Military Leave

[Guest At Peace]

We are having more and more participants who are going on military leave. I am aware of the requirements - no break in service, how to calculate make-up contr's, etc....

However, I am not sure how to handle these participants while they are away. Since they can not have a break in service, how are they to be reflected on the reports?... I'm thinking that in the year of deployment, they would be reflected as a terminee and included in any compliance tests applicable. For subsequent years, they would not be included in any compliance tests. Upon return, they would again be included in compliance tests (make-up contr's of course would be disregarded in 404, 402(g), catch-up, 415 for year actually made, but would be subject to years for which they are attributed.)

Your thoughts and procedures on this issue are greatly appreciated.

Thanks!

[pmacduff]

Why would you "terminate" them? Can't you just make them "inactive" in your system until they return? Just a thought..........

[jaemmons]

Any employee who goes on a qualified leave for military service is to be credited with the same hours and pay rate (generally based upon the rate of hours worked and paid over the previous 12 months prior to leaving for military duty) during the leave (not to extend past 5 years), as if they were still employed by the employer. As such, the would accrue benefits (e.g.-employer contributions, forfeiture allocations, etc.) during their leave and continue to vest.

Since they continue to accrue benefits, I would reflect them as active employees, since they cannot be terminated pursuant to USERRA, and include them in the testing during their military leave. Proceduraly, I would make a note to the file for every participant who has gone a qualified military leave of absence, the duration of the leave, and comp/hours credited during the leave, since company payroll records will not match the comp and hours being credited to them during this period. You should contact your payroll vendor, if applicable, to see how they are reflecting these employees for other employers.

[MGB]

jaemmons,

The crediting of service only applies if they actually return to the employer when they leave the service (not all will). They can also lose their USERRA rights if they are discharged under anything other than honorable discharge (a very large percentage leave the service under a general discharge and some more under a dishonorable). Therefore, the additional benefits are in a "contingent" basis during their leave. I would think that it makes more sense to not consider them active.

Also, on a technical note: The five year limitation only applies to VOLUNTARY service. Being called up for the reserves does not start the 5-year clock running. For example, a person could be called up for 3 years involuntarilly, then reenlist for 4 years. They come back after 7 years and they still have full USERRA rights because they have not outrun the 5 year limit (they only had 4 voluntary years).

[Guest At Peace]

I agree - they should not be active.

"Inactive" might be an option, but not sure that would be accurate.

Regs appear to indicate they would be "re-employed" upon return, so it would seem appropriate to consider them as normal terminees until they actually return. At that time, make-up contributions, vesting, etc. would be calculated.

We would keep up with them internally - maybe even go as far as suggesting that the employer set aside a reserve amount each year to "save up" for the make-up contribution. We will probably add something to our census request so that we can make this calculation each year.

Do you agree that this would be an acceptable procedure?

Thank you for responding previously and your comments are welcome!

[jaemmons]

MGB,

I understand that reemployment is a contingency for those serving military duty to receive benefits and service credit during their leave.

However, I thought that the five year limitation applied to both voluntary and involuntary service (which is cumulative), but if the individual's service is extended past the five year limit, USERRA rights would only apply if the extension of duty were due to one of the eight reasons listed under Section 4312© of Title 38 U.S. Code, Chapter 43. The exceptions appear to be involuntary, either due to orders received to stay in active duty or due to the service position requiring more than 5 years of initial military service.

Therefore, if someone is called up from reserves for a three year active duty period (assuming they are honorably discharged) and then reenlists, on a voluntary basis, for another 4 years would not be eligible for USERRA rights, as their cumulative service, taking into account that the renlisting is not one of the eight exceptions mentioned above, is greater than 5 years.

Thoughts?

[MGB]

See the descriptions in item (4) (this is from USERRA):

`© Subsection (a) shall apply to a person who is absent from a position of employment by reason of service in the

uniformed services if such person's cumulative period of service in the uniformed services, with respect to the employer

relationship for which a person seeks reemployment, does not exceed five years, except that any such period of service

shall not include any service--

`(1) that is required, beyond five years, to complete an initial period of obligated service;

`(2) during which such person was unable to obtain orders releasing such person from a period of service in the

uniformed services before the expiration of such five-year period and such inability was through no fault of such

person;

`(3) performed as required pursuant to section 270 of title 10, under section 502(a) or 503 of title 32, or to fulfill

additional training requirements determined and certified in writing by the Secretary concerned, to be necessary for

professional development, or for completion of skill training or retraining; or

`(4) performed by a member of a uniformed service who is--

`(A) ordered to or retained on active duty under section 672(a), 672(g), 673, 673b, 673c, or 688 of title 10 or

under section 331, 332, 359, 360, 367, or 712 of title 14;

`(B) ordered to or retained on active duty (other than for training) under any provision of law during a war or

during a national emergency declared by the President or the Congress;

`© ordered to active duty (other than for training) in support, as determined by the Secretary concerned, of

an operational mission for which personnel have been ordered to active duty under section 673b of title 10;

`(D) ordered to active duty in support, as determined by the Secretary concerned, of a critical mission or

requirement of the uniformed services; or

`(E) called into Federal service as a member of the National Guard under chapter 15 of title 10 or under

section 3500 or 8500 of title 10.

[jaemmons]

Item 4 seems to indicate involuntary retention for active duty. I don't see any mention of voluntary duty being mentioned.

Am I missing something?

[MGB]

Items 1 to 4 are the service periods that do NOT apply towards the five years.

[jaemmons]

MGB, I see your point. Thanks

[Belgarath]

I found this thread interesting, as yesterday I was wrestling with the question as to whether to consider them "terminated" (with an asterisk) or not. It isn't merely an academic question - if they are actually terminated, subject, of course, to all subsequent reemployment rights under USERRA if they qualify, then they would also be eligible for a distribution. If they are NOT terminated, then it would be an impermissible distribution. The statute simply doesn't address these everyday administrative questions, so you are left to take your best guess at a proper interpretation.

If you simply consider them terminated, like any other participant (until such time as they qualify for USERRA rights upon reemployment) then the issues generally become clearer - they are included in testing as applicable, they are eligible for a distribution, etc.) - but what about reallocating forfeitures? I would interpret this to be that no forfeiture occurs, since no break in service.

Has anybody spoken with DOL/IRS officials about this issue? Any word on any guidance or opinion, either formal or informal?

[ccassetty]

Counting the employee as terminated would not be appropriate.

This is what the law says, bold added by me for emphasis.

§ 4316. Rights, benefits, and obligations of persons absent from employment for service in a uniformed service

(a) A person who is reemployed under this chapter is entitled to the seniority and other rights and benefits determined by seniority that the person had on the date of the commencement of service in the uniformed services plus the additional seniority and rights and benefits that such person would have attained if the person had remained continuously employed.

(b)(1) Subject to paragraphs (2) through (6), a person who is absent from a position of employment by reason of service in the uniformed services shall be--

(A) deemed to be on furlough or leave of absence while performing such service; and

(B) entitled to such other rights and benefits not determined by seniority as are generally provided by the employer of the person to employees having similar seniority, status, and pay who are on furlough or leave of absence under a contract, agreement, policy, practice, or plan in effect at the commencement of such service or established while such person performs such service.

[Belgarath]

Thank you, Carolyn. That's the same answer that a couple of us cameup with yesterday when discussing the problem. What we didn't resolve was the following - to get down to brass tacks, how do you include these people for the 70% test?

1. Do you exclude them altogether, even though they don't fall into a "statutorily excludable" category? In other words, do they fall into an "other" category which the nondiscrimination statutes didn't address, and you exclude them from both the numerator and the denominator?

2. Do you include them as eligible, but not benefitting since they do not receive a contribution?

3. Or, do you include them as eligible and as benefitting?

Although #1 seems more reasonable from a common sense point of view, I'm just not sure how to approach this. I'd love to hear any opinions on this.

[ccassetty]

Last sentence of 1.410(b)-1(b)(1) says "The percentage requirements of this subparagraph refer to a percentage of active employees, including employees temporarily on leave, such as those in the Armed Forces of the United States, if such employees are eligible under the plan.

However, The definition of Employee under 1.410(b)-9 is "Employee means an individual who performs services for the employer who is either a common law employee of the employer, a self employed individual who is treated as an employee pursuant to sention 401©(1), or a leased employee (not excluded under section 414(n)(5))who is treated as an employee of the employer-recipient under section 414(n)(2) or 414(o)(2)."

These seem to contradict each other to some extent, so I will certainly be interested to hear what anyone else has to say about this. Without further guidance from the IRS, (and this is just my opinion) I would not include them in the testing unless they did, in fact, work for part of the year prior to leaving to serve in the military. I'm basing this on the definition of an employee as one who "performs services", if the employee has been absent for the entire year, he or she has not performed services, and therefore would not be considered an employee for testing purposes.

It just makes sense. 414(u)(1)© basically excludes the make up contributions, when they are finally made, from any discrimination testing. Why would you include those on military leave in the testing while they are absent, at which time they are not eligible for any contributions, and then exclude the make up contributions from testing when they return and become eligible?

Like I said, I hope others will contribute their opinion.

While we are on the subject of USERRA, I have a question about calculating the compensation on which to base make up contributions when the employee returns to work.

The whole idea of USERRA is to make the employee whole as though they had never left. It is clear that when the employee returns, he or she must be placed in a higher position and higher salary than when they left if it is reasonably probable that the employee would have received the promotion or higher salary if they had not left for military service. The definition of compensation for calculating make up contributions includes the wording " at the rate the employee would have received but for the period of service ". This could easily be read, in light of the so called escalator principal, to require that these same promotions and increases in salary be incorporated into the calculation of this assumed compensation calculation. Any thought on this would also be appreciated. In all the USERRA summaries and Q&A pieces I've read, I haven't seen this addressed.

[Belgarath]

Let's see...first, I don't think 1.410(b)-1 would apply, as it applies prior to 1994.

Beyond that, I'm still groping.

As far as the compensation question, FWIW, I'm of the opinion that the employer isn't necessarily required to take into account increases in pay. But, if they were contractually guaranteed, this might be a poor argument! Likewise, if a 3% raise was given across the board, to rank & file employees, it might be hard to justify denying it under USERRA. If a salaried employee, where raises are given based upon performance, whim of the employer, etc., then I think it would be reasonable not to assume an increase. As a rule of thumb, I'm of the opinion that you give the benefit of the doubt in favor of the employee.

What's your opinion on the 70% test in the year in which military service begins? Suppose plan has 1000 hour/last day, but employee only works 700 hours. Do you exclude them? Or better yet, they leave with less than 500 hours. If they can't be considered "terminated" then I can't find statutory support for excluding them. And yet it doesn't seem reasonable to include them as not benefitting, and possibly cause employer to fail testing, when the employer must subsequently give them contributions if they qualify. Sort of a doubly-whammy on the employer. So it seems most reasonable to me to exclude them altogether. I just feel uncomfortable with this without some IRS/DOL guidance, or at least affirmation from some of the gurus out there.

[ccassetty]

Boy is my face red. However, on the bright side, this takes away the perceived contradiction.

Again, this is just my opinion, but I think employees should be included in the test in the year they leave for military service. Remember, in the year they leave, there is no guarantee that they will become eligible for the make up contributions upon return. Thus, it seems appropriate to include them in the test as participating but not benefiting, because, as you pointed out, you cannot exclude them under the terminated with less than 500 hours of service exclusion. However, this brings up an interesting point. If the test fails and these employees are given an additional contribution as a result, can that contribution be credited against the make up contribution when the employee returns? I would think so. The flaw in this line of reasoning is that the employees who receive the additional contribution may not be the employees who left for military service, thus costing the employer more than it should have when the employees return and get the make up contributions. No easy answers.

[Belgarath]

FWIW - I called the IRS a couple of weeks ago, and received a return call last Friday. The IRS rep said that in the year they leave, you exclude them from all nondiscrimination testing, including rate group testing, EVEN if they receive a regular allocation based upon the plan's requirements. Since this is what we had decided to do anyway, it was some comfort to hear it from the IRS, even if not in an "official" release.

I was so harried on Friday that I never thought to ask if the IRS was planning any written release of guidance.