Final Military Leave Regulations: How They Affect Your Benefit Plans
The Department of Labor (DOL) has issued final regulations implementing the Uniformed Services Employment and Reemployment Rights Act (USERRA)--the federal law governing military leave rights. Most of the final regulations, which take effect on January 18, 2006, relate to reemployment rights, but the regulations may also affect how employee benefit plans operate.
Health Plans
USERRA generally requires employer-sponsored health plans to provide up to 24 months of continuation coverage during military (uniformed) service. It also limits the ability of an employer to cancel health coverage when an employee is on military leave. However, there are two situations in which the final regulations permit the cancellation of coverage:
First, coverage may be canceled if the employee fails to give advance notice of military service and fails to elect continuation coverage. However, an employee is excused from giving advance notice when such failure is due to military necessity, impossibility, or unreasonableness. In such cases, coverage must be retroactively reinstated when the employee elects to continue coverage and pays all amounts due (with no administrative reinstatement costs).
Second, coverage may be canceled if an employee leaves for a period of service exceeding 30 days and gives advance notice of military service but fails to elect continuation coverage. If the employee later elects to continue coverage, reinstatement rights depend on whether the plan has developed reasonable rules regarding the continuation coverage election period. If such rules are established, then the plan must permit reinstatement of coverage upon the employee's election and payment of all unpaid amounts due within the periods provided under the plan rules. If the plan has not established reasonable rules regarding the election period, it must permit retroactive reinstatement upon the employee's election and payment of all unpaid amounts at any time during the maximum coverage period provided for under USERRA. Therefore, to limit the ongoing obligation to provide continuation coverage, it is important that plans adopt rules regarding continuation coverage elections.
It is important to note that USERRA is similar but not identical to COBRA. The usual COBRA period will be 18 months whereas it is 24 months under USERRA. The preamble to the final regulations indicates that the Internal Revenue Service informed the DOL that compliance with USERRA will not conflict with the Internal Revenue Code requirements under COBRA. As a related matter, the final regulations indicate that, where health plans are also covered by COBRA, it may be reasonable to adopt COBRA-compliant rules regarding election of and payment for continuing coverage, so long as those rules do not conflict with USERRA or the new cancellation rules. Employers should review their health plans and continuation coverage procedures accordingly.
Furthermore, the preamble to the regulations indicates that the definition of employer was intended to apply to insurance companies administering employer health plans. As a result, insurance companies are obliged to negotiate and provide continuation coverage that complies with USERRA, which is different from the situation employers sometimes find themselves in with respect to COBRA in which insurance carriers will not agree to provide the coverage.
As a related matter, according to the preamble to the regulations, USERRA applies to cafeteria plans. The preamble clarifies that cafeteria plans can provide for a new election upon leaving employment for military service or reemployment without violating the change-in-status rules. Employees who have continued pay during leave may utilize the cafeteria plan to purchase health plan coverage on a pre-tax basis and continue their health care flexible spending arrangements. Employers should review their cafeteria plans and administrative forms to make sure they comply with the new USERRA requirements.
Retirement Plans
Generally, when an employee is reemployed after military service, the employee must be treated as not having incurred a break in service for the purposes of participation, vesting, and accrual of benefits. As a result, the employee is basically treated as having been continuously employed during the leave period for retirement plan purposes.
For a defined contribution plan (such as a 401(k) profit-sharing plan), after the employee is reemployed, the employer must fund the missed employer contributions and allocate the missed employee contributions if they are made. In a defined benefit plan (such as a traditional pension plan), the accrued benefit must be increased for the period of military service after the employee is reemployed and, if applicable, has repaid any distribution and made any required contributions. It is important to note that, if an employee does not make up any required employee contributions or elective deferrals, the employee will not receive the employer match or accrued benefit tied to such contribution. The regulations provide time limitations for when the contributions must be made.
It is important to note that a reemployed employee’s right to repay a previous distribution applies under the regulations only to defined benefit plans. The final regulations omit a provision in the proposed regulations that would have required plans to allow returning service members who are no longer employed by the plan sponsor to make up missed contributions on an after-tax basis. To the extent contributions are tied to compensation, which is ordinarily the case, the regulations essentially require that compensation be determined at the same rate as if the employee had been employed during the leave period.
USERRA Poster
The Veteran's Benefits Improvement Act of 2004 added a requirement for employers to provide employees with notice of their USERRA rights, and the DOL has issued a form of notice. The DOL issued an interim notice on March 10, 2005, which has been finalized with an effective date of January 18, 2006. The notice may be found on the DOL web site at http://www.dol.gov/vets/programs/userra/USERRA_Private.pdf. Employers may satisfy the notice requirement by posting the notice where other employee notices are customarily placed.
