Comments on Uniformed Services Employment and Reemployment Rights Act Of 1994

Re: Docket No. VETS-U-04
Filed: December 7, 2004
vets-public@dol.gov

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The American Society of Pension Professionals and Actuaries (ASPPA) appreciates this opportunity to comment on the Regulations (Proposed Regulations) issued by the Department of Labor (DOL) under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA).

ASPPA is a national society of retirement plan professionals. ASPPA’s mission is to educate pension professionals and to preserve and enhance the private pension system. Its membership consists of approximately 5,500 actuaries, plan administrators, attorneys, CPAs and other retirement plan experts who design, implement and maintain qualified retirement plans, especially for small to mid-size employers.

These comments are in response to the proposed rules under 20 CFR Part 1002 from the DOL, as published in the Federal Register (Volume 69, Number 181, September 20, 2004). The rules of USERRA and these proposed rules will affect many employers who sponsor qualified retirement plans with the anticipation of our military personnel and reservists returning home.

Many of the rights protected under USERRA relate to plans of the employer that are qualified under Internal Revenue Code (IRC) Sections 401(a), 403(a), 403(b), 408(k), 408(p) and 457(b). ASPPA recommends that clarification and further guidance is required for certain aspects of the rules under IRC Section 414(u)(2)(i).

I. Summary of Issues

These comments address the following issues, which are described in greater detail below:

A. The proposed thirty-day deadline for employer contributions to a retirement plan that are not contingent on employee contributions or elective deferrals is too short.

B. The proposed deadline for employer contributions to a retirement plan that are derived from employee contributions or elective deferrals needs clarification.

C. A plan should not be required to permit employee contributions to be made on behalf of a returning service member who terminates employment prior to the end of the repayment period. Upon returning from service, the period for permitting employee contributions should not be longer than the employment period.

II. Discussion

A. The thirty-day deadline for employer contributions to a retirement plan that are not contingent on employee contributions or elective deferrals is too short.

Prop. Reg. §1002.262 provides that employer contributions to a retirement plan that are not contingent on employee contributions or elective deferrals (non-elective contributions) must be more than thirty days after the date of the service member’s reemployment. If it is impossible or unreasonable for the employer to make the contribution within the thirty-day period, ASPPA recommends the employer be required to make the contribution as soon as practicable.

For the following reasons, ASPPA believes that the thirty-day period for making the contributions is too short.

1. The administrator must perform calculations for the returning service member, such as compensation calculations and additional calculations, to determine the proper employer contribution to the plan on behalf of the returning employee. If the employee has been in military service for a long period of time, these calculations could be difficult, and locating the information needed to determine compensation at the time prior to such military service may be administratively challenging.

2. The thirty-day time constraint is potentially a heavy burden for many employers, especially small employers that maintain retirement plans with contributions that are not contingent on employee contributions or elective deferrals. For example, take a military service member returning to work after three years of duty and the employer is required to make the non-elective contributions to the plan on behalf of the employee within thirty days. Many small employers will likely not have the cash available to make this contribution within the 30-day period without severely affecting their day-to-day business operations .

3. “Escrowing” the funds in anticipation of a service member returning to work is not a viable solution. Presumably, an employer could not deduct such contributions because they are contingent on the service member returning to work. On the other hand, keeping the funds in reserve without deducting them would be an undesirable use of business resources, particularly for smaller businesses for which such resources are limited. In addition, any income on such funds would be taxable.

ASPPA recommends a longer time period to make these contributions would be more appropriate. These contributions should be treated in the same manner as any other employer non-elective contributions. Under this approach, the contributions would need to be contributed on or before the due date of the employer’s tax return for the tax year in which the service member returns to employment. An alternative would be to create a scale that relates to the returning employee’s length of military service. For example, if a service member’s duty extended beyond two years, then the employer might have six months to make-up the contribution.

B. The deadline for employer contributions to a retirement plan that are derived from employee contributions or elective deferrals should be clarified.

Prop. Reg. §1002.262 provides that, where retirement benefits are derived from employee contributions or elective deferrals, or from a combination of employee contributions or elective deferrals and matching contributions, the reemployed service member may make-up 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. Employer contributions are contingent on employee contributions or elective deferrals and must be made according to the plan’s requirements for employer matching contributions. IRC §414(u)(1)(C) provides that the making (or the right to make) USERRA contributions cannot cause a plan to fail any of the applicable tax-qualified plan nondiscrimination requirements.

More clarification should be provided regarding the contribution deadline for the employer to make the matching contributions in accordance with the plan’s requirements for employer matching contributions, especially for small employers. The burden to make the contribution deadline would be particularly great for plan sponsors that fund the full year’s contribution as of the last day of the plan year, rather than on a payroll-by-payroll basis.

ASPPA recommends that a uniform rule for matching contributions be adopted. In particular, ASPPA recommends that the deadline for making any matching contributions be the due date of the employer’s tax return for the tax year in which the service member returns to work.

C. A plan should not be required to permit employee contributions to be made on behalf of a returning service member who terminates employment prior to the end of the repayment period. The period for permitting employee contributions upon returning from service should not be longer than the period of employment.

Prop. Reg. §1002.262 provides that a reemployed service member has the right to make-up his or her contributions or elective deferrals. The proposed rule also provides that, if an individual cannot make-up contributions or elective deferrals because he or she is no longer employed by the employer, the plan must provide an equivalent opportunity for the individual to receive the maximum employer matching contributions that were available under the plan during the period of uniform service through a match of after-tax contributions.

ASPPA supports USERRA and the underlying goal of protecting the rights and benefits of returning service members, however, the requirement that employers allow returning service members to make after-tax contributions in situations where they have terminated employment with the employer creates an undue burden on plan sponsors and administrators. The increased administrative cost to maintain the separate accounting and reporting that is required when a plan includes after-tax contributions is disproportionate to the very small number of employees who might benefit from the provision. Also, many plans with a 401(k) arrangement allow only for elective deferrals and do not allow employees to make after-tax contributions to the plan.

Further, allowing non-employee service members to make after-tax contributions would cause many employers to have to adopt plan design changes that would affect their plan document, how the plan is recordkept and how it is administered. Plan administrators may question their duties under ERISA, given that they are allowing contributions, and not receivables, to be made by people who are not otherwise eligible participants of the plan. Plan administrators may also face increased liability and operational questions, since the contributions may not be submitted with any type of regularity once the employer-employee relationship ends.

ASPPA recommends that the time period for employee plan contributions be limited to the period of actual reemployment with the employer. ASPPA recommends that returning service members be permitted to make unlimited make-up contributions based on the period of time that they were away, or if shorter, up to the time of termination of employment. ASPPA also suggests that the Department of Labor coordinate with the Internal Revenue Service to produce further guidance on this issue. Limiting the make-up contributions to the time of reemployment increases the employer’s control of the plan and likelihood of operational and administrative compliance.

This letter was prepared by ASPPA’s 401(k) subcommittee of the Government Affairs Committee, Virginia Krieger Sutton, Chair, and primarily authored by John R. Massey, QKA. Please contact us if you have any comments or questions regarding the matters discussed above.

Sincerely,