Employees in uniform.

Congress first considered the problems of veterans and their re-entrance into the workforce in 1940, recognizing that those who were called to serve their country were entitled to certain rights and protections. However, changes in both the character of military service for noncareer individuals and employment practices and compensation have worked to make the laws in this area complex and unclear for both employers and employees. The Uniformed Services Employment and Re-employment Rights Act of 1994 (USERRA) was a response to this situation, specifically to the many problems following the call-up of reservists for Operation Desert Shield. While the dollar effects of USERRA probably will not be great, the unanswered questions and the problems with its administration may be extremely complex and burdensome.

APPLICATION

USERRA applies primarily to the reemployment rights and benefits of individuals who serve in the armed forces, including the Coast Guard, the Army National Guard and the Air National Guard.

GENERAL CHANGES

The new law makes several basic changes:

* Previously, re-employment rights differed, based on the categories of military service. These distinctions have been eliminated, and the basis for eligibility is now "duration of service." * Re-employment rights or other employment benefits are available to an employee only if the cumulative period in the uniformed services does not exceed five years.

* There are time limits for reporting back to work or requesting re-employment after militar service and employees must provide notice before departure for all types of duty.

PENSIONS

The laws dealing with pension benefits and contributions were one of the major areas addressed by USERRA.

Benefits. Service in the uniformed services is considered service with the employer for vesting and accrual purposes. An employer who re-employs an individual is responsible for funding any resulting benefits obligation; this applies to defined contribution plans as well as to defined benefit plans. All employees covered by employer-sponsored health plans may continue that coverage for up to 18 months after the employee's departure for service.

Contributions. Re-employed veterans specifically have the opportunity to make after-tax and elective contributions for periods in military service, over a period of at least three times the length of the absence (not to exceed five years). Employers must give the veteran any matching contribution that ordinarily would have been made, if the veteran makes the missed contributions or deferrals. However, the employer is not required to credit earnings before the time any contribution is made, nor is the employer required to allocate forfeitures during the employee's absence.

During the period of military service, both employer and employee contributions under retirement plans for the period of military service are to be based on the salary the employee would have received had he or she remained at work. If the employee's compensation was not at a fixed rate, contributions will be based on the employee's average compensation for the 12-month period preceding the leave of absence.

CONFLICTS WITH EXISTING INTERNAL

REVENUE CODE PROVISIONS

When originally proposed, the Senate version of this bill included a provision that nothing in the pension rights section would require action that would cause a plan, any of its participants or the employer to suffer adverse tax or other consequences under the Internal Revenue Code or would require contributions to be returned or reallocated or additional contributions to be made with respect to reemployed individuals. However, the final version of USERRA did not contain this provision. Rather, plans have up to two years after the law was enacted to comply.

For a discussion of USERRA, as well as other topics, see "Current Developments in Employee Benefits (Part I)," by Elizabeth Kundin and Deborah Walker, in the November 1995 issue of The Tax Adviser.