Effect of Military Leave on Employee Benefits

Recently, many employers have questioned their obligations with regard to employees under a Military Leave. Below is a brief overview and some of the benefits issues likely to arise in applying Uniformed Services Employment and Reemployment Rights Act of 1994, 29 U.S.C. §§ 4301-4233 (USERRA) and the Soldiers' and Sailors' Civil Relief Act, (SSCRA).

Overview

Uniformed Services Employment and Reemployment Rights Act of 1994, 29 U.S.C. §§ 4301-4233 (USERRA)

USERRA is intended to minimize the disadvantages to an individual that occur when that person needs to be absent from his or her civilian employment to serve in this country's uniformed services. During uniformed services leave, employees are entitled to the same benefits, if any, as other employees on leave of absence or furlough. The law seeks to ensure that those who serve their country can retain their civilian employment and benefit, and can seek employment free from discrimination because of their service. USERRA provides enhanced protection for disabled veterans, requiring employers to make reasonable efforts to accommodate the disability.

USERRA potentially covers every individual in the country who serves or has served in the uniformed services and applies to all employers in the public and private sectors, including Federal employers. Unlike many federal employment and benefits statutes, USERRA provides no exemption for small employers. In addition, USERRA does not supersede other legal or contract rights except to the extent that USERRA provides greater rights. As a result, employers need to consider applicable federal, state and local laws and private contract rights that may provide greater protections to employees in some circumstances.

USERRA is administered by the United States Department of Labor, through the Veterans' Employment and Training Service (VETS). VETS provides assistance to those persons experiencing service connected problems with their civilian employment and provides information about the Act to employers. For additional information, please contact your local VETS office.

Soldiers' and Sailors' Civil Relief Act of 1940

The very nature of military service often compromises the ability of service members to fulfill their financial obligations and to assert many of their legal rights. Congress and State Legislatures have long recognized the need for protective legislation. Under the provisions of the Soldiers' and Sailors' Civil Relief Act of 1940 (SSCRA), active military personnel may qualify for any or all of the following:

· Reduced interest rate on mortgage payments

· Reduced interest rate on debts

· Protection from eviction if your monthly rent is $1,200 or less

· Delay of all civil court actions, such as bankruptcy, foreclosure or divorce proceedings

Reemployment Protections

Under USERRA, employees (other than temporary employees) returning from leave for active duty (including training) in the military and certain other “uniformed services” are generally entitled to reinstatement in their civilian jobs if certain requirements are satisfied. These requirements include - timely return to the job or timely application for reemployment. Depending on the length of the service period, the required time period for the employee to return to or reapply for employment can vary from eight hours to 90 days after completion of service (or more for persons hospitalized or convalescing).

If the period of service exceeds 90 days, then the employee is entitled to reemployment in the position he or she would have occupied had employment and seniority not been interrupted, if the employee is qualified for that position or can become qualified with reasonable efforts by the employer. Otherwise, the employee is entitled to return to the pre-service position, or to another position that is the nearest approximation to the position the employee would have occupied. The employer must make a reasonable effort to accommodate an employee’s disability incurred during service; however, an employer need not provide reemployment rights in certain situations, e.g, where circumstances have so changed as to make reemployment impossible or unreasonable.

Benefit Protections

During uniformed services leave, employees are entitled to the same benefits as other employees on leave of absence or furlough. Upon reemployment, they are entitled to have their benefits reinstated. Moreover, for seniority-based benefits, USERRA provides that the returning employee is entitled to the additional seniority with the associated rights and benefits that the person would have attained had the employee remained continuously employed.

Pension plans

Pension plans, which are tied to seniority, are given separate, detailed treatment under the law. The law provides that:

Ų A reemployed person must be treated as not having incurred a break in service with the employer maintaining a pension plan;

o An employee who would have become eligible to participate in a pension plan during that individual's time in the service should be placed in the plan retroactive to the date of initial eligibility;

Ų Military service must be considered service with an employer for vesting (determining when the employee qualifies for a pension) and benefit accrual purposes (determining the amount of the employee's monthly pension check);

Ų The employer is liable for funding any resulting obligation; and

Ų The reemployed person is entitled to any accrued benefits from employee contributions only to the extent that the person repays the employee contributions.

A "pension plan" that must comply with the requirements of the reemployment law would be any plan that provides retirement income to employees until the termination of employment or later. Defined benefits plans, defined contribution plans, and profit sharing plans that are retirement plans are covered. USERRA applies to plans sponsored by more than one employer as well as single employer plans. USERRA also applies to pension plans established by State and local governments.

Calculation of contributions

For purposes of determining an employer’s liability or employee contributions under a pension benefit plan, the employee’s compensation during the period of his or her military service will be based on the rate of pay the employee would have received from the employer but for the absence during the period of service.

The contributions should reflect the compensation increases that the employee would have earned during the leave period. If those increases are not reasonably certain, then the average compensation rate during the year preceding leave should be used. Earnings and forfeitures need not be credited retroactively.

Repayment of employee contributions can be made over three times the period of military service but no longer than five years.

When employee contributions are thus paid, the employer must pay matching contributions. Employees are not made whole because they do not receive interest that would have accrued had contributions been made during the leave period. Some employers continue full or partial pay during uniformed services leave, and in those situations it appears that employees could choose between continuing employee contributions during their leave or making catch-up contributions upon reemployment.

The amount of employer and employee contributions is subject to otherwise applicable limits under the Internal Revenue Code, such as those under Sections 402 and 415, but the limits are applied with respect to the year to which the contributions relate, not the year in which they are made. Nondiscrimination rules generally do not apply.

Pension Loans

The Soldiers' and Sailors' Civil Relief Act (SSCRA) limits the amount of interest that may be collected on debts of persons in military service to 6% per year during the period of military service. The interest rate reduction doesn't occur automatically — service members must request it. Once a service member requests the rate reduction, the creditor must either comply or apply for court relief. The SSCRA puts the burden on the creditor to show that military service has not "materially affected" a member's ability to repay the debt. The court generally grants relief if the creditor can make his case. Further, under the Employee Retirement Income Security Act (ERISA), the loan will not fail to be a qualified loan under ERISA solely because the interest rate is capped by SSCRA. Under USERRA, a plan may, but is not required to, suspend the obligation to make regular loan repayments to the plan during the period of active military service.

Health benefits

If no health plan is provided to any employee, then the employer has no obligation under USERRA to provide one for uniformed service absences.

Continuation

USERRA provides for COBRA-like benefit continuation for persons who are absent from work to serve in the military, even when their employers are not covered by COBRA. If a person's health plan coverage terminates because of an absence due to military service, the person may elect to continue the health plan coverage for up to 18 months after the absence begins, or the period of service, whichever is shorter. The person cannot be required to pay more than 102% of the full premium for the coverage -- if the military service was for 30 or fewer days, the person cannot be required to pay more than the normal employee share of any premium.

Uniformed services leave will usually constitute a qualifying event under COBRA, entitling affected employees to notice of their COBRA rights. Thus, employers should give employees simultaneous notice of USERRA and COBRA rights to continue coverage upon beginning uniformed services leave. Although the 18-month USERRA continuation period is the same as the period that applies under COBRA for termination of employment, the two statutes have different rules for termination and extension of the continuation coverage period. Whichever statute is more beneficial to the employee will govern.

Exclusions/waiting periods

On return from 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 uniformed service. This rule 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 service in the uniformed service.

Cafeteria plans.

Although USERRA does not impose requirements specific to cafeteria plans, the effect of the statute appears similar to the Family and Medical Leave Act (FMLA). Under FMLA, employees are entitled to reinstatement of their benefit elections after returning from leave. In addition, FMLA regulations provide three approaches for payment of employee contributions to continue coverage during leave: (1) prepayment at the beginning of leave, e.g. by deduction from the final paycheck (this option can be applied on a pre-tax basis only to the extent that the leave period does not extend into the next plan year); (2) “pay-as-you-go” contributions by the employee during the leave period (this option can be applied on a pre-tax basis to the extent that the employee receives compensation such as unused sick leave or accrued vacation pay from which to make the contributions); and (3) employer payment of employee contributions during leave with “catch-up” contributions by the employee after returning from leave to reimburse the employer (this option can apparently be done on either a pre-tax or after-tax basis). Any of these three options, if provided for in the cafeteria plan document, can probably be used for USERRA purposes. During uniformed services leave, and upon return from such leave, an employee is entitled to change benefit elections to the same extent as other employees on leave or returning from leave.

Vacation pay

Service members must, at their request, be permitted to use any vacation that had accrued before the beginning of their military service instead of unpaid leave. However, the law states that service members cannot be forced to use vacation time for military service.

Vacation accruals, that is, the actual receipt of vacation time benefit itself, is not usually tied to seniority. For example, a person returning from three years of service may have passed a time benchmark where that person is entitled to build vacation at an increased rate (e.g., from one week a year to two weeks per year), but that person would not return to find three years back vacation waiting.

If an employer allows accrual of vacation for employees who are on furlough or leave of absence, then a person of similar seniority, status and pay who is absent for uniformed service is entitled to the same benefit, because USERRA treats the individual as being on furlough or leave of absence while performing uniformed service.

USERRA requires an employer to allow an individual to use earned vacation credits while absent for service, providing that usage is at the employee's request. An employer may not require the use of vacation for a service absence, unless the absence coincides with a period, such as a plant shutdown, when ALL employees are required to take vacation.

Enforcement

An aggrieved employee under USERRA may file an action in a U.S. district court or may file a complaint with the U.S. Department of Labor. If the Department is unable to resolve a complaint, the employee may request referral to the Justice Department, which may bring an action on the employee’s behalf.

Access to documents

The law gives VETS a right of access to examine and duplicate employer and employee documents that it considers relevant to an investigation. VETS also have the right of reasonable access to interview persons with information relevant to the investigation.

Double damages

Award of back pay or lost benefits may be doubled in cases where violations of the law are found to be "willful." "Willful" is not defined in the law, but the law’s legislative history indicates the same definition that the U.S. Supreme Court has adopted for cases under the Age Discrimination in Employment Act. Under that definition, a violation is willful if the employer’s conduct was knowingly or recklessly in disregard of the law.

Declaratory judgments

Only persons claiming rights under the law may bring lawsuits. According to the law’s legislative history, its purpose is to prevent employers, pension plans, or unions from filing actions for declaratory judgments to determine potential claims of employees.

Relation to State, Local and Other Federal Laws

USERRA does not preempt state laws providing greater or additional rights, but it does preempt state laws providing lesser rights or imposing additional eligibility criteria.

Forfeiture of rights

If, prior to leaving for military service, an employee knowingly provides clear written notice of an intent not to return to work after military service, the employee waives entitlement to leave-of-absence rights and benefits not based on seniority.

At the time of providing the notice, the employee must be aware of the specific rights and benefits to be lost. If the employee lacks that awareness, or is otherwise coerced, the waiver will be ineffective.

Notices of intent not to return can waive only leave-of-absence rights and benefits. They cannot surrender other rights and benefits that a person may be entitled under the law, particularly reemployment rights.