Employees on Military Leave:
Employee Benefits Obligations of Employers

August 15, 2006

As a result of the ongoing conflicts in Iraq, Afghanistan and other parts of the world, a growing number of individuals are leaving their place of employment to serve in the military for extended periods.  This alert highlights some of the employee benefits obligations of employers whose employees serve in active duty.

USERRA

The Uniformed Services Employment and Reemployment Rights Act (USERRA) governs the employment and reemployment rights of individuals who are absent from a position of employment because of service in the uniformed services.  “Uniformed services” includes the following:

• Army, Navy, Marine Corps, Air Force, or their reserve components;

• Army National Guard or Air National Guard;

• Commissioned Corps of the Public Health Service; and

• Any other category of persons designated by the President in time of war or emergency.

An individual who performs duty on a voluntary or involuntary basis in the uniformed services is covered under USERRA.  Virtually all employers regardless of the number of employees must comply with USERRA.

Non-discrimination

USERRA prohibits an employer from discriminating against current or prospective employees because of past, current, or future military obligations.  This prohibition extends to many employment areas, including hiring, promotion, reemployment, termination, and employee benefits, as further discussed below.

Length of Service

The cumulative length of military service that causes a person to be absent from employment must not exceed 5 years (subject to limited exceptions).  Once military service ends within this timeframe, there is a deadline for employees to apply for reemployment with the employer based on the length of military service, as follows:

• For service of less than 31 days – the first regularly scheduled workday following completion of military service plus eight hours, unless it is unreasonable to do so.

• For service of 31 to 180 days - no later than 14 days after completion of military service, unless it is unreasonable to do so.

• Service of more than 180 days - no later than 90 days after completion of military service.

Reemployment Obligation

In order to be entitled to reemployment rights under USERRA, a returning employee must generally meet the following five criteria:

• Be absent from a position of civilian employment by reason of service in the uniformed services;

• Give advance notice to the employer prior to leaving for military service;

• Not exceed five years of cumulative military service (subject to certain exceptions);

• Return to work or apply for reemployment within the requisite timeframe upon completion of military service; and

• Receive an honorable discharge or other similar discharge.

Employers must then reemploy such returning service member in the job that he or she would have attained but for the military service.  However, an employer is not obligated to reemploy an individual if the employer’s circumstances have changed so that reemployment would be impossible, unreasonable, or cause undue hardship.  The “escalator principle” requires that employees be reemployed as if they had remained continuously employed for purposes of the position and with regard to seniority, status, pay, as well as other benefits based on seniority.  Note that the new position may not necessarily be the same job that the person previously held.

Pension Plans

Any pension plan that provides retirement income to employees until the termination of employment or later is subject to USERRA and must provide as follows:

• A reemployed person will be treated as not having incurred a break in service with the employer maintaining the plan due to military service.

• Upon reemployment, military service must be considered service with an employer for vesting and benefit accrual purposes.

• The employer is liable for funding any obligation of the plan to provide benefits on behalf of an employee during the period of military service.  Any employer contributions shall also be allocated to such employee in the same manner and to the same extent allocation occurs for other employees during the period of military service; however this does not apply to forfeiture allocations.

• The reemployed person is entitled to any accrued benefits derived from employee contributions to the extent that the person pays such contributions to the plan.  Payment must be made beginning with the date of reemployment and ending on the earlier of (i) 3 times the period of military service, or (ii) 5 years.  To the extent the employee pays any contributions to the plan, the employer must provide any matching contributions that the employee would have received.  The employee’s compensation during the period of military service is computed at the rate he or she would have received but for the period of military service, or if not reasonably certain, on the basis of the average rate of compensation during the 12-month period preceding the period of military service (or, if shorter, the period of employment immediately preceding such period of military service).

• A plan may permit a participant to suspend loan repayments during a leave of absence due to military service.

• Special rules apply to multi-employer pension plans.

Health Coverage

If the health coverage of an employee (or the employee’s dependents) would otherwise terminate due to a military leave absence, then the employee (or the employee’s dependents) may elect to continue health coverage for up to the lesser of (i) 24 months after the date on which the absence begins, or (ii) the period of military service (plus the timeframe allowed for reemployment as described above).  If the period of military service is less than 31 days, then the person may not be required to pay more than the employee share, if any, for coverage.  In no event may a person who elects such coverage pay more than 102 percent of the full premium charged under the plan.  Unlike COBRA coverage, continuation coverage under USERRA applies to all employers, regardless of size.  Special rules apply if the health plan is a multi-employer plan.

USERRA also applies to cafeteria plans so that employees may continue to purchase health coverage on a pretax basis and may elect to continue any health care flexible spending program.  There will also be no violation of the change in status rules if a plan offers a new election upon an employee’s leaving employment for military service or subsequent reemployment.

Health benefits must be reinstated upon reemployment with no waiting periods or exclusions imposed on any person whose coverage was terminated by reason of military service (unless an injury or illness was incurred or aggravated during the performance of military service).

Vacation Pay

Although USERRA does not require employers to provide compensation during military leave, service members must be permitted to use any vacation that had accrued before the beginning of their military service instead of unpaid leave.  However, service members cannot be forced to use vacation time for military service.

Other Benefits

Continued coverage of other non-seniority based benefits, such as life insurance and disability, are not required unless such coverage is provided to other employees of similar status during leaves of absence for other purposes.  In this case, the employees on military leave must be treated at least as favorably as employees on other comparable types of leave.

Employer Notice Requirement

The Department of Labor requires employers to provide employees with notice of their rights and obligations under USERRA.  This notice requirement will be satisfied by posting the USERRA poster, found at http://www.dol.gov/vets/programs/userra/userra_private.pdf, in a location where employee notices are customarily placed or via hand-delivery, mail, or e-mail.

Military Leave Policy

Employers may want to revisit their existing military leave policy or create a new policy in light of recent developments, and discuss with counsel any specific employee benefits issues that relate to USERRA.