5.11 Military Service—userra and Heart Act

• Library: Corporations and Partnerships in Virginia (Virginia CLE) (2016 Ed.)

5.11 MILITARY SERVICE—USERRA AND HEART ACT

The Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) ⁴⁹³ restated and expanded veterans' reemployment rights. USERRA applies to all employers, with no exception for small employers. Its purpose is to protect employment and rights and benefits of employment for employees who are called to active duty with the United States Armed Services. These rights and benefits include pension plans, health plans and insurance coverage, severance pay, vacations, and other benefits of employment.

Also of importance during an employee's absence during active duty with the United States Armed Services is the Service Members Civil Relief

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Act (SCRA). ⁴⁹⁴ The SCRA provides that the interest on a loan to an employee, including a plan loan, may not exceed six percent during any period of active duty. ⁴⁹⁵ Thus, if the interest rate on a plan loan is greater than six percent, the interest accrual, if payments are suspended, or the payment amount, if not suspended, must be reduced to comply with the SCRA.

5.1101 Health Care Coverage. USERRA requires employers to offer health care coverage for up to 24 months for employees on military duty and for their dependents, regardless of whether the employer provides health care coverage during other leaves of absence. ⁴⁹⁶ The Veterans Benefits Improvement Act of 2004 ⁴⁹⁷ also requires employers to post a notice of USERRA rights and benefits. ⁴⁹⁸ Health care coverage may be terminated after the earlier of 24 months of extended coverage or the employee's cessation of military service and failure to timely report or apply for reemployment. ⁴⁹⁹ If military service is less than 31 days, the employer may only require that an employee pay the employee's share, if any, of the health care coverage cost. ⁵⁰⁰ If the military service is longer than 31 days, the employer may require that the employee pay 102 percent of the health care coverage as determined under the provisions of COBRA. ⁵⁰¹

If health care coverage is terminated, USERRA requires that the coverage be reinstated without any pre-existing condition exclusion or waiting period that would not be imposed if the coverage had not been terminated. ⁵⁰²

5.1102 Benefits Based on Length of Service. USERRA requires the counting of all military service for any benefit based on length of service. An example would be vacation leave to the extent it is based on length of service. ⁵⁰³

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5.1103 Retirement Benefits. USERRA provides that both defined contribution plans and defined benefit plans recognize an employee's military service for eligibility, vesting, and benefit accrual purposes if the employee is reemployed after leaving the military service in accordance with the law.

Defined contribution plans must require employers to make up employer contributions on behalf of employees in military service when they return from military service. These make-up contributions are not required to include earnings or forfeitures that would have been allocated had the contributions been made at their regular time. In addition, all plans are required to permit reemployed employees to make up their employee contributions for the period of their military service. The employees' contributions may not exceed the amount the employees would have been required or permitted to contribute if they had been continuously employed without regard to their military service. The period over which the contributions must be made begins on reemployment and ends at the earlier of five years or three times the length of military service. If an employee makes up the contributions, employer contributions contingent on those employee contributions must also be made. ⁵⁰⁴

5.1104 The HEART Act of 2008.

A. In General. The Heroes Earnings Assistance and Relief Tax Act of 2008 (the HEART Act) ⁵⁰⁵ provides for certain required and permissive benefits under employer-sponsored benefit plans for individuals called to active military service.

B. Impact on Health Flexible Spending Arrangements (Health FSAs). Under the HEART Act, an employer may choose to amend its plan to allow reservists called to active duty to withdraw all or part of the unused amounts in their Health FSAs. These withdrawals are called "qualified reservist distributions." ⁵⁰⁶ This provision of the Act is an exception to the "use-it-or-lose-it" rule because it allows employers to permit those individuals who are members of an Armed Forces...