ALI-ABA Topical Courses Employee Benefits Law and Practice Update: Spring 2010 May 5, 2010 Video Webcast

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1 97 ALI-ABA Topical Courses Employee Benefits Law and Practice Update: Spring 2010 May 5, 2010 Video Webcast Retirement Plan Issues in Dealing with Employees on Active Military Duty By Pamela D. Perdue Summers Compton Wells P.C. St. Louis, Missouri

2 98 RETIREMENT PLAN ISSUES IN DEALING WITH EMPLOYEES ON ACTIVE MILITARY DUTY By PAMELA D. PERDUE SUMMERS, COMPTON & WELLS, P.C. I. Introduction There are now a host of laws governing the provision of benefits to employees who must leave civilian employment to enter into active military service. These laws include provisions enacted as part of the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) as well as changes made by the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART). In addition, the Pension Benefit Guaranty Corporation recently amended its benefit payment regulations to extend benefit guarantees to certain employees who are on military duty when the employer s pension plan is terminated in a distress or involuntary termination. Finally retirement plans must also be mindful of the special rules that can come into play when a participant with an outstanding loan leaves for military service. II. Overview of USERRA A. What the Act Does The push to better protect the rights and benefits of civilian employees who must leave that employment to perform active military duty began with the enactment of USERRA which revised and restated the Federal law protecting veterans' reemployment rights. Essentially, USERRA provides that an individual who leaves his or her job to perform qualified military service is generally entitled to reemployment by the employee s previous employer provided the individual returns to employment within a specified period of time. In addition to reemployment rights, however, USERRA also provides for the restoration, upon reemployment, of certain pension, profit sharing and similar benefits that would have accrued, but for the employee's absence due to the qualified military service. 1

3 99 B. Employers Covered Public and Private Employers without regard to Size Unlike some other labor laws which are applied only to employers of a certain minimum size, the scope of USERRA is quite broad with coverage extending to virtually all employers without a threshold or minimum size limit. USERRA applies not only to private employers of all sizes, but also to the Federal government as well as to the States. [Labor Reg. Section (a)] For this purpose, the term State includes the District of Columbia, the Commonwealth of Puerto Rico, Guam, the Virgin Islands, and other territories of the United States, including the agencies and political subdivisions thereof. [Labor Reg. Section (m)] Foreign Employers USERRA applies to foreign employers doing business in the United States. A foreign employer that has a physical location or branch in the United States (including U.S. territories and possessions) must comply with USERRA for any of its employees who are employed in the United States. [Labor Reg. Section (b)] American Companies in Foreign Countries An American company operating either directly or through an entity under its control in a foreign country must also comply with USERRA for all its foreign operations, unless compliance would violate the law of the foreign country in which the workplace is located. [Labor Reg. Section (c)] What about Native American Tribes? With respect to Native American tribes acting as employers, the Department of Labor (DOL) states its belief that, while the face of the statute does not explicitly cover Native American tribal employers, USERRA's legislative history reflects that the Act was indeed intended to apply to ``Native American tribes and their business enterprises.'' [citing S. Rep. No , at 42 (1993)]. However, although the DOL concludes in the Preamble to the Final Regulations that USERRA likely applies to Native American tribal employers it also states that it 2

4 100 recognizes that there is a difference between the right to demand compliance with the law and the means to enforce it. [citing, Kiowa Tribe of Oklahoma v. Manufacturing Techs., Inc., 523 U.S. 751, 754 (1998)]. This difficulty arises due to their general sovereign immunity from suit enjoyed by Native American tribes except where Congress has authorized the suit or the tribe has waived its immunity. C. Service in the Uniformed Services While USERRA mandated certain changes, it failed to harmonize those changes with actual Code provisions. Rather, it was left to the Small Business Job Protection Act of 1996 to amend the Code to add Section 414(u). Code Section 414(u) generally provides that covered plans must provide benefits for those who are entitled to the protections of chapter 43 of title 38, i.e., for those entitled to the protections of USERRA. USERRA provides protection and reemployment rights for those who perform service in the uniformed services. Service in the uniformed services is defined under the regulations to mean the performance of duty on a voluntary or involuntary basis in a uniformed service under competent authority. Service in the uniformed services includes active duty, active and inactive duty for training, National Guard duty under Federal statute, and a period for which a person is absent from a position of employment for an examination to determine the fitness of the person to perform such duty. The term also includes a period for which a person is absent from employment to perform funeral honors duty as authorized by law. [See, 10 U.S.C or 32 U.S.C. 115] The Public Health Security and Bioterrorism Preparedness and Response Act of 2002, Pub. L , provides that service as an intermittent disaster-response appointee upon activation of the National Disaster Medical System (NDMS) or as a participant in an authorized training program is deemed ``service in the uniformed services.'' [Labor Reg. Section (l)] III. Impact of USERRA on Retirement Plans A. Plans Subject to USERRA Section 414(u) clearly applies to plans attempting to be tax qualified. However, the scope of USERRA coverage is much broader. 3

5 101 Specifically, Labor Reg. Section applies the benefits provisions of USERRA to a pension plan. The term pension plan is defined primarily with reference to ERISA. As such, USERRA applies to a pension plan as defined for purposes of ERISA meaning an employee benefit plan that provides retirement income to employees, or defers employee income to a period extending to or beyond the termination of employment. [ERISA Section 3(2)(A)]Any such plan maintained by the employer or employers is covered under USERRA. However, USERRA also covers certain pension plans not covered by ERISA, such as those sponsored by a State, government entity, or church for its employees. USERRA does not, however, cover pension benefits under the Federal Thrift Savings Plan; those benefits are covered under 5 U.S.C. 8432b.[Labor Reg. Section ] B. Absence for Military Service Note that the time absent treated as military service is broader than merely the time actually performing qualified military service. Depending upon the length of the employee's period of service, he or she is entitled to take from one to ninety days following service before reporting back to work or applying for reemployment [See Labor Reg. Sec ]. This period of time is required to be treated as continuous service with the employer for purposes of determining participation, vesting and accrual of pension benefits under the plan. [Labor Reg. Section ] If the employee is hospitalized for, or convalescing from, an illness or injury incurred in, or aggravated during, service, he or she is entitled to report to or submit an application for reemployment at the end of the time period necessary for him or her to recover from the illness or injury. This period, which may not exceed two years from the date the employee completed service, except in circumstances beyond his or her control, must be treated as continuous service with the employer or purposes of determining the participation, vesting and accrual of pension benefits under the plan. [Labor Reg. Section ] Under the revisions to both Labor Reg. Section and , the entire period of absence from work due to or necessitated by service in the uniformed services, including preparation time and recuperation time, is to be considered service with the employer upon reemployment for computation of seniority and seniority-based rights, including pension entitlements. [Preamble to final USERRA Regulations] 4

Retirement Plan Issues In Dealing With Employees On Active Military Duty

Retirement Plan Issues In Dealing With Employees On Active Military Duty Pamela D. Perdue Serving Uncle Sam doesn t mean sacrificing employee benefits Pamela D. Perdue is of counsel to the St. Louis law