Compliance July 14, 2014

Plan Administration for Employees Who Serve in the Military

July 14, 2014 (PLANSPONSOR.com) – Retirement plan sponsors should become familiar with laws covering employees who have served, or are serving, in the military to ensure compliance with plan administration rules, says TIAA-CREF.
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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.

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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.

Reader Responses July 14, 2014

SURVEY SAYS: Electronic Communications

July 14, 2014 (PLANSPONSOR.com) - Almost all notices and statements can be delivered to retirement plan participants electronically if plan sponsors follow certain rules.
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Last week, I asked NewsDash readers which required communications they offer to participants electronically, and whether they think this makes participants more likely to read them?

Eighty-five percent of NewsDash readers who responded work for plan sponsors, and 15% work for TPAs/recordkeepers/investment managers.

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The summary plan description (SPD) is the required communication most offered electronically, selected by 75% of respondents. Fourteen percent of responding readers reported they do not offer any of the required communications electronically, and none of the respondents indicated they offer all the communications electronically.

For the other listed required communications, responses were as follows:

  • Participant statements – 60.7%;
  • Participant fee disclosures – 60.7%;
  • Summary annual reports (SARs) – 67.9%;
  • Summary of material modifications (SMMs) – 57.1%;
  • Defined benefit (DB) plan funding notices – 17.9%;
  • Automatic enrollment notices – 17.9%;
  • Qualified default investment alternative (QDIA) notice – 50%;
  • 1099-Rs for participants who received distributions – 10.7%; and
  • Safe harbor 401(k) notice – 17.9%.

 

When asked if offering communications electronically makes it more likely participants will read them, only 6.9% said yes, while 48.3% indicated this is true for some participants. The other 44.8% said no.

In verbatim comments, some respondents explained why they still provide paper, others offered suggestions, “It is a shame that participants bear the costs of notices that, for the most part, never get read and instead line their garbage cans. It would be a lot cheaper if we could default to electronic notices and then produce paper for those participants that request it (as they are probably the only participants that will actually read the notices).” Most agreed that electronic communications is not the answer to getting participants to pay attention to them, with one reader offering a suggestion for that: “The participants would read the notices if they were written in plain English and not the hybrid Lawyerese that most are written in.” Several said the benefits of electronic communications are they lower cost and “save a tree.” Editor’s Choice goes to the reader who said, “Participants will never read communications… MAYBE if you told everyone JK Rowling wrote them.”

A big thank you to everyone who participate in our survey!

Verbatim

We provide notices on paper with a backup of electronic to meet the rule requirements. It is a shame that participants bear the costs of notices that, for the most part, never get read and instead line their garbage cans. It would be a lot cheaper if we could default to electronic notices and then produce paper for those participants that request it (as they are probably the only participants that will actually read the notices).

Unfortunately, I find that participants don't read anything regardless if you send it electronically or by paper.

We still use paper for most reporting, since our employees are more comfortable with that communication. I do not think they will be more likely to read if done electronically. And most just take the paper copy and file it away, unread. So no win either way.

As a manufacturing company the vast majority of our employees are not on our e-mail system. Many of them do not have e-mail addresses and capturing such info from those that do would be challenging at best. We continue to mail/distribute hard copies. We will e-mail certain things such as the SAR to salaried employees and distribute hard copies to the others. I do find that it seems to be just as easy to ignore e-mails as it is to ignore hard copies.

The same folks who don't read the hard copies don't click through to read the electronic disclosures but it does reduce expenses and our carbon footprint. We're moving to auto-enroll in e-communications, with paper as the make-a-choice option. We expect this will all but eliminate hard copies for newly eligibles.

The increase in plan communications required by regulations assures that participants will ignore nearly all communications - paper or electronic. For most participants the disclosures are way too much information!

Participants who want to read the materials will read them, regardless of delivery. Electronic delivery is a cost-saving measure for companies, and makes for easy storage for participants.

Verbatim (cont.)

The participants would read the notices if they were written in plain English and not the hybrid Lawyerese that most are written in.

Some of our employees do not use email. So, we find we are more likely to get participants to read of we include notices in paychecks. This is our main use of communication. Still, not all participants read what they are given......no matter how you communicate it. They want to be spoon fed!

Very few participants of any benefit plan read the material sent to them unless and until they have cause to do so. When asked if they received an item, they often tell HR "Oh, I threw that out."

Although we have an intranet that employees can access, the majority of our employees do not sit at a desk. I'd love the idea of being able to just post notices but I fear because our population is on the floor that we wouldn't pass the sniff test of any Federal auditors.

Participants are asking more and more for statements on-line and statement on demand. This has become a priority for our company to provide these services.

Participants will never read communications...MAYBE if you told everyone JK Rowling wrote them.

OMG! No way I'm going to read all this - I unfriend you. Same ol' same ol' but the really good thing is having saved a tree.

Either means people do not read government mandated notices. At least electronically you have a record of receipt and you save a tree for each employee annually

 

NOTE: Responses reflect the opinions of individual readers and not necessarily the stance of Asset International or its affiliates.
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