Plan Administration for Employees Who Serve in the Military

Rehiring any employee can present its own set of challenges for retirement plan administration (see “Some Rules Throw a Wrench in Rehire Administration”). But, for military service member employees, plan sponsors also have two key pieces of legislation with which they must comply: (1) the Uniformed Services Employment and Reemployment Rights Act (USERRA); and (2) the Heroes Earnings Assistance and Relief Tax Act (HEART). Not complying with these laws can result in regulator action (see “Cook County Pension Charged with USERRA Violations”).

USERRA is designed to protect civilian job rights and benefits for veterans and members of reserve components. For example, USERRA provides that returning service-members are reemployed in the job that they would have attained had they not been absent for military service, with the same seniority, status and pay, as well as other rights and benefits determined by seniority.

HEART is designed to provide tax and pension benefits to military service members who are disabled while on active duty and to their survivors if they die on active duty. HEART requires employers and sponsors of qualified defined benefit and defined contribution plans, such as 401(k), 403(b), and 457(b) plans to treat service members as being reemployed by the sponsor company for purposes of entitlement. The purpose of this is to provide service members and their survivors benefits for which they may not otherwise have been entitled.

Ed Moslander, senior managing director and head of institutional client services at TIAA-CREF, tells PLANSPONSOR that as veterans return to work from military service, plan sponsors need to ensure they are granted the rights and benefits they are entitled to receive.

The New York-based Moslander explains that USERRA’s requirements include:

• ERISA required disclosures. Plans governed by the Employee Retirement Income Security Act (ERISA) must continue to provide participants in active military service with required disclosures, such as summary plan descriptions (SPDs), summary of material modifications (SMMs), and fee disclosures, to name a few.
• Eligibility, vesting and benefit accruals. A plan sponsor must include a returning employee’s time served in qualified military service in calculating eligibility, vesting and benefit accruals. Prior vested benefits are protected and cannot be lost, even if the employee does not return to work.
• Missed nonelective (noncontributory) employer contributions. If the plan sponsor made a plan nonelective (noncontributory) employer contribution for any period during which the individual was away on qualified military service, by the time they were rehired, the plan sponsor must make a contribution equal to that he or she would have received if not in qualified military service.
• Missed employee deferrals or after-tax contributions. Reemployed participants have up to three times their period of military service that does not exceed five years to make up employee elective deferrals (or after-tax voluntary contributions) that could have been made during the period of military service.
• Employer matching contributions. A plan sponsor must make up matching contributions if a rehired service member makes up elective deferrals and the plan provided matching contributions for the year. The matching contribution is based on the rate that was in effect in the year for which the employee is making up the contribution.
• Earnings, forfeitures and prior year’s tests. Employee and employer make-up contributions are not adjusted for gains or losses that were experienced by the plan during the USERRA service period. The individual is not entitled to an allocation of forfeitures (i.e., plan assets surrendered by participants upon termination prior to fully vesting) that occurred while in military service.
• Participant loans. If an employee takes a participant loan and is called into military service while the loan is being repaid, loan repayments may be suspended for the period of military service, but interest will continue to accrue at a rate that does not exceed 6%.

Moslander goes on to explain that while USERRA is the foundational legislation that governs the benefits of returning service members, other legislation has expanded the rights of these individuals. HEART, for example, made permanent the exemption to the 10% tax penalty on early withdrawals for qualified reservist distributions. He adds that HEART includes requirements to improve the benefits of participants who died or were disabled while performing qualified military service, and it altered how differential pay (payments made by an employer to an individual who had been called to active duty for more than 30 days) is treated.

As to what procedures plan sponsors should follow to comply with USERRA, HEART and any other laws protecting military service members, Moslander says, “The first step plan sponsors can take to comply is to familiarize themselves with the disclosure requirements and reemployment eligibility guidelines of USERRA. When evaluating the requirements, it would serve employers well to discuss their policies with legal counsel to ensure that all requirements are being met or where improvements could be made.”

Moslander adds, “Plan sponsors should carefully review existing policies to ensure they comply with USERRA’s requirements and establish procedures that fit. Plan sponsors can be a guiding voice for employees that are navigating USERRA’s potentially intricate requirements.”

He adds that using resources from the federal government can offer helpful information that could be of assistance to those organizations that employ service men and women. TIAA-CREF offers a fact sheet about USERRA and HEART, which can be found here. More information about USERRA from the DOL can be found here. More information about HEART can be found here.