Handling Pension Plans for National Guard Members and Reservists

Robert HobermanManaging Partner, Hoberman & Lesser CPAs, LLP

If your business has employees who must interrupt their employment in order to serve in the National Guard or the military reserves, you probably know about the law requiring you to reinstate them once they’ve returned from service (with certain specific exceptions). But you may not be aware of your obligations regarding pension benefits.

For pension purposes, the Uniformed Services Employment & Reemployment Rights Act (USERRA) generally requires employers to treat returning service members as if they had been continuously employed — provided they meet the other qualifications. In other words, time spent away from the job while in military service does not constitute a break in employment. Here are some additional facts you should know:

The law applies regardless of the type of pension plan in effect (such as a defined benefit or defined contribution plan).

The law applies to vesting (determining when the employee qualifies for a pension) and benefit computation (determining the amount of the employee’s monthly pension check). Also, an employee who would have become eligible to participate in a pension plan during his or her time in the service should be placed in the plan retroactive to the date of initial eligibility.

Employers are required to make non-elective contributions as usual, although they may wait until employees return to their jobs. The time limit for an employer to make non-elective contributions is three times the length of service, not to exceed five years.

In the event an employer’s contribution depends on the employee making an elective contribution, the employer is entitled to wait until the service member has made the contribution.

If contributions are required for an employee to earn a benefit, employers must allow employees to make up the contributions if they wish to do so.

If an employee returns after more than a year, and makes catch-up contributions, the employee can determine when to apply the contributions — the current year or a prior year of absence. The employee has the same amount of time to catch-up as the employer (three times the period of service, not to exceed five years). When issuing a W-2, list the contributions by year, as the employee designates.

An employee who has a loan from a pension plan can have the loan payments suspended until he or she returns. At that time, the payments continue on the same schedule as before. The interest accrued during the absence must be capped at no more than 6%.

Other rights are conferred upon returning service members under USERRA, including health care coverage. If you are not familiar with all provisions of this law, contact your benefits advisor or attorney for more information.