newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is provided with the understanding that our company is not engaged in rendering legal or tax advice. Legal or tax questions should always be referred to a qualified tax advisor such as an attorney or CPA.
Copyright 2001 Benefit Insights, Inc. All rights reserved.
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