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Military Leave and the Uniformed Services Employment/Reemployment Rights Act of 1994
John M. Collins, Charles F. Plenge, Susan A. Wetzel
In response to the recent tragedies in New York and Washington, D.C., President Bush issued a national emergency order last week authorizing the activation of 50,000 military reservists. The Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”) protects the reemployment rights and benefits of these reservists and any other employee who either voluntarily or involuntarily leaves employment to serve in the uniformed services (collectively the “Veterans”). The following Client Alert briefly summarizes how USERRA protects the benefits of these Veterans.
Generally, USERRA entitles a Veteran on a military leave of absence to reemployment with his or her employer after completion of such military service and permits the Veteran to receive the same benefits as such Veteran would have received but for the military leave of absence, subject to certain limits and exceptions. USERRA’s Impact on Pension and Retirement Plans
Whether the employer’s plan is a defined contribution or a defined benefit plan, USERRA guarantees any Veteran who qualifies for USERRA’s protections those benefits that would have accrued if the Veteran had not been on a military leave of absence. Accordingly, a reemployed Veteran cannot be treated as incurring a break in service under the plan by reason of the military leave. The military service must be treated as service for purposes of vesting and benefit accrual under the plan.
If the Veteran would have become eligible to participate in the plan while on military leave, then the plan must place the employee in the plan retroactive to the date of initial eligibility. An employer also must make a contribution on behalf of the returning Veteran equal to the contributions the returning Veteran would have received had he or she not taken military leave. The employer is not required to allocate any forfeitures or make up any earnings for the Veteran.
If the employer contribution is contingent on the employee's contribution, then the employer does not become obligated to make its contribution until the Veteran makes a contribution. Under USERRA, the plan must permit a Veteran to make his or her contribution during a period that (1) begins on the Veteran’s date of reemployment and (2) has a duration equal to three times the period of the Veteran’s military service, but no more than five years.
A plan must allow the returning employee to contribute an amount equal to the amount he or she could have contributed if the Veteran had not taken military leave. This includes making any catch-up contributions in the years beginning after December 31, 2001 as provided by the Economic Growth and Tax Relief Reconciliation Act of 2001. All contribution amounts are limited by the compensation the Veteran would have received if such Veteran had not taken military leave. If the amount of compensation the Veteran would have received is uncertain, the average compensation the Veteran received during the 12-month period immediately preceding such leave should be used.
Any contributions made pursuant to USERRA will be taken into account in the year to which the contribution relates and not the year in which the contribution is made for purposes of the limitations of Internal Revenue Code (“Code”) Sections 402(g), 402(h), 403(b), 404(a), 404(h), 408, 415 or 457. Contributions made to a plan in compliance with USERRA will generally not cause the plan to fail the Code’s nondiscrimination requirements.
In addition, if a plan permits the suspension of loan repayments while a Veteran is on military leave, repayments may be suspended without adverse tax consequences, whether or not the Veteran is subsequently entitled to USERRA’s protections. USERRA’s Impact on Health Plans
During the period of military service, an employer may voluntarily maintain full coverage under its group health plans for Veterans and their families, with no increase in employee contributions. Employer contributions for the cost of health care coverage will continue to be excludible from the Veterans’ gross income. If an employer does not voluntarily maintain coverage for the Veterans, and the Veterans’ health plan coverage would terminate because of an absence due to military service, under special health plan coverage rules set forth in USERRA the Veterans and their family (if they are covered under the plan) may elect to continue the health plan coverage for the lesser of (i) 18 months after the absence for military service begins, or (ii) the period of military service. Employers may not terminate USERRA continuation coverage on the basis of coverage under military health plans. The Veterans electing this coverage cannot be required to pay more than 102% of the full premium for the coverage; however, if the military service was for 30 or fewer days, the Veteran cannot be required to pay more than the employee’s normal share of the applicable premium for the level of coverage (e.g., employee only, family).
On return from military service, health insurance coverage must be reinstated without any waiting period or exclusions for preexisting conditions, other than waiting periods or exclusions that would have applied even if there had been no absence for military service. This rule prohibiting waiting periods or preexisting condition exclusions does not apply to the coverage of any illness or injury determined by the Secretary of Veterans' Affairs to have been incurred in, or aggravated during, performance of military service.
Continuation coverage under USERRA may run concurrently with COBRA continuation coverage if you notify the Veterans of their COBRA rights at the time they leave employment for military service. This may require a modification of the COBRA notice you currently provide participants to address the Veterans’ rights under USERRA and its coordination with COBRA continuation coverage.
USERRA’s Impact on Stock Option and Employee Stock Purchase Plans
While USERRA does not specifically address stock option plans, it does require that reemployed Veterans be entitled to rights and benefits determined by the Veteran’s seniority at the commencement of military leave plus the additional seniority and rights and benefits the Veteran would have attained if he or she had remained employed. Moreover, absent notice to the employer of an intent not to return to employment, the Veteran must be treated as if he or she were on a leave of absence and be given the same rights given to similarly situated employees. Accordingly, the impact of USERRA on stock option plans and employee stock purchase plans will depend on the provisions of the plan document, the role of seniority in the Veteran’s compensation package, and how the employer treats employees who are absent for other reasons. In general, however, the employer should not consider the Veteran as terminated while on military leave.
If you have any questions about the Uniformed Services Employment and Reemployment Rights Act of 1994, please contact one of the authors listed at the top of this page.