On December 19, 2005, the Department of Labor published final regulations under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA). See 70 F.R. 75246. The regulations became effective on January 18, 2006. Employers should review their plans and procedures to make sure they are in compliance with the final regulations.

USERRA was designed to protect the rights of persons who voluntarily or involuntarily leave employment positions to undertake military service, and it covers various aspects important to the employer-employee relationship, including nondiscrimination, reemployment, and benefits obligations. The final regulations clarify the implementation of USERRA, and provide a final version of the poster that an employer may use to comply with USERRA's notice requirement. (See our Alert dated January 5, 2006 for more information on USERRA's notice and posting requirements.)

The following article covers the USERRA regulations as they apply to health and welfare and retirement benefits. Our Labor and Employment Practice Group has issued an article that addresses the final regulations as they apply to employment, nondiscrimination and reemployment practices. See their February 2006 newsletter.

• Length of continuation coverage.  The regulations reiterate the maximum length of time a service member is entitled to continued group health plan coverage.  (See our client alert dated February 11, 2005.) As of December 10, 2004 the maximum period of continued coverage for a service member is the lesser of 24 months or the period of military service (beginning on the date the absence begins and ending on the day after the service member fails to apply for reemployment).
  
  
• Election of continuation coverage.  An employer must adopt a reasonable timeframe in which an employee can elect continuing coverage.  The Department of Labor has not set forth stringent guidelines describing what is or is not reasonable, but has stated that it may be reasonable for an employer to adopt timeframes similar to those used for electing COBRA.  In addition, the final regulations permit an employer to cancel a service member's health insurance (with a requirement for retroactive reinstatement under certain circumstances) if he or she fails to make a continuation of coverage election before leaving for military service.   An employer is permitted to terminate continuation coverage if the employee fails to make the required payments.
  
  
• Cafeteria Plans.  The final regulations clarify that cafeteria plans are among those plans covered by and subject to USERRA.  Accordingly, employers must allow an employee to continue to pay for certain benefits, including health benefits, using pre-tax dollars if that employee is continuing to receive pay while on military leave.  In cases in which cafeteria plans provide for health care flexible spending accounts (FSA's), it may be advantageous for an employee who is absent from employment due to military service to elect continuation coverage until amounts allocated to the health FSA are used.  The IRS has indicated that an amount will not be treated as violating the cafeteria plan rules because a plan provides for a new election either upon leaving employment for military service or subsequent reemployment.
  
  
• Coverage during other leaves.  If the employer offers continued life insurance coverage, holiday pay, bonuses, or other "non-seniority benefits" to employees on leave of absence, the employer also must offer similar benefits during the time a service member is absent from work due to military service.  If the employer has more than one type of nonmilitary leave and varies the level and type of benefits provided according to the type of leave used, the comparison must be made with the employer's most generous form of comparable leave.

• Applicable time period for participation, vesting and accrual.  Each period of military service is treated as an uninterrupted period of employment with the employer maintaining a pension plan in determining eligibility for participation, the vesting of accrued benefits, and the accrual of service credits, elective deferrals and other contributions.  The final regulations note that employers must include any time taken off prior to the period of military service when that time off is necessitated by the employee's upcoming service.  In addition, employers must include any time following the completion of military service during which a person may apply for reemployment or was recovering from an illness or injury incurred in or aggravated by military service.
  
  
• Contributions.  The employer who reemploys a service member is responsible for funding any employer contributions to a retirement plan that are necessary to provide the same level of benefits the service member would have received had he not incurred a break in service.  The final regulations provide that employer contributions that are not dependent on employee contributions must be made within 90 days following reemployment or when contributions are normally made for the year in which the military service was performed, whichever is later.  With regard to retirement benefits derived from employee contributions (including elective deferrals), a reemployed employee must be permitted to make up any such missed contributions.  Any such employee has up to three times the length of the employee's immediate past period of military service to make up the missed contributions, with a maximum repayment period of five years.  The final regulations clarify that employees are not required to make up the full amount of the missed contributions, but may contribute a partial make-up instead. Employees are neither permitted nor required to pay interest when making up missed contributions or elective deferrals.
  
  
• Multiemployer plan provisions.  Prior to the final regulations, an employee was entitled to reinstatement in a multiemployer pension plan regardless of whether the member was reemployed with the same employer for whom he worked prior to his period of service.  As long as the post-service employer was a contributing employer to the plan, the service member was entitled to be treated as if he had not incurred a break in service.  The final regulations make it clear, however, that mere participation by different pre- and post- service employers in a common multiemployer plan will no longer be enough.  Rather, the two employers must be connected by a common job referral plan or practice (such as common participation in a union hiring hall) in order for USERRA's pension obligations to attach to the post-service employer.
  
  

As mentioned above, employers should have counsel review and amend their plans and procedures as necessary to ensure compliance with USERRA's provisions. Please contact a member of the Schiff Hardin Employee Benefits and Executive Compensation Group for assistance with this important legal matter.

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