USERRA Compliance Alert:
How are servicemember pension and retirement plans determined?
USERRA has specific requirements regarding employer-provided pension and retirement plans. Plan administrators cannot impose any break in employment nor forfeiture of benefits already accrued by the servicemember. The military service, including time-off taken prior to and after that service, must be considered service with the employer for vesting and benefit accrual purposes. The employee cannot be made to requalify for participation once he returns. Furthermore, during his military service, the employee cannot be made to make contributions.
Defined Benefit Plans
Be aware of which type of pension plan the employer offers. Defined benefit plans are those plans where an employer will make the necessary contributions to a pension fund based upon employee compensation. There are no employee contributions that trigger the employer’s obligation to make its contributions. Upon reemployment of the returning servicemember, the employer has up to 90 days or when the contribution would have regularly been made, whichever is later, to make the necessary contributions.
The employee and employer should carefully calculate the contributions based upon what the servicemember was reasonably certain to have earned during the period and take into account any retroactive promotions that may have been missed during an extended deployment.
Employers who miscalculate those contributions should be aware that there is no statute of limitations under USERRA, and claims may arise years, or even decades, later when the employee retires and closely examines the retirement benefits under the plan. Indeed, the DOL-VETS continues to investigate claims under USERRA’s predecessor, the Veterans Reemployment Rights Act (VRRA), for inaccurate employer contributions to pension plans that occurred prior to 1994.
Defined Contribution Plans
By far, the most common retirement plans are defined contribution plans, including 401(k) plans. Under this type of plan, an employee will contribute a certain percentage of compensation, which triggers the employer’s obligation to make its contribution to the employee’s retirement plan. The plan itself will define the amounts contributed and the limits on the total that may be contributed for any given year.
Profit-Sharing and Stock Bonus Programs
Finally, the regulations make clear that any profit-sharing or stock bonus program “that provides retirement income or results in the deferral of income for a period of time extending to or beyond the termination of the employment” is a covered retirement plan.
Use it or Lose it
Under a defined contribution plan, the reemployed servicemember has three times the length of his military service, up to five years, to make up any employee contributions required under the plan. Failure to make the contributions before that deadline results in forfeiture of the right to makeup those pension benefits. Furthermore, this deadline will not be delayed even if the servicemember has intervening uniformed service. Those make-up contributions are not subject to the limits for normal contributions under the plan.
The employer’s required contributions are triggered as the employee’s contributions are made. If the servicemember was on a military leave of absence for more than 90 days, the employer’s matching obligations can be delayed until the servicemember provides satisfactory documentation establishing his eligibility under USERRA.
Compensation: How it’s Calculated
Contributions are typically determined by what the servicemember was reasonably certain to have earned during the period of uniformed service. Military compensation cannot be used to determine contributions. Furthermore, the compensation must be adjusted to account for any promotions the servicemember would have been entitled to while on military service from the time the employee would have received that promotion.
If, on the other hand, compensation is not reasonably certain, the earnings during the 12 months prior to service should be used to determine the compensation during the servicemember’s absence. If the employee would have regularly received extra pay, such as overtime or special-duty pay, such pay must be used to determine the employee’s compensation. Finally, compensation should also account for any other payments, such as bonuses and profit-sharing distributions, if the plan allows pension contributions based upon that compensation.
Some issues litigated by the DOJ have involved circumstances where the employer or the pension plan administrator applied the base compensation level for the returning employee without regard to extra compensation that the employee was “reasonably certain” to have earned through overtime or extra duty allowances that would have greatly increased his compensation. Failure to include all compensation the employee was reasonably certain to have received may expose to employer to claims years or decades later.
Whereas USERRA does not have any “statute of limitations” setting a deadline by which a claim must be made, the obligations under USERRA’s pension provisions for contributions under a defined contribution program do have a deadline. If the returning servicemember does not demand to make those contributions within three times the length of military service, up to five years, the employee will lose the right to make up those pension rights.
USERRA Fact Sheet: Pension FAQ (pdf download)
IRS: Retirement Plans FAQs Regarding USERRA and SSCRA
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