Category Archives: Uncategorized

Benefits Compliance: Where You Get It; What You Need (Poll)

Y01VDYAX63Changes in the law and continued advances in technology have made benefits compliance a constantly shifting landscape.  As one of many potential sources for your own path towards benefits compliance, E for ERISA would very much appreciate your participation in the following poll, which asks a few simple questions about where you currently get your benefits compliance services and what you may still need in that regard.  Thank you in advance for (anonymously) sharing your thoughts and experiences.


















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Filed under 401(k) Plans, 403(b) Plans, Affordable Care Act, Applicable Large Employer Reporting, Benefit Plan Design, Employer Shared Responsibility, ERISA, Federally Facilitated Exchange, Fiduciary and Fee Issues, Fiduciary Issues, Fringe Benefits, Health Care Reform, HIPAA and HITECH, Payroll Issues, Plan Reporting and Disclosure Duties, PPACA, Profit Sharing Plan, Uncategorized

A Conversation About the DOL Fiduciary Rule (Audio File)

The Department of Labor recently published a final regulation defining a “fiduciary” for purposes of investment advice rendered for a fee with regard to “retirement accounts.” The final regulation marks the first change in the regulatory definition of this type of fiduciary since the regulation originally was published in 1975. Retirement accounts under the new rule include those held under qualified plans (e.g., 401(k), pension plans), which have always been subject to ERISA, and now for the first time with regard to IRAs, which formerly were subject only to Internal Revenue Code rules governing self-dealing and other forms of prohibited transactions that the Internal Revenue Service enforced through audits.  The new rule – together with new and amended prohibited transaction exemptions related to the rule – becomes applicable on April 10, 2017, with full implementation required on and after January 1, 2018.

Recently I was interviewed about the new definition of an investment advice fiduciary for an episode of Money Talk that KZSB (1290 AM) will broadcast a 2:00 p.m. PDT on June 20, 2016.  The interview provides a broad overview of the rule and how it will likely impact IRA investors, employers, and the investment industry.  Joining me were program hosts Dianne Duva, Partner at Arlington Financial Advisors, and Neil Kriesel, who worked in finance for many years, has taught at SBCC as an adjunct faculty member and serves on the SBCC Foundation Board and various other non-profit organizations.  Click below to listen.

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Waiting Period Limits for California Small Group Early Renewals

The following post was published on September 5, 2014 and updated on September 23, 2014.

As we posted a few days ago, some uncertainty remains for California employers regarding eligibility waiting period limits for “late renewal” insured group health plans that follow, most commonly, a December 1 through November 30 cycle.   Many small to mid-sized California employers switched from a calendar year policy cycle to a late renewal cycle in 2013, in an effort to postpone their exposure to increased health premiums resulting from ACA coverage mandates and insurance market reforms taking effect in 2014.

The ACA permits an eligibility waiting period of up to 90 days for plan years beginning on and after January 1, 2014.  California law governing insurers and HMOs restricted the waiting period to 60 days under legislation that very recently has been repealed effective January 1, 2015.  The repeal left open the issue of whether carriers would hold employers renewing late in 2014 to the 60-day waiting period limit.

At least with regard to small group coverage (2 to 50 employees), the original answer to that question appeared to be “yes” for two major carriers in the state whose approach may be a bellwether for other carriers:  Anthem and Blue Shield.   Originally upon announcement of S.B. 1034’s passage, neither would permit a 90-day eligibility waiting period on small group policies or HMO contracts that are renewed or first issued during the remainder of 2014.  The permissible waiting period choices were to have been limited to first of month following date of hire, or first of the month following 30 days from the date of hire.  However Anthem later modified its position in this regard, and will permit employers to request, in writing, a waiting period extension (not to exceed 90 days total) to go into effect as of January 1, 2015.  Blue Shield appears to be sticking to the renewal options listed.

For small group policy renewals and new sales occurring on or after January 1, 2015, the carriers will permit waiting periods equal to 90 days from date of hire, first of month following date of hire, and first of month following 30 days from the date of hire.   One of the carriers may also offer first of month following 60 days, but this is not yet certain.  Another carrier will prorate premiums when the 91st day after hire falls in the middle of the month.

So far these carriers are silent on waiting periods for large group renewals and new sales occurring in the remainder of this year.  Employers in this category likely can establish their own waiting period limits within the overall ACA 90-day cap.

The carriers are permitting the 90-day waiting period limit for individuals whose small group coverage takes effect on or after January 1, 2015.  Therefore, coverage for individuals whose waiting period bridges the end of 2014 and the beginning of 2015 should begin at the end of the waiting period that began in 2014, rather than after “tacking on” additional wait time permitted in 2015.  Although not expressly required by carriers, this would seem to be a logical strategy for large group employers to take with regard to employees whose waiting periods began to elapse at a time when the maximum limit was 60 days, but end after the point at which the employer increased the maximum limit to 90 days.   This would also have the advantage of meeting ACA requirements so long as the total waiting period does not exceed 90 days.

The final regulations on the maximum ACA waiting period state that carriers (technically, “health insurance issuers”) may rely on eligibility information reported by the employer or other plan sponsor, and will not be considered to have violated the ACA waiting period rule in instances where both of the following requirements are met:

  • the carrier requires the employer/plan sponsor to disclose the terms of any eligibility conditions or waiting period, and to provide notice of any changes to these rules; and
  • the carrier has no specific knowledge of the imposition of a waiting period that would exceed the maximum 90-day period.

Imposing eligibility waiting periods in excess of the ACA 90-day cap other than will trigger excise taxes equal to $100 per day, per impacted plan participant, up to a maximum of $500,000.  Employers and other plan sponsors must voluntarily disclose and pay the tax on IRS Form 8928, Section II.   The excise tax may be abated in whole or in part if the violation was due to reasonable cause and not willful neglect.

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ACA Developments: Individual Mandate Transitional Relief; Nondiscrimination Regulations Yet to Issue

The IRS recently issued Notice 2013-42, which grants transition relief from the individual shared responsibility penalty for persons whose employers offer group health coverage on a non-calendar year basis.  Specifically, individuals who are eligible under an employer’s non-calendar year plan with a plan year beginning in 2013 and ending in 2014 will not be liable for the individual shared responsibility for the period from January 1, 2014, through the month in which the employer’s 2013-2014 plan year ends.  This frees these individuals from the duty to enroll in the plan in 2013, simply in order to have secured minimum essential coverage as of January 1, 2014.  Examples set forth in the notice suggest that an employee whose plan is on a non-calendar year cycle can wait to enroll in the 2014-2015 plan year, even when the employee’s spouse is eligible for coverage under a calendar year plan.

Secondly, June 30, 2013 came and went without the Treasury Department publishing proposed regulations on nondiscrimination rules for insured health plans.  The ACA imposes these rules but the Treasury Department has suspended enforcement of them, pending issuance of regulatory guidance.  As tax regulations generally cannot go into effect earlier than 6 months after publication, they needed to have been published by June 30 in order to take effect January 1, 2014.  It now appears possible if not likely that the nondiscrimination rules will not take effect until 2015, to allow employers who must commit to insurance policies on a 12-month cycle adequate time in 2014 both to understand the new regulations and to make plan design changes as needed. in order to comply with them.

Both of these developments transpired before the Treasury Department announced that it would not enforce until 2015 employer shared responsibility tax penalties, or tax reporting duties related to the employer and individual mandates, originally required in 2014.   It is likely that the individual mandate will go into effect on January 1, 2014 as scheduled.  What is not clear at this point is whether nondiscrimination rules will go into effect concurrently with the delayed employer mandate penalties, in 2015, or will be delayed an additional year, to 2016.    Given the Treasury’s expressed goal, in its memo, of implementing the ACA in a “careful, thoughtful manner,” it is possible that more time for compliance will be provided.

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Filed under Affordable Care Act, Benefit Plan Design, Employer Shared Responsibility, Individual Shared Responsibility, Nondiscrimination Rules for Insured Health Plans, PPACA, Uncategorized

ACA Implementation for Small to Mid-Sized Employers: A Short Podcast

Recently, Mark Weiss of the Advisory Law Group interviewed me on Affordable Care Act compliance issues for small to mid-sized employers. You can listen to the resulting podcast on Mark’s Wisdom.Applied blog by clicking here.   Topics covered include preparing for pay or play, employee interaction with the exchanges, exchange readiness (or un-readiness), and the viability of wellness programs in a small employer setting.  Thank you, Mark, for giving me the opportunity to share my views with your audience.

Mark’s practice focuses on medical groups, physicians and other healthcare providers, and I hope to soon interview him on the ACA as seen from the provider perspective, including how it is changing – in several different aspects – the ways in which healthcare is delivered in the U.S.     The law is not much more popular among healthcare providers, than it is among employers, but for different reasons Mark will ably explain.  Check back soon for more good information along those lines.

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Proposed Regulations on Employer Shared Responsibility Provide Some Welcome News, Some Measures to Thwart Abuse

On December 28, 2012, the Internal Revenue Service and Treasury Department issued proposed regulations on the employer coverage mandate (“employer shared responsibility” rules) under Section 4980H of the Internal Revenue Code (“Code”), which was added as part of the Affordable Care Act.  On that date the IRS also posted on its website a list of Questions and Answers on the new guidance, written in more colloquial terms than the regulations.   Employer shared responsibility rules apply only to “applicable large employers” (ALEs), i.e., businesses that employed an average of 50 or more full-time employees (those working 30 or more hours/week, or 130 or more hours/month) or full-time equivalent (FTE) employees on business days in the preceding calendar year.  Therefore, smaller employers need not concern themselves with the new proposed regulations  — with one very significant caveat:  if they share common ownership with or are otherwise related to other business entities with their own employees, the proposed regulation may require that employees of all entities are combined for purposes of the 50 FTE headcount, such that the entire group of businesses constitutes a single ALE and must comply with the employer mandate.[1]

The proposed regulations incorporate a significant body of prior guidance on the employer mandate published in the form of IRS Notices in late 2011 and during 2012, which I addressed in an earlier post.[2]  The proposed regulations build on this prior guidance in response to public comments it received, resolve some questions the guidance left open, and depart from the prior guidance in certain instances.  The proposed regulations also contain several new “anti-abuse” rules that anticipate and attempt to thwart ways in which employers might manipulate employment status and thus reduce their employer mandate obligations starting in 2014.  A summary of key provisions follows.  In reviewing it, please bear in mind that it only skims the surface of a 144-page regulation (including an 89-page preamble), every page of which contains important guidance for employers who, this current calendar year, will or are likely to exceed the 50 full time/FTE threshold and thus have shared responsibility duties in 2014.

  • Affordability Based on Self-Only Coverage.  The proposed regulations finally resolve the question of whether the “affordability” yardstick for group health coverage will be based on the employee’s share of self-only coverage, or on its share of the always much higher dependent coverage.  “Affordable” in this context means coverage for which the employee-paid share of premiums does not exceed 9.5% of the employee’s compensation from the employer reported in Box 1 of Form W-2 for the year just ended.  ALEs that offer coverage to their full-time employees can still be subject to excise taxes under Code Sec. 4980H(b) if the coverage that they do offer is either unaffordable, as described above, or fails to provide “minimum value” meaning that the plan’s share of costs is at least 60%.  The proposed regulations make clear that the 9.5% of W-2 income threshold applies to the employee’s share of self-only coverage available under the lowest-cost plan or option the employer offers, that also provided minimum value.  This will come as a relief to large employers.  In response to comments that criticize the Box 1 of Form W-2 standard on the grounds that it excludes employee salary deferrals under 401(k) and cafeteria plans, the proposed regulations propose two other affordability safe harbors – one based on rates of pay and one based on the Federal Poverty Level.
  • Grace Period with Regard to Dependent Coverage.  The proposed regulations provide that, for ALEs that do not now offer dependent coverage to full-time employees, no assessable payments will be required for an ALE’s failure to offer dependent coverage during their 2014 plan year, provided that the employer takes steps during the plan year that begins in 2014 toward satisfying Code Section 4980H in full.  In addition, the proposed regulations define “dependents” for purposes of employer shared responsibility rules as the employee’s children up to age 26 (their 26th birthday), and as not including spouses.
  • 95% “Margin of Error” Rule.  To understand this provision of the proposed regulations, a bit of review is in order.  The Affordable Care Act imposes two different types of excise taxes on ALEs, called “assessable payments,” depending on whether or not the ALE fails to offer coverage to its full-time employees entirely, or offers inadequate coverage.  Inadequate coverage is coverage that fails to provide minimum value and/or is not “affordable” as defined above.  In the “no coverage” scenario, the excise tax under Code Section 4980H(a) applies.[3]  In the inadequate coverage scenario, the excise tax under Code Section 4980H(b) applies.[4]  With regard to the first excise tax for “no” coverage, the proposed regulations state that this tax will apply to ALEs that do not offer coverage at all, as has always been the rule, but also provide that the tax will not apply to an ALE that offers coverage to at least 95% of its full-time employees (or, if greater, 5 employees), but less than 100% of full-time employees.  This margin of error rule applies whether or not the failure to offer coverage to 100% of full-time employees is inadvertent.   However, the ALE could still pay an excise tax under Code Section 4980H(b), if at least one of the full-time employees not offered coverage qualifies for premium tax credits or cost-sharing reduction on an exchange.  Beginning in 2015 for ALEs who do not currently offer dependent coverage, the 95% minimum threshold will apply to full-time employees and their dependents.
  • Flexibility with Regard to Seasonal Employees.  Seasonal hires come into play in determining whether an employer is, or is not, an “applicable large employer” or “ALE” subject to shared responsibility rules, and again when determining which employees are “full-time.”   For purposes of determining ALE status, an employer counts seasonal workers who work full-time hours (30 or more per week; 130 or more per month) towards their “full-time” employee headcount.  The employer also counts less-than-full-time seasonal workers towards their “full-time equivalent” or FTE headcount.  Once an employer determines that the monthly average was 50 or above, it needs to determine whether the seasonal worker exception applies.   Under that exception, if the sum of an employer’s full-time employees and FTEs exceeds 50 for 120 days or less during the preceding calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days are “seasonal workers,” the employer is not considered to employ more than 50 full- time employees (including FTEs) and the employer is not an applicable large employer for the current calendar year.   Notice 2011-36 permitted four calendar months to be treated as the equivalent of 120 days, for these purposes, and the proposed regulations add even more flexibility by allowing that neither the four calendar months nor the 120 days used for these purposes need be consecutive.  Right now, the “seasonal worker” term is borrowed from Department of Labor regulations that primarily define seasonal workers as agricultural workers, and retail workers employed exclusively during the holiday season.  Contrast this with “seasonal employees,” which is a term used in the context of assessing full-time status.  Seasonal workers are classified with “variable hour employees” – employees who cannot accurately be predicted to be full-time or not upon hire – for purposes of the look-back “measurement period” and subsequent “stability period” safe harbors described in Notices 2011-36, 2012-17 and 2012-58, and incorporated into the proposed regulation with some changes.    “Seasonal employee” could include more types of employees than “seasonal worker” because the proposed regulations allow employers to use a “reasonable good faith interpretation” of the DOL “seasonal worker” definition, in applying the seasonal worker exception.  The preamble to the regulations specifically provide that treating an educational employee who takes the summer off from employment as a seasonal worker would not be a reasonable interpretation of the seasonal worker standard.
  • Service Counted Towards Full-Time Status Includes Paid Leave.  The proposed regulations provide that employees’ full-time status will be based on 30 (per week) or 130 (per month) “hours of service” which term will include non-work time for which pay is provided or due to be provided including absences for vacation, holidays, illness, incapacity (including disability), layoff, jury duty, military duty, and paid leaves of absence.  A proposed maximum allocation of 160 hours of paid time off was rejected because legally protected leaves of absence could exceed this budget, and thereby expose employers to discrimination claims if the limit were applied.  The proposed regulations also provide guidance on averaging hours of service, over look-back measurement periods, when an employee missed work due to one or more special unpaid leaves of absence including FMLA, USERRA (military duty) and jury duty, so that an employee is not misclassified as less than full-time as a result of such absences.
  • Ability to Use Pay Periods Start or End Dates for Certain Measuring Functions. The process of determining which employees are “full-time” and entitled to an offer of group health coverage is based on a chosen look-back “measurement period.” If an employee averages 30 or more hours per week or 130 or more per month during the measurement period, the ALE must offer the employee and his or her dependents (subject to the 2014 exception mentioned above) group health coverage for a subsequent “stability period,” whether or not the employee retains a full-time schedule during the stability period.   Notices 2011-36, 2012-17 and 2012-58 generally refer to measurement and stability periods based on periods of calendar months or month-long periods (e.g., April 15 to May 14).  However, public comments requested that employers be allowed to start or end a measurement period at the beginning or end of a payroll period.  The proposed regulations grant this request for payroll periods that are one week, two weeks, and semi-monthly in duration, and explain how to handle gaps between the payroll period start- or end-date, and the related measurement period start- or end-date.   In an example given, an employer using the entire calendar year as a measurement period, but wanting to start or end the measurement period on a payroll period start- or end-date, could either exclude the entire payroll period that included January 1 (the beginning of the year) if it included the entire payroll period that included December 31 (the end of that same year), or, alternatively, could exclude the entire payroll period that included December 31 of a calendar year if it included the entire payroll period that included January 1 of that calendar year.
  • Anti-Abuse Provisions.  The proposed regulations contain some anti-abuse rules aimed at anticipated employer efforts to manipulate the nature or length of the employment relationship so as to avoid application of shared responsibility rules.
    • Rehires/Returns from Unpaid LeaveThe employee rehire/return from unpaid leave of absence rules come into play in determining an employee’s status as full-time, or less than full-time, during a measurement period.  Specifically, when an employee works full-time hours during a portion of a look-back measurement period, later terminates employment, or goes on an unpaid leave of absence, and then is rehired or returns from that leave of absence, at what point may the employer disregard the hours of service worked prior to the absence and treat the employee as a new hire for purposes of evaluating full-time status?    The proposed regulations provide that an employer may treat an employee as terminated, and newly rehired, if the employee performs no service for a period of at least 26 consecutive weeks.  The employer can also use a “rule of parity” for periods less than 26 weeks, but at least four weeks long.  Under the rule of parity, the employee will be treated as a new hire if the period of absence (of at least four weeks) exceeds the length of the employment period that immediately preceded it.  For instance, if an employee works three weeks for an applicable large employer, terminates employment, and is rehired by the same employer ten weeks after terminating employment, the rehired employee is treated as a new hire.  An employee who is treated as a continuing employee (as opposed to an employee who is treated as terminated and rehired under the 26-week or “rule of parity” periods) is subject to the measurement period, and entitled to coverage during the stability period (presuming full-time status is attained over the measurement period) that would have applied to the employee had the employee not experienced the absence from service.
    • General Anti-Abuse RuleThe proposed regulations also provide that any hour of service will be disregarded if the hour of service is credited, or the underlying services are requested or required of the employee, for the purpose of circumventing employer shared responsibility rules.
    • Use of Temporary Employment AgenciesThepreamble to the regulations identify practices that the IRS and Treasury anticipate employers may try to exploit, using temporary employment agencies as purported common law employers, and state that final regulations on employer shared responsibility duties will expressly prohibit such practices.  In one scenario the employer would purport to employ individuals only part of a week, such as 20 hours per week, but would then hire the same individuals through a temporary employment agency who acts as their common law employer for the remaining hours in the week, with the result that the individuals do not qualify as full-time employees, for shared responsibility purposes, of either the employer “client” nor the temporary employment agency.  An alternative scenario would split the hours between two separate temporary employment agencies.  The preamble minces no words in commenting on these strategies:

“The Treasury Department and the IRS anticipate that only in rare circumstances, if ever, would the “client” under these fact patterns not employ the individual under the common law standard as a full-time employee. Rather, the Treasury Department and the IRS believe that the primary purpose of using such an arrangement would be to avoid the application of section 4980H.”

As this excerpt makes clear, the government intends that the employer shared responsibility duties will attach to businesses based on “common law” employment relationships, irrespective of third party involvement.  Very generally, a common law employment relationship exists if the employee is subject to the will and control of the employer not only as to what work must be done but as to how the work will be performed.  (This is a gross oversimplification; the IRS follows a 20-point test.)  This is a straightforward inquiry if the employer directly employs its entire staff.  However, complications arise for employers that use employee leasing companies/Professional Employer Organizations (PEOs) and temporary hire agencies.  Such employers will need to closely examine those relationships and determine where the common law employment relationship lies.    There is no better guide to such matters than Derrin Watson’s publication “Who’s the Employer” (6th Edition, 2012), however as is the case with common ownership issues, employers likely will need a seasoned ERISA attorney or other tax practitioner to determine where the true employment relationship lies.

  • Transition Relief for Fiscal Year Plans, Including Cafeteria Plan Election Changes.  The proposed regulations are effective for months beginning after December 31, 2013 but employers may rely upon them until a final regulation issues.   In addition, special transition rules are provided for employers with fiscal year plans.  If an applicable large employer member maintains a fiscal year plan as of December 27, 2012, the relief applies with respect to employees of the applicable large employer member (whenever hired) who, under the plan eligibility rules in effect as of December 27, 2012, would be eligible for coverage as of the first day of the first fiscal year of that plan that begins in 2014 (the 2014 plan year).  If an employee described in the preceding sentence is offered affordable, minimum value coverage no later than the first day of the 2014 plan year, no excise taxes will be due with respect to that employee for the period prior to the first day of the 2014 plan year.   Additional transition relief applies to employers who cover a significant percentage of employees under one or more plans with the same fiscal year as of December 27, 2012, and want to expand coverage under those plans, effective as of the first day of the 2014 plan year, to other, currently excluded employees in order to satisfy shared responsibility duties.  Finally, the proposed regulations contain transition relief for fiscal year Section 125/cafeteria plans, so that in January 2014, employees of an applicable large employer making salary reduction elections to pay for group health coverage can stop those deferrals in order to purchase individual coverage on an exchange.  In addition, employees who had not chosen to enroll in employer group health coverage could enroll effective January 1, 2014, in order to avoid penalties under the individual mandate going into effect that year, and could elect to pay their portion of premiums on a pre-tax basis through the cafeteria plan.   This cafeteria plan transition rule only applies to fiscal year plans and then only to employees’ elections to pay for group health coverage on a pre-tax basis and not to health flexible spending accounts or dependent care accounts.  These change in election rules, if adopted by an applicable large employer, must be set forth in the written cafeteria plan document.  Retroactive amendments may be made any time by December 31, 2014 and must be effective retroactively to the date of the first day of the 2013 plan year of the cafeteria plan.


[1] There is no better guide to shared ownership issues than Derrin Watson’s publication “Who’s the Employer” (6th Edition, 2012), however employers likely will need a seasoned ERISA attorney or other tax practitioner to carry out the analysis.  Keep in mind, also, that certain types of “affiliated service groups” can lead to a combined group of businesses for these purposes, even without any shared ownership between the entities.

[2] See Notice 2011-36 (definitions of employer, employee, and hours of service; proposed look-back/stability period safe harbor for determining full-time status); Requests for Comments set forth in Notice 2011-73 (“affordability” safe harbor based on 9.5% of Form W-2 compensation received from employer sponsoring health plan): Notice 2012-17 (proposed methods of determining full-time status of new employees); Notice 2012-58 (establishment of look-back/stability period safe harbors that employers may rely on through the end of 2014; guidance on determining full-time status of newly hired variable hour and seasonal employees).

[3] The “assessable payment” in such instance is determined on a month-to-month basis and is equal to 1/12th of $2,000 for all full-time employees for each month (after disregarding the first 30 full-time employees), regardless of which employees receive exchange subsidies.  The 30 full-time employee exclusion must be allocated among employers related by ownership, or otherwise, in proportion to each employer’s number of full-time employees as measured against total full-time employees in the controlled group, etc.

[4] The “assessable payment” in such instance is determined on a month-to-month basis and is equal to 1/12th of $3,000 for each full-time employee for each month that receives exchange subsidies.  However in no event will the assessable payment under Code Section 4980H(b) be larger than the penalty would be under Section 4980H(a) if no coverage were offered.



Filed under Affordable Care Act, Benefit Plan Design, Employer Shared Responsibility, Health Care Reform, PPACA, Uncategorized, USERRA

Year-End Troop Return Triggers Benefit Obligations under USERRA

Last month President Obama announced that the remaining 40,000 or so American troops in Iraq would be returning home by December 31 of this year; it is also expected that he will announce an additional troop draw-down from Afghanistan.

For U.S. employers, this means that it is time to get reacquainted with benefit reinstatement rights under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). USERRA generally protects the workplace rights of persons who voluntarily or involuntarily leave employment positions to undertake military service and broadly applies applies to all U.S. employers, public or private. Essentially USERRA requires employers to treat employees as if they were employed throughout their period of military service, despite their physical absence.

Provided that the returning servicemember applies for reemployment within set time frames under the regulation, which are based on the period of military service, there is a duty to rehire the servicemember that is subject to very few exceptions. Further, the returning servicemember must be reinstated not to his or her “old” job but to the position – and compensation and perks – that the servicemember would have enjoyed had he or she never interrupted their career to serve our country. This is called the “escalator position.” As with the duty of reemployment there are exceptions to the duty to restore to the “escalator position” but they are few and narrowly construed.

With specific regard to health benefits, employees have a COBRA-like continuation coverage right upon leaving for military service that, provided they pay applicable premiums at 102% of the active employee’s rate, can last for as long as two years following commencement of military service. Upon return to employment those employees would simply transition to the same coverage they enjoyed as active employees. Employees who let their group health coverage lapse while on military leave have the right to have their coverage reinstated. If no waiting period or exclusions would have applied to the servicemember had their coverage been uninterupted, none may apply upon restoration of such coverage. USERRA regulations allow an employer to permit a servicemember to delay reinstatement of health plan coverage until a date that is later than the date of reemployment, but the employer is not required to do so, and employers who wish to do so are advised to first checkwith their insurers to make sure that such coverage will be honored.  Employers planning to delay coverage within USERRA guidelines should also be aware that they may have different insurance reinstatement obligations under the Servicemembers Civil Relief Act.  In short, any plan other than to provide immediate reinstatement of coverage upon reemployment should be discussed with legal counsel and otherwise vetted before implementation.

With regard to retirement plans, the reemployed servicemember is treated as though he or she had remained continuously employed for purposes of pension plan participation, vesting, and accrual of benefits. USERRA treats military service as continuous service with the employer for benefit plan purposes, such that “break in service” rules are not triggered. USERRA pension protections apply to defined benefit plans and defined contributions plans as well as plans provided under federal or state laws governing pension benefits for government employees.

If pension plan contributions are not dependent on employee contributions, the employer must make them within 90 days after reemployment or when contributions are normally made for the year in which the military service was performed, whichever is later. If pension plan contributions are derived from employee contributions or elective deferrals, (such as employer matching contributions to a 401(k) plan) or from a combination of employee contributions or elective deferrals and matching employer contributions, the reemployed service member may make his or her contributions or deferrals during a time period starting with the date of reemployment and continuing for up to three times the length of the employee’s immediate past period of military service, with the repayment period not to exceed five years. The employer is not required to restore retirement plan contributions in advance of a servicemember’s actual return to work.

More information is available in a convenient question and answer format in the Department of Labor’s Final Regulation under USERRA, published December 19, 2005, which you can review here.

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